From Bean to Cup, How Consumer Choice Impacts on Coffee Producers and the Environment (2006) 64p...

From bean to cup:how consumer choice impactsupon coffee producers andthe environment

From bean to cup: how consumer choice impacts on coffee producers and the environmentISBN 1-902391-63-2

Published by Consumers International in December 2005 Consumers International and IIED, December 2005

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Consumers International is an internationalfederation of 234 consumer organisations and agenciesin 113 countries worldwide.

Through its members and their supporters, ConsumersInternational directly represents tens of millions ofconsumers across the globe and speaks for consumerseverywhere, especially the most disadvantaged.

The International Institute for Environment andDevelopment (IIED) is an independent, non-profitresearch institute working in the field of sustainabledevelopment which aims to provide expertise andleadership in researching and achieving sustainabledevelopment at local, national, regional, and globallevels.

In alliance with others, IIED seeks to help shape afuture that ends global poverty and delivers andsustains efficient and equitable management of theworlds natural resources.

This research was carried out under the auspices ofIIEDs Sustainable Markets Group, which aims toensure that markets contribute to positive social,environmental and economic outcomes. For furtherinformation see page 60 or:www.iied.org/SM/index.html

Copies of From bean to cup: how consumer choice impactson coffee producers and the environment can bedownloaded free-of-charge from the CI website at:www.consumersinternational.org/coffeeand from the IIED website at:www.iied.org/SM/index.html

This publication may be reproduced in whole or inpart in any form for educational or non-profitpurposes, with prior permission in writing from thecopyright holders. Consumers International and IIEDkindly request that acknowledgement of the source ismade, as well as to receive a copy of any publicationthat uses this report as a source.

From bean to cup:how consumer choice impacts

upon coffee producers and the environment

2Acknowledgements

This report is published by Consumers International(CI) as part of its Global Food and Nutrition Programmewith financial support from the Ministry of ForeignAffairs of the Netherlands. CI collaborated on thereport with the International Institute onEnvironment and Development (IIED). IIEDsparticipation in the project was co-funded by theSwedish International Development CooperationAgency (SIDA) and the Royal Danish Ministry ofForeign Affairs (Danida).

Consumers International and IIED would like tothank CI member organisations from the countrieswho took part in this project in particular thepolicy officers, journalists, researchers andconsultants who conducted research in their owncountries and contributed to this report. Theseindividuals and organisations are:

Brazil Instituto Brasileiro de Defesa do Consumidor(IDEC) Lisa Gunn

Denmark Forbrugerrdet /Taenk (The DanishConsumer Council) Torsten Raagaard

Finland Kuluttajat-Konsumenterna ry JohannaParikka Altenstedt

Portugal Associao Portuguesa para a Defesa doConsumidor (DECO) Maria de Ftima Ferreira

United States Consumers Union Kristi Wiedemann

Vietnam Vietnam Standard and ConsumersAssociation (VINASTAS) Do Gia Phan

The following organisations conducted the fieldsurveys in Brazil and Vietnam:

Brazil Centro de Caf Alcides Carvalho, InstitutoAgronmico, Secretaria de Agricultura eAbastecimento do Estado de So Paulo, So PauloResearch team Ms Flvia Maria de Mello Bliska, MrGerson Silva Giomo, Mr Jlio de Mesquita Filho andMr Sergio Parreiras Pereira

Vietnam Vietnam Coffee and Cocoa Association(VICOFA), Hanoi Research team Mr Doan TrieuNhan, Ms Dao Thi Mui, Mr Le Dinh Son and Mr LeQuang Minh

The project team would like to thank all the peoplewho were interviewed or responded to specificquestions. We are also grateful to Marlies Lensink, Bart Slob, Veronica Perez Sueiro, David King,Isabelle Mamaty and Joseph Nkandu who providedinsights based on their expertise on the coffee sectorand to James MacGregor and Annie Dufey who gavefeedback on drafts of this report.

International Institute for Environment andDevelopment Principal author and research manager: Maryanne

Grieg-Gran Research adviser: Bill Vorley

Consumers InternationalProject leader: Bjarne PedersenProject manager: Irina DanadaProject assistant: Marco PresuttoDocumentary producer: Luke UpchurchEditor: Kaye Stearman Design and production: Steve Paveley

From bean to cup

Contents

3

Contents

Brief explanation of terms 4

Foreword 5

Executive summary 6

Chapter 1 Introduction 11

Chapter 2 Coffee and sustainable development 14

Chapter 3 Sustainable coffee certification 21

Chapter 4 Impacts of certification on coffee growing areas 31

Chapter 5 Markets for certified coffee 39

Chapter 6 Linking up producers and consumers 46

Case study 1 Fair trade co-operative small family farms 47

Case study 2 The medium-size organic farm 49

Case study 3 The large Utz Kapeh and Rainforest Alliance certified estate 50

Chapter 7 Conclusions and recommendations 52

References 56

Annex 1 Participating organisations 60

Accreditation body Procedure by which anauthoritative body gives formal recognition that a bodyor person is competent to carry out specific tasks.

Certification Procedure by which a third party giveswritten assurance that a product, process or serviceconforms to specified requirements.

Certification body Body that conducts certificationconformity. A certification body may operate its owntesting and inspection activities or oversee theseactivities carried out by others on its behalf.

Certification system System that has its own rules ofprocedure and management for carrying outcertification of conformity. Certification systems mayoperate at national, regional or international level. Thecentral body that conducts and administers a certifi-cation system may decentralise its activities and rights.

Certification scheme Certification system as relatedto specified products, processes or services to whichthe same particular standards and rules, and the sameprocedures, apply. In some countries the same conceptis covered by the term certification program/programme.

Fairtrade The term is used in the labelling system ofFairtrade Labelling Organizations International (FLO).The FAIRTRADE Mark is the Registered Trademark.Therefore Fairtrade products specifically refers toproducts that carry the FAIRTRADE Mark.

Fair trade Refers in broad terms to fairness intrading and does not imply a certification process.

International Coffee Organization (ICO) The mainintergovernmental organisation for coffee, bringingtogether producing and consuming countries to tacklethe challenges facing the world coffee sector throughinternational co-operation. Established in 1963 underthe UN auspices, to date it has administered sixInternational Coffee Agreements (ICAs) and iscurrently negotiating a new agreement. For furtherinformation see: www.ico.org

Max Haavelar Max Havelaar is not a brand but atrademark for fair trade. Products with the MaxHavelaar trademark follow the guidelines laid down bythe Max Havelaar Foundation, which owns thetrademark. The Foundation does not sell products butchecks the licence holders (producers or importers ofcoffee, chocolate, tea etc) who trade with farmers, co-operatives and plantations registered with MaxHavelaar. Established in the Netherlands in 1988, Max Havelaar is now active in 16 countries and is co-ordinated by FLO International in Bonn Germany.

Organic Organic is a term defined by law in manycountries. In the US and the European Union (EU),regulations control the standards of production,accreditation, overseeing of certification and labelling oforganically produced foods and drinks, as well ascertification by third party verification and inspectionsystems. For example, the EU regulations on organicproduction stipulate the following standards: cultivation of legumes, green manures, or deep-

rooting plants in an appropriate multi-annualrotation programme

incorporation in the soil of organic material,organic livestock manure and vermicompost

pests, diseases and weeds to be controlled by usingappropriate varieties, rotation programmes,biological pest control, mechanical practices andflame weeding

seeds and propagation material organicallyproduced

use of non-organic fertilisers, pesticides andbiological pest control methods is limited.

Standards body Standardising body recognised atnational, regional or international level that has as aprincipal function, by virtue of its statutes, thepreparation, approval or adoption of standards that aremade available to the public.

Third party Person or body that is recognised asbeing independent of the parties involved, as concernsthe issue in question.

1 kilo (kg) = 2.2lbs: 1lb (pound) = 450grams (0.45 kilo)

Brief explanation of terms

From bean to cup

4

Foreword

Foreword

Efforts to reduce poverty have been hampered bydeclining and volatile commodity prices and theenvironmental impacts of industrial agriculture.There is an urgent need to make commodity marketswork in fairer and more sustainable ways. Coffee,with its high smallholder involvement andincreasingly variable prices, typifies the problems.The collapse of the International Coffee Agreement in1989 and the devastating impact of the slump incoffee prices on communities have been well-documented by researchers.

Certification is often advocated as one solution toproblems caused by volatile commodity markets.Coffee, as the first Fairtrade labelled product, is animportant test of the viability of certification. Intheory, certification should enable consumers to usetheir purchasing power to support sustainableproducts and so drive social and environmentalimprovements along the commodity chain.

However, certification faces several problems. It istypically associated with niche markets, a low profilewith retailers and the public, and limited prospectsfor market expansion. Certification may also becomeanother requirement for market access and a barrierfor small producers rather than an opportunity.

Not enough is known about the effects of certificationof coffee even though schemes are relatively well-established. Research into certification schemes havestudied small initiatives and have bypassed thelargest producing countries. This report focuses onBrazil and Vietnam, the worlds two largest coffeeproducers, and the major coffee consumer markets ofDenmark, Finland, Portugal and the USA. Itdescribes the main certification schemes, their uniquecharacteristics and their impact on growers, tradersand retailers.

But the main focus is on the impact of consumerchoice. When a consumer chooses to buy certifiedcoffee what effects ripple along the commodity chain,from retailer to grower? What are the factors thatprompt consumers to buy certified coffee andequally, what are factors that keep them from such apurchase? Is it the price differential, or is it otherfactors, such as lack of information, low visibility, orunfamiliar packaging or taste? The report also raisesthe issue of the entry of big roasting companies intoexisting certification schemes.

This report, produced in collaboration by ConsumersInternational (CI) and the International Institute forEnvironment and Development (IIED), is acontribution to that debate and concludes with recommendations for stakeholders in the coffeecommodity chain. CI has produced a shortdocumentary to accompany this report. Just coffeewas filmed in Brazil, Denmark and London and isavailable on DVD (see page 10 for more details).

This report is timely, coming as the InternationalCoffee Organization is giving greater consideration toissues of sustainability and is reviewing the future ofthe International Coffee Agreement. While the reportfocuses on the role of consumer choice and thepriorities for consumer organisations, it recognisesthat if certification is to realise its potential it requiresaction from a range of stakeholders. We urge thesestakeholders governments, donor agencies,certification organisations, roasters and retailers totake forward the recommendations in this report.

Richard LloydDirector General Consumers International

5

Camilla ToulminDirector International Institute for Environment andDevelopment

From bean to cup

6

Background

Coffee is one of the worlds largest tradedcommodities, produced in more than 60 developingcountries, and consumed mainly in developedcountries with over US$70 billion of retail sales eachyear.1 At least 14 countries depend on coffee for 10%or more of their export earnings. It is estimated thatcoffee growing provides a livelihood for 25 millionpeople and that in total 100 million people areinvolved in the sector from agriculture through toprocessing and sale.

Between 1997 and 2001 coffee prices fell by 70% innominal terms and to below the costs of productionin many producing countries2 with drasticimplications for rural livelihoods. The slump inworld coffee prices in 2000-03 led many organisationsto focus attention on the adverse impacts on coffeeproducers. Prices have since improved but are stillrelatively low and very variable.

Over the last few years a number of certificationschemes for coffee have come to prominence,building on established organic certification schemes.Much hope has been pinned on these emergingsustainable coffee initiatives. But consumers are nowfacing a growing complexity of ethical andenvironmental claims in coffee and there is concernabout confusion and declining standards. It is alsopossible that certification may be anotherrequirement for market access and a barrier for smallproducers.

One important factor is the response of the consumerto the presence of certified coffee of different types onretailers shelves. How consumers respond dependson a number of factors related to their income,aspirations and ethics, as well as the real impact ofcertification on the producers and how this isconveyed to consumers.

Consumers International and several of its memberorganisations in coffee producer and consumercountries have teamed up with the InternationalInstitute for Environment and Development (IIED) toexamine the impact of certification along the coffeecommodity chain from producer to consumer and toconsider how to expand the market for certifiedcoffee. This report is targeted primarily atstakeholders who can influence consumptionpatterns in developed countries, as this is where thedemand for certified coffee is likely to grow at leastfor the near future.

Research on coffee production was carried out inBrazil and Vietnam, the two largest producers ofcoffee. Research on coffee consumption was carriedout in Denmark, Finland, Portugal and the US. Thechoice of countries reflects their importance as coffeeproducers and consumers, and the interest shown byconsumer organisations in those countries in thetopic of sustainable consumption.

The coffee commodity chain

The report starts by giving a background to the coffeecommodity chain and the economic, social andenvironmental issues associated with it. Coffee goesthrough stages from the grower to the final retailoutlet: preliminary processing, milling, export,import, roasting, wholesale and retail. The nature ofthis commodity chain and the relationships betweenplayers at different stages and between stages havechanged over the last 15 years, influenced inparticular by the collapse of the International CoffeeAgreement (ICA) in 1989. Many state-controlledmarketing boards have been replaced by privatetraders, and there has been increasing concentrationin trading, roasting and retailing. New low-costproducers have come on to the market, leading todownward pressure on prices.

Executive summary

1 International Coffee Organization, 20052 Food and Agriculture Organization, 2004

Executive summary

Coffee and sustainabledevelopment

Coffee has considerable development potential. As itcan only be grown in frost-free areas, in non-aridtropical countries, many developing countries have acomparative advantage in its production. It is a keyexport commodity for many developing countriesbut also important for rural livelihoods as over 70%of production worldwide is on farms less than 10hain size. It is also an important source of employmenton larger farms as it has relatively high labourdemands.

Compared to annual crops, coffee causes lessenvironmental damage, although much depends onhow it is grown. Over the last 20 years, there hasbeen a move to greater intensification of coffee-growing and heavy use of agro-chemicals.

The period of low coffee prices since early 2000s hashad devastating consequences for coffee farmers andproducer countries, with increases in poverty,unemployment, migration and school dropout rates.Declines in prices to growers have not beenaccompanied by declines in retail prices to the sameextent. There is consensus among the numerousstudies conducted that the share of overall revenuesfrom coffee that accrues to the grower and toproducer countries has declined over the last 15years. There is less consensus about the reasons while everyone agrees that oversupply is a cause,some give more emphasis to changes in marketstructure and the power held by traders, roasters andretailers.

Sustainable coffee certification

Certification schemes have emerged as one approachto try and raise the economic, social andenvironmental standards of coffee production andtrading. There are presently five certificationschemes operating for coffee:

Fairtrade addresses the trading system, ensuringthat producers receive a minimum price for theircoffee plus a premium for investment incommunity projects. Some environmentalprotection standards are also included.

Organic certification requires the elimination ofchemical fertilisers and pesticides as well aspractices to conserve or enhance soil structure.

Rainforest Alliance aims to cover all aspects ofsustainable agriculture: environment, rights andwelfare of workers and the interests of localcommunities. It does not prohibit use of agro-chemicals but requires integrated pestmanagement. It also requires the maintenance ofshade cover and/or the restoration of nativeforest reserves.

Utz Kapeh also has a comprehensive set ofstandards covering good agricultural practice incoffee production and worker welfare includingaccess to healthcare and education. It emphasisesresponsible production rather than sustainabilityalthough similar issues are covered.

Bird Friendly coffee certification requires organicproduction and shade cover to provide goodforest-like habitat for birds.

Certification raises concerns about the difficulties ofaccess for small producers because of the high fixedcost element in the application and audit processwhich means that it costs relatively more for smallproducers. Fairtrade certification is specificallyaimed at small producers and both the direct andindirect costs are low. However, only a smallproportion of fair trade production capacity iscurrently sold at fair trade prices so this type ofcertification can only help a small proportion ofproducers. Evidence of the impacts of coffeecertification around the world is mixed but generallypositive for fair trade in terms of producer benefits(although for relatively small numbers of producersas supply exceeds demand), and more mixed forother certifications depending on the location andthe practices of growers before certification.

Brazils experience with coffeecertification

Our survey of coffee growers in Brazil gives findingsbroadly consistent with this picture worldwide.Revenues for certified coffee growers have generallyincreased as a result of certification, and access toexport markets has been facilitated. This isparticularly striking for the Fairtrade certifiedgrowers. The evidence from the Cooperativa dosAgricultores Familiares de Poo Fundo, one of thesix co-operatives of small coffee farmers in Brazilthat are certified Fairtrade, is that achieving thiscertification has made a marked improvement totheir living conditions.

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From bean to cup

Organic producers have also benefited but are seeingthe differential with conventional coffee diminish ascoffee prices increase. For some organic producersthe price premium does not compensate for theadditional costs of production in terms of reducedyield. Premiums have also declined for the UtzKapeh scheme but here it appears that market accessand the ability to negotiate long-term contracts aremore important as benefits of certification.

There is evidence also that it is not just the coffeefarmers who are benefiting but also estate workersand local communities. Large companies are takingmeasures to meet the social requirements of certifi-cation schemes. While some observers point out thatcompanies are simply meeting their legal require-ments, enforcement is lax in Brazil so additionalincentives to meet legal requirements are useful. Thereare also important environmental benefits associatedwith all four types of certification, particularly inrelation to reduced or better managed use of agro-chemicals and, in the case of Rainforest Alliancecertification, the restoration of native vegetation.

Certification in Brazil has so far mainly been takenup by large and medium coffee growers. Thisunderlines the important contribution of theFairtrade certification system which targetssmallholder co-operatives. It is notable thatcompared to the other certification schemes,Fairtrade has proceeded relatively slowly in Brazil.Utz Kapeh, introduced relatively recently, is now themost extensive coffee certification scheme in Brazil. Itis therefore important that the Utz Kapeh andRainforest Alliance schemes are seeking ways towork more with small producers and that someproducer groups are in the process of certifying withUtz Kapeh. Whatever the certification scheme,maintaining and improving the quality of coffee isvital to securing access to new markets.

Coffee certification in Vietnam

The enormous growth of Vietnams coffeeproduction has been achieved with significantenvironmental impact in terms of deforestation andwater use. As coffee is mainly a smallholder crop, toa large extent grown by poor people and ethnicminorities, the fluctuation in world prices has beendevastating in its social impact.

Evidence from Vietnam on the impact of certificationis very limited because certification is so new and

only Utz Kapeh has any presence, and then onlywith state-owned companies. These companies haveincurred costs in meeting the social requirements ofUtz Kapeh. While these costs exceed the pricepremiums, the companies concerned appear to becommitted to certification and considerableexpansion is expected of Utz Kapeh in Vietnam.

Markets for certified coffee

The report reviews the status of certified coffee infour markets, Denmark, Finland, Portugal and theUS, all significant coffee consuming countries butwith varying interest in certification. Brazil is a majorsource of imports for all these four countries.

Organic certification is currently the most significantof the coffee certification schemes in terms of salesbut Utz Kapeh and Rainforest Alliance areexpanding rapidly as they target roasters such asSara Lee and Kraft. There is variation in the leveland growth of demand for certified coffee by countryand by certification scheme. Fairtrade is stagnant inDenmark but expanding rapidly in US and Finland.As yet, it is not clear whether the emergence of newcoffee certification schemes such as Utz Kapeh andRainforest Alliance will expand the market or lead toincreased competition for more established schemessuch as Fairtrade and organic. Much will depend onhow the schemes and their unique characteristics arecommunicated to consumers.

Certified coffee appears relatively expensive becauseof the use of conventional coffee in some countries(Denmark and Finland) as loss leaders withsubstantial discounts. This is a significant barrier toexpansion of certified coffee.

Where discounts are not used, it is very difficult forconsumers to compare prices on a rational basisbecause so little information is given on the originsand quality of the mainstream coffee brands. There isso much variation in the price of coffee, dependingon the brand and the outlet.

There are also non-price barriers to the expansion ofcertified coffee consumption. Where countries havemarked preferences for a particular coffee taste, as inFinland and to a lesser extent Denmark, thisrepresents a barrier for certified coffee which ofteninvolves single origin products or is unlikely tomatch the traditional taste. There are also concernsabout the low visibility of certified coffees in the

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Executive summary

countries examined in this study, particularly inPortugal.

A recent development is the entry of large roastingcompanies into certification. While the adoption ofcertified coffee appears to be a positive developmentthat may result in an expansion of demand, someobservers have raised concerns about the motives ofthe companies and the impacts on other Fairtradeand sustainable certified coffees. The dominantapproach is to add a new certified brand to theportfolio of brands to attract a different group ofcustomers. So far, there is little indication that themainstream coffee roasters intend to use certifiedcoffee on any major scale in their established brands.

There are concerns about the effects on consumers ofmultiple certification schemes as more schemesbecome established eg Utz Kapeh and RainforestAlliance in markets such as Denmark whereFairtrade has dominated the certified niche.However, similar fears raied in the US a few yearsago have proved unfounded and knowledge aboutcertification among consumers and the industry hasgenerally increased.

Linking up producers andconsumers

The report presents some illustrative case studies ofcertified commodity chains in order to show thelinks between impacts at the local level in Brazil andthe consumers who buy the certified coffee inDenmark, Finland and the US.

The Cooperativa dos Agricultores Familiares dePoo Fundo of small family farmers, certifiedunder the Fairtrade scheme, exporting to US andalso to Denmark.

The Fazenda Santa Terezinha, a small-mediumcertified organic coffee grower employing hiredlabour, exporting to Finland via the UK.

Ipanema, one the largest coffee estates in Brazil,certified under Utz Kapeh and RainforestAlliance, exporting to Denmark and to the US.

A number of key observations can be made:

The importance of buyer interest even when otherlinks in the chain may be driven more byphilanthropy.

The role that quality plays in facilitating the saleof certified coffee, whether Fairtrade, organic orother schemes.

The uneven acceptance of certification, as thechains show a trader who does not like causecoffees but still buys organic coffee and buyerswho pay a premium for certified coffee but do notput a label on the package.

Recommendations

Consumer organisationsConsumer organisations should work to upholdconsumer rights to a healthy environment, toeducation and to information in appropriate andunderstandable languages. They can help to expanddemand for certified coffee by:

Explaining to consumers about the differencesbetween coffee certification schemes and therationale for price differentials between differenttypes, qualities and brands of coffee.

Lobbying mainstream roasting and retailers tomake a more substantial commitment to certifiedcoffee, for example making certification arequirement for all own label coffee.

Consumer country governmentsGovernments in consumer countries need to revisitrequirements on companies to make informationavailable to consumers. At present, consumers arenot given enough information about the quality andorigins of conventional coffee to compare prices ofcertified and conventional coffee on a rational basis.

Institutional buyers of coffee in the public and privatesectors (local governments, hospitals, large companiesetc) can lead the way by buying certified coffee forstaff, customers, patients, etc, to raise awareness andmake such coffee more visible for consumers.

Certification organisationsOn the demand side of the market, certificationorganisations need to:

Improve the visibility of certified coffee andprovide more information on how the variouscertification schemes differ.

Promote certified coffee through buyersnetworks (if necessary creating a separate

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From bean to cup

organisation for this purpose to avoid conflicts ofinterest) and adopting strategies which takeaccount of national cultural conditions of thecoffee market, eg in Finland creating a Fairtradeor sustainable equivalent to the Paula Girl.

On the supply side of the market, at the producerlevel, certification organisations need to:

Streamline their application and evaluationrequirements so that multiple certifications (iefrom more than one scheme) can be obtained atlower cost.

Step up their efforts to promote groupcertification and find ways of reducingcertification costs for small producers.

Coffee importers and roastersassociation/specialty coffee associationsThese organisations should promote greatertraceability and transparency. They can also provideinformation to consumers to help them understandthe differences in prices between conventional coffeeof different types and certified coffee of differenttypes.

RetailersRetailers can support certified coffees by: Improving the visibility and expanding their

range of sustainable certified coffees.

Including in the companys policy a significantcommitment to increase their supply ofsustainable certified coffee, for example bymaking it a requirement for all own label coffee.

Donor agenciesDonor agencies can take action on both the supplyside and demand side of the market. On the supplyside they can support measures to reduce barriers tosmall-scale producers entering certification, and topromote the formation of coffee producerassociations and groups. On the demand side,donors can support establishment of certified coffeebuyer networks and activities to promote demandfor certified coffee.

Further research needsDevelopments in certification change rapidly suchthat the short-term impacts of certification may bearlittle relation to the long-term outcomes. It istherefore necessary to track the longer-termeconomic, environmental and social impacts ofcertification as initiatives become more established.

It is also important to assess the impact of multiplecertification schemes and the move by themainstream companies into certified coffee. Willthese two developments expand the market forcertified coffees or will they take business away fromthe existing specialist fair trade and certifiedsuppliers?

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is a 20-minute documentary to accompany this report. It looks at the maintypes of sustainable certified coffees and assesses the benefits forcoffee producers and consumers.

Just Coffee follows the certified coffee chain from the farms of Brazil to the supermarket shelves of consumer countries. Itincludes exclusive interviews with certified coffee farmers,roasters, consumer representatives and some of the majorplayers in the international coffee sector.

Just Coffee is a compelling introduction to coffee certificationand provides an ideal educational tool for anyone interested insustainability, fair trade and social responsibility.

For a DVD please e-mail: [email protected]

The DVD is free to NGOs and academic institutions and $US 5 to others.

Just Coffee: how consumer choice impacts on coffee producers and the environment

Background

Coffee is one of the worlds largest tradedcommodities, produced in more than 60 developingcountries, and consumed mainly in developedcountries with over US$70 billion of retail sales eachyear.1 At least 14 countries depend on coffee for 10%or more of their export earnings and in the case ofthree least developed countries Burundi, Ethiopiaand Uganda for more than 50%.2

It is estimated that coffee growing provides alivelihood for some 25 million people and that intotal 100 million people are involved in the sectorfrom agriculture through to processing and sale.Three countries Brazil, Colombia and Vietnam account for almost 60% of world production.3

Between 1997 and 2001 coffee prices fell by 70% innominal terms and to below the costs of productionin many producing countries4 with drasticimplications for rural livelihoods. The InternationalCoffee Organization (ICO) in its 2002/3 AnnualReview observed that the crisis was the worst in thehistory of coffee with low prices giving rise togrowing levels of poverty, unemployment, socialviolence and unrest in producing countries. Theslump in world coffee prices in 2000-03 led a numberof organisations, including Oxfam, to focus attentionon the adverse impacts on coffee producers incomparison with the healthy situation of companiesinvolved in trading, roasting and retailing indeveloped countries. Prices have since improved butare still relatively low and very variable. Someanalysts5 are concerned that even if consumptionincreases, the volatility of prices is likely to recur.

Over the last few years a number of certificationschemes for coffee have come to prominencebuilding on established organic certification schemes.Much hope has been pinned on these emergingsustainable coffee initiatives which aim either to pay

Chapter 1

Introduction

Introduction

11

fair prices to coffee growers and/or to reward themfor improvements in the social and environmentalconditions of coffee production. Labels and claimsoffer options and opportunities to communicateadded value to consumers. Consumers can use theirpurchasing power to support products that meettheir expectations, not only in terms of quality butalso the social, economic and environmental charac-teristics of their production, and to avoid productsthat do not.

But consumers are now facing a growing complexityof ethical and environmental claims in coffee andthere is concern about confusion and lowering ofstandards. It is also possible that certification maybecome another requirement for market access and abarrier for small producers. In this case, certificationmay be an advantage for large coffee estateproducers and irrelevant for the majority of smallcoffee farmers. The key issue is whether certificationinitiatives can help to address the social, economicand environmental problems of coffee productionand improve the livelihoods of coffee farmers.

One important factor is the consumer and how theyrespond to the presence of certified coffee of differenttypes on retailers shelves. This will depend onfactors related to their income, aspirations and ethics,as well as the reality of the impact of certification onthe ground and how this is conveyed to them. Oftenthere is a gap between reality and perception.

For this reason, Consumers International (CI) andmember organisations in coffee producer andconsumer countries (see Annex 1 on page 59 fordetails) have teamed up with the InternationalInstitute for Environment and Development (IIED) toexamine the impact of certification along the coffeecommodity chain from producer to consumer and toexamine the market for certified coffee and how itcan be expanded.

1 International Coffee Organization, London, 20022 International Trade Centre, Geneva, 20023 Ibid.

4 Food and Agricultural Organization (FAO), Rome, 2004.5 Eg Lewin, B, et al, 2004

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Aims of the report

The report aims to:

understand the differences between the economic,environmental and social impact of sustainablecoffee and conventional coffee

understand how the coffee commodity chainworks and uncover factors that influence prices ofsustainable and conventional coffee along thechain from grower to retailer

understand who is capturing benefits or incurringcosts from sustainable coffee compared withconventional coffee

explore drivers of and barriers to sustainablecoffee production and consumption along thecoffee commodity chain given the structure of thecoffee industry and increasing concentration intrading, roasting and retailing.

This report is targeted primarily at stakeholders whocan influence consumption patterns in developedcountries, as this is where the growth in certifiedcoffee demand can be expected for the near future.Our conclusions and recommendations are aimed atgovernments, certification organisations, consumerorganisations, coffee roasters and exporters,importers and retailers. However, it is also importantto share the results with the providers of informationin both producer and consumer countries.

Approach to research

Research on coffee production was carried out inBrazil and Vietnam, the two largest producers ofcoffee. Research on coffee consumption was carriedout in Denmark, Finland, Portugal and the US. Thechoice of countries reflects their importance as coffeeconsumers and producers and the interest shown byconsumer organisations in those countries in thetopic of sustainable consumption.

The questionnaires were adapted from a studycarried out by the Centro de Inteligencia sobreMercados Sostenibles (CIMS) on price formation ofcertified and conventional coffee in Central America.6

The main research method in the two producercountries was a questionnaire sample survey forproducers in Brazil and Vietnam, and additionallywith exporters and roasters in Vietnam,supplemented by semi-structured interviews withkey informants. In both countries, the questionnairewas used during a visit to the farm or companypremises. In the case of Brazil, a follow-up visit wasmade to a selection of the farms in order for thewhole project team to be acquainted with theconditions of production and to conduct more in-depth discussion with the farmers.

In the consumer countries, an effort was made to usesimilar questionnaires for importers, roasters andretailers but there was considerable unwillingness toanswer the questions on the grounds of commercialsensitivity. As a result, response rates were very lowand, where returned, questionnaires wereincomplete. The researchers therefore relied ontelephone and personal interviews with some keyplayers in the market for certified coffee along thecommodity chain. There was also an examination ofprices of certified and conventional coffee indifferent retail outlets in Finland and the US.

Limitations of the research

As the research focuses on important producercountries, it does not capture the experience incountries such as Mexico and Costa Rica wherecoffee certification is most advanced. Nevertheless,the experience with certification in these countrieshas been well studied, while that of Brazil is

6 CIMS, 2004

Luis Guedes Pinto, Maryanne Grieg-Gran and TorstenRaagaard, at IDEC, Sao Paulo, Brazil, October 2005

Introduction

13

relatively under-researched. Our survey of Brazil canadd to the knowledge base on the impact ofcertification.

Another limitation has been the lack of informationon the various links along the coffee commoditychain. A detailed representative sample survey oftraders, roasters and retailers linking producers withconsumers was not possible given the resourcesavailable to the study and the concerns aboutcommercial sensitivity. We have examined threecoffee commodity chains to give an idea of thedifferent experiences and drivers in different cases.But these serve as illustrations only and cannot beused as a basis for generalisation.

Structure of the report

The following chapter discusses coffee in the contextof sustainable development giving a background tothe coffee commodity chain and the economic, socialand environmental issues associated with it. Chapter3 introduces the main certification schemes thatoperate for coffee and sets out the concerns andhopes that have been raised by this newdevelopment in the coffee sector. Chapter 4 is anexamination of the experience with coffeecertification in Brazil and Vietnam, the impacts oncoffee-growing areas and the extent to which theseconcerns and hopes have been realised in practice.Certification is barely emerging in Vietnam so thediscussion here focuses more on potential for futureprogress.

Chapter 5 examines the market for certified coffee inthe four consumer countries Denmark, Finland,Portugal and the US considering the barriers andopportunities for expansion. Chapter 6 links theproducers to the consumers through case studieswhich trace the impact of certification along thechain from grower to consumer. Chapter 7 presentsconclusions and recommendations.

The project team and coffee farmers in Minas Gerais,October 2005

From bean to cup

14

Background to the coffee chain

There are two main coffee species: arabica whichaccounts for 60-65% of supply and robusta whichaccounts for 35%, compared to only 25% some 20years ago. Arabica fetches higher prices, but robustais easier to produce, more resistant to diseases andcan be grown at lower altitudes.7 Arabica is mostlyproduced in Latin America but there are also largesuppliers in Ethiopia, Kenya, India and Papua NewGuinea. Robusta is produced mainly in Vietnam andBrazil.

Coffee goes through a number of stages from thegrower to the final retail outlet: preliminaryprocessing, milling, export, import, roasting,wholesale, retail. The basic stages are set out in Box 1.

Trends in the structure of thecoffee commodity chain

The nature of this commodity chain and therelationships between players at different stages andbetween stages have changed over the last 15 years.Between 1962 and 1989, coffee was subject to aninternational commodity agreement, theInternational Coffee Agreement (ICA). Export quotaswere agreed for signatory countries with a view topreventing fluctuations in supply and price and toensure that price remained at a reasonable level inrelation to costs of production.

The ICA broke down in 1989 and there were alsoother significant changes on the world market. Manyproducing countries had state-controlled coffeemarketing boards which bought the output fromproducers, and exported it, ensuring that ICA quotaswere observed. The move to structural adjustmentfrom the late-1980s onwards resulted in the break up

Chapter 2

Coffee and sustainable development

of state marketing boards and their replacement byprivate sector traders and exporters. New producersof coffee came on to the market, notably Vietnamwhich in 1980 produced only 8,400 tonnes and by2004 had increased its production tenfold to 890,000tonnes.10

Trading became increasingly consolidated atinternational level after the collapse of the ICA in1989. There was a period of restructuring which sawmid-sized traders go bankrupt, merge with others orbe taken over by the major traders.11 Five companies,Dreyfus (France), ED & F Man/Mercon (UK), Esteve(Brazil), Neumann (Germany) and Volcafe(Switzerland) cover about 40% of the total volume ofgreen coffee traded worldwide.12

Roasting is consolidated as a sector with fourcompanies, Sara Lee, Kraft/Philip Morris, Procterand Gamble and Nestl, buying half of all greenbeans traded, and the top ten companies accountingfor 60-65% of all sales of processed coffee in 2000.13

There has been very little vertical integrationbetween roasters and international traders, with oneexception being Tchibo which has verticallyintegrated all the way into estate production inTanzania.14 Some roasters are said to source fromlocal exporters as well as international traders inorder to reduce their dependence on any one actor.15

In 2003, only 6.9% of coffee exports from producingcountries were in the form of instant or roast orground beans and most of this was instant.16 Talbot17

explains how roaster companies in the US andEuropean countries in the first half of the 20thcentury developed distinctive national blends basedon the types of coffee that had been available fromformer colonies or other historic links. US blends, forexample, were based on Brazilian blends while inFrance, coffee blends had a high proportion ofRobustas, as these were common in West Africa.

7 Scholer, M (2004)10 VINASTAS and VICOFA, 200511 Ponte , S, 200112 ITC, 200213 Ibid.

14 Ponte, S, 200115 Ibid.16 ITC, 200517 Talbot, JM, 2002


15

GrowingOnce planted, coffee takes about three to five years to reach full yield, but will then continue yielding coffeecherries for at least 20 years. This means that supply is price inelastic in the short-term. Factors thatsignificantly affect supply are frost, drought and coffee berry disease. Coffee can be grown with shade cover orin full sun. The main factor that affects the quality of the coffee at this stage and hence the price to thegrower are the choice of species, whether arabica or robusta, and the altitude at which the coffee is grown.High altitude usually results in higher quality. Other factors affecting the quality are the approach to picking(the extent to which unripe berries are picked).

Preliminary processing8This normally takes place on the farm or estate, but occasionally farmers sell unprocessed cherry to localtraders. Two main types of on-farm processing method exist: dry and wet. This gives rise to a further sub-classification of arabica coffees into unwashed or natural arabicas resulting from the dry processing method,and washed arabicas resulting from the wet method. Coffee produced by the wet method is usually regardedas being of better quality as it is more homogeneous with fewer defective beans. It therefore commands higher prices.

The dry method involves sorting to separate unripe, overripe or damaged cherries, and cleaning to removetwigs and dirt. Cherries are then dried in the sun and on larger plantations, mechanical drying will also beused to speed up the process. Drying has a crucial effect on quality as over-drying will result in brokenbeans and insufficient drying will lead to fungal attack.

Wet processing requires specific equipment and substantial amounts of water. Removal of the fleshy pulp isfirst done mechanically and the residual pulp is then often removed through a fermentation process. Thefermentation process requires monitoring as the coffee can acquire sour flavours. This is followed bywashing in tanks or machines and then drying in the sun or in machines to give parchment coffee. As withthe dry processing method, the drying process can affect quality. In Brazil, the fermentation process is rarelyused in wet processing and only mechanical methods are used.

The dry method is used for 95% of arabica coffee in Brazil, most arabicas from Ethiopia, Haiti and Paraguayand almost all robustas. The wet method is used for most other arabicas and rarely for robustas.

Secondary processing (hulling)Farmers sell the dry cherry or washed parchment to the processing mill, either directly or via a localmiddleman, or in some cases pay the mill to do the processing for them. Large plantations have their ownprocessing operations on site. The hulling process removes the outer layers of the dried cherry, or theparchment in the case of wet processing. This is followed by a number of cleaning, screening, sorting andgrading operations common to both wet and dry processing.

Export/importFrom the mill the coffee goes to a trading company, directly or via an intermediary, either for export or lesscommonly to local roasting companies for domestic consumption.

RoastingRoasting of coffee beans usually takes place in the consuming country or close to point of final sale becauseof its short shelf-life compared to green beans.9 Blending of different types of coffees to achieve a desiredtaste is also an important activity of the roasters.

RetailRoasted beans and/or ground coffee is then sold to retailers or to commercial catering outlets or coffeehouses either directly or via a wholesaler.

Box 1: The coffee commodity chain

8 Except where otherwise, stated this section draws from the ICO website: http://www.ico.org/field_processing.asp9 Fitter, R and Kaplinsky, R, 2001

Blending enables roasters to substitute coffee withinthe four broad types (robustas, unwashed arabicas,medium quality and high quality washed arabicas)according to price and availability, while maintaininga consistent taste. More recently, new technologiessuch as steam cleaning have enabled the roasters touse lower quality beans in their blends and so reduce costs.

At the retail level several trends are noticeable:

increasing concentration in supermarket chains shorter supply chains as supermarkets strip out

some tiers of intermediaries increasing out-of-home consumption of coffee

with the increasing popularity of the caf cultureand the emergence of global caf chains likeStarbucks.

In spite of the development of private coffee labels bysupermarkets, the roasters have been able tomaintain their brands, but at the expense of heavyadvertising.18

The development potential of coffee

The importance of coffee to developing countries iswithout question. As ICO (2003) points out, sincecoffee can only be grown in frost-free areas it isimportant for non-arid tropical countries, many ofwhich are Least Developed Countries (LDCs). Coffeeis a key export commodity for developing countries,providing employment, cash income and foreignexchange.

Coffee is also important for rural livelihoods.Smallholder involvement in coffee production is veryhigh. According to Oxfam,19 70% of production in2000 was on farms less than 10 hectares, 15% onmedium size (10-50 hectares) and 15% came fromplantations of over 50 hectares. Coffee has relativelyhigh labour demands compared with othertraditional smallholder crops. In Guatemala, forexample, coffee requires 73 person-days per hectarecompared to 58 for corn and 61 for beans.20 Ittherefore is a key provider of rural employment.However, a trend to large-scale, low-cost production,primarily in Brazil and Colombia, is threatening thismodel of production.

Coffee growing like all agriculture has anenvironmental impact. However, this has to be seenrelative to other crops or land uses. As a perennialtree crop it provides some soil cover. Given the lifespan of the coffee plant, the soil is prepared only oncein 20 years so that there is minimal disturbance. Ifappropriate techniques such as mulching and controlof pests and disease are followed over the lifespan ofthe coffee plant, the soil is protected more than forannual crops.21 Traditional shade coffee is consideredto be the most environmentally benign andecologically stable agro-ecosystem in northern LatinAmerica.22

Concerns about coffee

Coffee is associated with a number of concerns withinter-related economic, social and environmentalimplications:

declining and variable prices which have knock-on effects for social welfare and environmentalimpact

declining shares of revenues for producercountries and growers

poor conditions for farmers and workers on coffeefarms

deterioration of the local environment.

Declining and variable pricesBetween 1997 and 2001 coffee prices fell by almost70% in nominal terms, falling to below the cost ofproduction in many countries.

23Prices reached their

lowest levels for 30 years in nominal terms and for100 years when adjusted for inflation.

24These price

trends had severe consequences for coffee growerswho were forced to sell below cost and saw theirincomes drastically reduced. Economic losses forsmall coffee farmers have been estimated at US$4.5billion per year and with further knock-on effects onchildrens education and healthcare.25 The loss offoreign exchange also led to fiscal constraints forgovernments of coffee-producing countries such asEthiopia and Nicaragua.26

During the last three years there has been someimprovement in prices the ICO composite priceindicator increased by 30% between 2002 and 2004and there have been further increases in 2005. TheICO is predicting that production in 2005/06 will be

From bean to cup

16

18 Ponte, S, 200119 Oxfam, 200220 Rice and Ward, 199621 Thomaziello, RA, et al, 2000.22 Rice and Ward, 1996

23 FAO, 200424 Lewin B, et al, 200425 Ibid.26 ICO, 2003


17

108 million bags (down from a high of 122 million in2002) and below world consumption estimated at 115million bags in 2004.27 This reflects reductions insupply, mainly arabica, from a number of countries,primarily Brazil but also Indonesia, Cote dIvoire andColombia.28 However, supply of robusta has declinedonly slightly from its 2002 peak, reflecting contractionin African producer countries while continuing toincrease strongly in some countries, primarilyVietnam.29

Problems of declining prices are compounded byprice volatility making rational adjustment to pricechanges difficult. According to Baffes30 both arabicaand robusta prices varied by a factor of five duringthe 1990s. The principal contributing factor was theweather conditions in Brazil where frost anddroughts affect the coffee crop every few years.

Recent fluctuations in coffee prices (price levels inSeptember 2005 were the lowest since the beginningof 2005) have shown how factors outside the sphereof coffee production can contribute to this variability.The ICO review for September 2005 emphasises howcoffee prices in September were below expectationsbecause of speculative movement in petroleumproducts, which influenced the activities ofinvestment funds.31

Even if prices do increase, there will still be concernsthat growers are receiving a decreasing share of thecoffee revenues.

Declining shares for growers andproducer countriesThe apparent widening of the gap between pricesreceived by growers and retail prices has promptedstudies comparing the share of the final retail priceaccruing to growers with that of other stages of thevalue chain, and also examining trends in the shareof total value of coffee retained in producingcountries. Some of these studies are snapshotestimates for a single year, others examine trends.Considering them together, there is some indicationof a declining share over time both for growers andfor producing countries:

Oxfam32 estimated that producer countries in 1992retained about US$ 10 billion or 33% of the retailvalue of coffee but by 2002 they received less than

US$ 6 billion from a market twice the size,equating to less than 10% of the retail value ofcoffee. The growers in 2002 received roughly 6% of the value of a pack of coffee sold in retailoutlets.

Fitter and Kaplinsky33

using data for 1995estimated that coffee growers received from 10-21% of the retail price and that 40% of the finalproduct price accrued to developing countries.

Talbot34

examined trends in revenue shares overtime, finding a significant reduction in the shareretained by growers in the late 1980s and early1990s. Between 1975 and 1985 it was consistentlyabove 20%. After the collapse of the ICA in 1989 it ranged between 10-12% until 1993/4 when ashock to supply brought some improvement.

Studies of specific value chains, Cote dIvoire toFrance and Costa Rica to Germany, found that in1994 the growers share of total retail price was13.8% and 14.6% respectively.35

Daviron and Ponte36 examine the trends in greencoffee import prices and retail prices for roastedcoffee in the US between 1980 and 2002. They finda sharp decline in import prices over the periodand a marked increase in the gross marginbetween retail prices and import prices from 80 cents per lb at the beginning of the 1980s toUS$ 1.80 by 2000. This implies that the importingcountry was capturing an increasing share of theretail value of coffee.

Researchers give different emphasis to the variousreasons for this trend in declining grower andproducer country share. All agree that the problem isone of imbalance between supply and demand. Thereis general agreement that oversupply of green coffeeis the principal contributing factor to the slump inprices and that this is more than a cyclical problem,reflecting the short-term inelasticity of coffee supply,but also a result of some major restructuring.37

New low-cost producers have come on to the market,notably in Vietnam and in the Brazilian Cerrado, aregion less susceptible to frost, where a large-scale,highly mechanised, high density and input-intensiveform of coffee farming has become prominent.38

27 IOC, September 200528 IOC, September 2005; ICO January 200529 Ibid.30 Baffes, J, et al, 200531 International Coffee Organization, September 200532 Oxfam, 200233 Fitter, R, and Kaplinsky, R, 2001

34 Talbot, JM, 199735 Pelupessy, W, 1999, cited in Ponte, S, 200136 Daviron, B and Ponte, S, 200537 Oxfam 2002; RIAS 2002; ICO 2002/3; Scholer, M, 2004; Lewin,B, et al, 200438 Lewin, B, et al, 2004

Higher cost traditional smallholder producers are theleast able to compete and are either being forced outof the coffee market or having to look for other waysof increasing their competitiveness.

On the demand side, consumption is increasing onlyvery slowly in developed countries despite theperception of a coffee boom and the emergence ofcoffee shop chains and a coffee culture. Per capitaconsumption has gone down in many countries.39

World consumption for 2004 is expected to be about3% higher than in 2003 but this is primarily due to thegrowth of consumption in exporting countries.40

There is less agreement on the role of market powerheld by roaster companies. Oxfam41 contrasted thelosses, or at best tiny margins, made by farmers andexporters in developing countries with theextraordinary profits being made by roastercompanies in the US and Europe on their retail coffeebusiness suggesting that the market power held bythese companies was a major contributing factor.

Lewin,42 while acknowledging the importance ofcorporate concentration, places considerableemphasis on two factors. First, the roastingcompanies have been able to take advantage ofvarious value-adding activities such as marketing,branding, differentiation and flavouring. Second, thenon-coffee components of the retail price of coffeesuch as wages, packaging and marketing have grownand now represent a more significant share of theretail price than the coffee itself. The ICO stresses theproblem of too much low-quality coffee andinsufficiently dynamic growth in consumption butalso acknowledges that the value chain is skewedagainst producers.43

May et al 44 argue that while there may becircumstantial evidence of roaster influence on retailprices there is little evidence of roaster influence onworld market prices for green coffee. This is becauseconcentration in the physicals market is not reflectedin the futures market where benchmark prices areestablished roasters, traders and investors interactin the futures market creating a more competitiveenvironment. A report by Rabo InternationalAdvisory Services is also sceptical about the extent ofmarket power of the roasters, pointing out that

From bean to cup

national and international (EU) competitionauthorities monitor them and have so far notidentified monopolies and/or cartel-like behaviour.45

Gibbon46 has reviewed a number of econometricstudies of market power carried out for periodsranging from 1972 to 2001. These examine either therelation between final prices and firm-level marginalcost or the extent of price transmission that is, theextent to which input price changes translate intooutput price changes, taking into account elasticityof demand. He finds that these studies give littlesupport to a hypothesis of market power being heldby roasters and retailers. However, he points out thatthese studies mostly examine periods when greencoffee bean prices were rising.

This review included a study of the Swedish marketby Durevall47 who has also studied market structurein Finland and Denmark and has not found evidenceof collusion or lack of competition in Nordicconsumer markets. He concludes that competition inthe coffee consumer market is good. He added that itis changes in demand and consumer preferencesaway from coffee among the generation born after1960 that is driving the distribution of revenuesalong the chain.

Living and working conditions for coffeefarmers and estate workersConcerns are often raised about the wages andworking conditions of coffee farmers and plantationworkers, the use of child labour and the health andsafety implications of handling pesticides.

In 2003 the ICO asked representatives of coffee-producing countries to describe the impact of the fallin coffee prices. The responses summarised below48

indicate how closely linked coffee prices are withrural social development:

Increase in households under the poverty line(Colombia, Costa Rica, Ethiopia). In Colombia,where coffee provides 30% of rural employment,the percentage of households in coffee-growingareas living under the poverty line grew from51.4% to 61% between 1997 and 2000. The resultsincluded increasing malnutrition and inability topay for childrens education.

18

39 ICO, 2003/440 ICO, October 200541 Oxfam, 200242 Lewin, B, et al, 200443 ICO, 2002/3

44 May, PH, et al, 200445 Rabo International Advisory Services (RIAS), 200246 Gibbon, P, 200447 Durevall, D, 200448 ICO, 2003


19

Loss of employment for agricultural workers(Cameroon, Costa Rica, Ecuador, El Salvador,Ethiopia, India, Nicaragua, Papua New Guinea,Philippines)

Increased migration to urban areas or abroad(Cameroon, Central African Republic, Colombia,Ecuador, El Salvador, Ethiopia)

Coffee-growing families difficulties in payingfor childrens education (Cameroon, Colombia,Cote dIvoire, Ethiopia, Ghana, Papua NewGuinea, Vietnam).

The pressure to compete and to reduce costs canleads to poor conditions for farm workers andlimited compliance with the law. Some examples ofpoor practice have been documented for Brazil.

A study of working conditions in coffee farms inBrazil in 2003 found that in the Southern Minasregion, safety equipment was usually not suppliedfor the harvesting, and that it was a common practicefor workers to be prohibited from using glovesbecause of harm to the plant.49 Although the RuralWorkers Union in Southern Minas had agreed aCollective Convention setting out workers rights inthe coffee sector, these were not being respected inpractice. While the Convention established a weeklywork shift of 44 hours, the coffee workers had longerhours because they worked Sundays and holidayswithout extra pay. No sanitation facilities or place formeals were provided for workers and protectiveequipment for those applying herbicides andpesticides was often incomplete.

In another coffee-growing region in the state ofEspirito Santo, the study found poor living andworking conditions for hired workers, with noformal signed work papers, and no respecting ofholidays, while paid time did not include travel timefrom the city to the field. Indiscriminate use of agro-chemicals was claimed to have caused considerableharm to farm workers.

Environmental impact of coffeeproduction Coffee tends to be grown in high biodiversity areasand areas of natural forest. The destruction of theAtlantic forest in Brazil in the 19th century owesmuch to coffee50 but deforestation to make way for

coffee has taken place more recently, for example inCote dIvoire where the government in a bid toexpand cocoa and coffee production allowed freeaccess to uncultivated areas.51 In Central America,coffee growing is located in some of the principalriver basins of the region. Preservation of the coffee-growing micro-basins is important for the survival ofthe rivers and all the associated flora and fauna.52

Since the 1970s there has been a move in a number ofcoffee-growing regions away from traditionalapproaches involving shade coffee, in the case ofnorthern Latin America, and away from traditionallower yielding varieties, such as bourbon in Brazil(which has little tradition of shade coffee), to verymechanised, input-intensive sun coffee, with denserplanting, high dependence on irrigation and use ofcoffee varieties more suited to chemical fertilisers.New producers, such as Vietnam, started off theirproduction based on sun systems.

The aim was to increase yields. For example,Colombia, in a space of 25 years, went from mainlytraditional systems of coffee to 68% of its coffee areasbeing intensified.53 It has been estimated that shademonoculture and sun coffee account for 40% of thecoffee producing area in northern Latin America.54

This trend has had significant environmental impact.Studies have shown that shade coffee supports adiversity of species and migratory birds. Greenberg55

found that both planted shade coffee plantations andrustic shade coffee (ie grown under a natural forestcanopy) in Ocosingo, Chiapas, Mexico, supported ahigh diversity of bird species, exceeded regionallyonly by moist tropical forest. Coffee plantations

49 Observatorio Social, 200450 Dean, W, 199551 Losch, B, 1992, cited in UNCTAD,199452 Castro F, et al, 2004.53 Rice, RA and Ward JR, 1996

54 Ibid.55 Greenberg, R. et al, 199756 Gillison, AN, et al, 200457 Gooding, K, 2003

Minas Gerais coffee fields, Brazil

appeared to act as a refuge for many omnivorousbird species, in particular migrant birds from NorthAmerica. Gillison et al 56 examined the impact ofdifferent coffee farming systems on biodiversity,along a spectrum from simple, intensive, non-shadedsystems to complex, shaded smallholder systems inSumatra. They found that biodiversity increasedalong this spectrum.

The decline in coffee prices has led to furtherconcerns about the impact on the more environmen-tally friendly smallholder producers. In some cases,the fall in prices has led to replacement of shadecoffee by other crops such as pasture and sugar cane,considered more environmentally damaging.57 InEcuador, shade coffee was replaced by annual cropsor grass and there were concerns about theenvironmental impact.58 In India, farmers in shadecoffee areas were tempted to remove trees and sellthem as timber, leading to deforestation and loss ofecological balance.59

In other cases, falling prices have lead to theabandonment of coffee plantations, encouragingdeforestation elsewhere in order to plant alternativecrops. In Kenya, the low coffee prices in 2002/3,coupled with regulations prohibiting the destruction

From bean to cup

20

58 ICO, 200359 Ibid.60 Gooding, K, 2003

61 UNCTAD/IISD, 200362 Jacquet 1991, cited in UNCTAD, 1994

of coffee plants, led farmers to abandon their coffeeand deforest new areas of forest.60

Processing also has an environmental impact. Wetprocessing of coffee uses substantial amounts ofwater and as the process involves fermentation ofthe residual pulp surrounding the cherry, itgenerates wastewater with high concentration ofbiochemical oxygen demand.61 In Central Americacoffee processing in the 1990s was considered theregions most polluting agro-industry. The RioGrande de Tricoles, which runs through CostaRicas main coffee growing area, was reported to bedevoid of all life at the beginning of the 1990s.62 Well-established treatment techniques exist but add tocosts of production for producers already feeling thesqueeze of lower prices.

Drying sheds at Fazenda Santa Terezinha, Minas Gerais,Brazil (see page 49)

Fairtrade coffee beans in sacks, each marked with the nameof the family farm, Poo Fundo association, Minas Gerais,Brazil


21

The concept of certification

It has been common for companies to makeenvironmental and social claims about their productsoften without substantiation, raising concerns aboutgreenwash . Certification aims to address theseconcerns in that an outside body assesses theperformance of the company against an agreed set ofstandards, and decides whether the option of using alabel can be awarded. A certification scheme typicallyconsists of the following elements:

A set of process and performance standards oftenset out as a code of practice, covering differentaspects of the production of the product such asenvironmental impact, health and safetyconsiderations, relations with the local communityand worker rights.

Independent verification of compliance orperformance with these standards by anindependent organisation usually separate fromthe standard-setting body - the initial verificationis followed up by periodic audits usually on anannual basis with some schemes also applyingunannounced random inspections.

A system for accrediting the certifyingorganisations that provides the evaluation service.

A product label to enable producers tocommunicate to buyers/consumers that theproduct meets the standards of the certificationscheme. In this way producers, in theory, canbenefit from the willingness of consumers to payextra for products meeting high environmental orsocial standards as demonstrated by the label.

Chain of custody certification for those handlingthe product traders, processors, or a traceabilitysystem to provide assurance that the labelledproduct in the retail outlet has come from acertified source and has not been falsely labelledor mixed with non-certified products.

Chapter 3


Some of these elements are present in some buyer-driven approaches such as that of Starbucks (Box 2on page 22) and multi-stakeholder initiatives such asthe 4Cs (Box 3) and the Sustainable CommodityInitiative (Box 4). However, there are fundamentaldifferences. Buyer-driven approaches usually involvea company setting its own standards for suppliers toachieve. The 4Cs aim to develop a global code ofconduct for sustainability along the coffeecommodity chain but does not envisage theintroduction of a labelling scheme.

Certification schemes vary in a number of aspects:

The comprehensiveness of standards, with someschemes such as Fairtrade concentrating on thetrading relationships and leaving detailedenvironmental issues to others.

The way in which standards are set and theextent of stakeholder participation, although theostensible aim of most schemes is to achievemulti-stakeholder input.

The degree of emphasis given to processstandards as opposed to performance standards.ISO 14001 and the certification system of theBrazilian Specialty Coffee Association (BSCA), forexample, certifies management systems, requiringcontinuous improvement rather than achievementof determined performance standards.

Certification schemes for coffee

At present there are five certification and labellingschemes operating for coffee: Fairtrade Organic Rainforest Alliance, Utz Kapeh Smithsonian Bird Friendly.The schemes and their distinguishing characteristicsare summarised in Table 2 on page 28.

From bean to cup

Starbucks piloted a Preferred Supplier programme tolink preferred supplier status with social andenvironmental performance. Price incentives,offering a premium over the market price, werebased on a points system for environmental (50%),social (30%) and economic criteria (20%). In addition,the programme offered long-term contracts toprovide some stability for producers. By the end of2004, 248 suppliers representing 20 countries hadapplied and more than 50 million lbs (22,700 tonnes)of coffee had been purchased by Starbucks underthis programme over the two year period.

This programme was relaunched in March 2004 asthe Coffee and Farmer Equity (C.A.F.E.) Practices.One of the significant changes was to make supplychain transparency a pre-requisite. Starbucks aimsto purchase the majority of its coffee under theseguidelines by 2007. The evaluation guidelines coverproduct quality, (essential requirement); economicaccountability (essential requirement); social

responsibility (40 points); environmental leadershipin coffee growing (45 points) and in coffeeprocessing (20 points). A preferred supplier has tomeet the essential requirements and a score of atleast 60% of the maximum possible scores for eachsubject area.

The social and environmental guidelines arecomprehensive, covering hiring practices andemployment policies, worker conditions, protectionof soil and water resources, conservation ofbiodiversity, ecological pest and diseasemanagement and reduction of agrochemical use,waste management and energy use. They stress theimportance of equity of financial reward. It isexpected that Starbucks coffee suppliers will passon an equitable share of coffee revenues (ie financialrewards) up the supply chain to coffee farmers andprocessors.

Source: Starbucks, 2004

22

Box 2: Starbucks C.A.F.E. Practices

This is a joint initiative of coffee producers, tradeand industry, trade unions, and social andenvironmental NGOs to develop a global code ofconduct aiming at social, environmental andeconomic sustainability in the production, post-

harvest processing and trading of mainstream greencoffee. It is supported and facilitated by DeutscherKaffeeverband and GTZ.

Source: www.sustainable-coffee.net

Box 3: The Common Code for the Coffee Community 4C

The United Nations Conference on Trade andDevelopment (UNCTAD) and the InternationalInstitute for Sustainable Development (IISD)launched the Sustainable Commodity Initiative(SCI) in December 2002 in recognition of thefundamental link between commodities andsustainable development. The principal objective ofthe SCI is to improve the social, environmental andeconomic sustainability of commodities productionand trade by developing global multi-stakeholder

strategies on a sector-by-sector basis. The first phaseof the SCI will focus on the identification ofstrategies for the coffee sector. The coffee phase willbuild upon existing initiatives with the objective ofidentifying novel ways for addressing supply chainand market issues in a co-ordinated way that issuitable for substantial application in the coffeesector.

Source: www.iisd.org/trade/commodities/sci.asp

Box 4: The Sustainable Commodity Initiative


23

Fairtrade63

The fair trade criteria defined bythe Fairtrade LabellingOrganization (FLO), which is theumbrella group for various fairtrade organisations in differentcountries, include a minimumproducer price which variesaccording to the type of coffee and the region, asshown in Table 1 (below). If the market referenceprice (the New York C contract price plus or minus aquality differential) is higher than the Fairtrademinimum price, the market price applies. Inaddition, a Fairtrade premium of 5 US cents per lbof green coffee is paid on top of the minimum ormarket reference price. Where coffee is certifiedorganic as well, an additional premium of 15 UScents per lb of green coffee is paid.64

Registration with FLO is at the group level. Toqualify for the Fairtrade system, smallholders haveto be organised into producer groups or co-operatives which must be democratically run andpolitically independent. The Fairtrade premium ispaid to the group, usually for investment in group orcommunity projects, and its use is monitored. Someenvironmental protection standards are included inthe standards for Fairtrade coffee including a ban onthe most toxic pesticides and requirements toimplement Integrated Crop Management.65 Fairtradeimporters are also required to offer pre-financing toproducer groups if requested.

As of March 2004, there were 197 coffee co-operatives working with the FLO initiatives. Most

of these were in Central America (93), South America(63) and the Caribbean (9), as well as 27 in Africaand 5 in Asia.

Coffee was the first Fairtrade labelled product ,launched in 1989 and is still the best knownFairtrade labelled product among consumers inEurope, North America and Japan. Sales of roastedFairtrade coffee in 2004 were 24,323 tonnes,corresponding to about 0.42% of demand.66 Thelargest markets for Fairtrade coffee in 2004 were theUS, followed by the UK, the Netherlands andGermany. Sales worldwide were up 26% from theprevious year and there has been significant growthsince 1999. About 12% of all Fairtrade coffee sales in2004 were also organically certified.

Fairtrade coffee consumption is still confined toimporting countries in Europe and North America.The only producer country where there has been anysignificant consumer interest in the concept of Fairtrade coffee is Mexico but not necessarily as partof the FLO system.

Mainstream roaster companies have started to takean interest in Fairtrade certification. Towards the endof 2003, after a concerted campaign by Oxfam andother organisations, Procter and Gamble started tosell Fairtrade certified coffee as part of its specialtycoffee business (Millstone), with a commitment toincrease the volume of Millstones Fairtrade sales toat least two to three million lbs (909 to 1,363 tonnes)within two years.67 Millstone sells Organic Fairtradecertified coffee as part of its Signature Collectionwhich also includes Rainforest ReserveTM RainforestAlliance Certified.68

Table 1: Fairtrade minimum price

Type of coffee Fairtrade minimum price (US cents per lb)Central America, Mexico, South America,

Africa, Asia CaribbeanWashed* arabica 121 119Non-washed arabica 115 115Washed* robusta 105 105Non-washed robusta 101 101*Semi-washed or pulped natural coffees are regarded as washed coffeeSource: FLO (2004)

63 Except where otherwise stated this draws from information onthe website of the Fair Trade Labelling Organization (FLO) orprovided in personal communication by FLO.64 FLO, 200465 Ibid.66 Based on the ICO estimate of demand for 2004 of 115 millionbags of green coffee (ICO, September 2005) and a ratio of green

coffee to roasted coffee of 1.19. This figure is an underestimate asit does not take account of instant coffee (for lack of data) whichrequires more green coffee per unit of production than roastedcoffee.67 www.globalexchange.org68 www.millstone.com

From bean to cup

Sara Lee has been selling Fairtrade coffee on USuniversity campuses in the dining services since theearly 2000s following a student campaign. Thecompanys Prebica Whole Planet Blend is certified asFairtrade by TransFair US. It is also certified asorganic and shade-grown. This has been followed bysupply of Fairtrade coffee to other Sara Lee accountssuch as 250 Borders cafs.69

In October 2005 Nestl launched its Fairtradecertified instant coffee in the UK, known as PartnersBlend. This has proved extremely controversial withheavy criticisms being raised by the Baby MilkAction Group among others.

Some retailers have also taken action to promoteFairtrade coffee or to position themselves as sellersof Fairtrade coffee. The Co-op was the first UKsupermarket to switch all its own label coffee toFairtrade in November 2003. Marks and Spencers inthe UK has a policy of using only Fairtrade coffee inits store cafs.

Organic

Requirements of organiccertification systems involvemanagement practices toconserve or enhance soil structure, resilience andfertility and use of non-synthetic nutrients and plantprotection methods.70

Unlike other certification systems, organiccertification standards are often set or regulated bygovernments. For example, the EU regulations onorganic production71 stipulate the followingstandards:

cultivation of legumes, green manures or deep-rooting plants in an appropriate multi-annualrotation programme

incorporation in the soil of organic material,organic livestock manure and vermicompost

pests, diseases and weeds to be controlled byusing appropriate varieties, rotation programmes,biological pest control, mechanical practices andflame weeding

seeds and propagation material organicallyproduced

use of non-organic fertilisers, pesticides andbiological pest control methods is limited.

The standards formulated by the InternationalFederation of Organic Movements (IFOAM) form thebasis on which public and private standard-settingbodies develop more specific standards.72 Differentstandards apply in different countries or regions, theEU, US and Japan. A transition period of three yearsis usually required before coffee converted to organicproduction can be sold as organic.

The International Trade Centre estimates consumptionof organic coffee in major consumer countries at720,000 bags (43,200 tonnes) in 2002/3, making thisthe most significant of the certification schemes so farin terms of sales.73 It estimates that world productionof organic coffee in 2001/2002 was 800,000 bags(48,000 tonnes), indicating that there was some over-supply. According to Scholer74 producers havereceived premiums which more than compensate theadditional costs involved in certification such aslabour and, in some cases, lower yields, but there hasbeen a tendency for premiums to decline as organicsupply expanded. In 2003, organic green beanpremiums ranged from 15 cents to 30 cents per lb butwere widely predicted to decline over time.75

Rainforest Alliance

Coffee is one of a number oftropical products certified underthe Rainforest Alliance system.The sustainable agriculturestandards aim to cover all aspectsof production: environment,rights and welfare of workers and the interests oflocal communities. These standards have beendeveloped following a process of consultation withsocial and environmental groups, industry,government and other stakeholders.

Rainforest Alliance distinguishes itself from Fairtradein its emphasis on how farms are managed, ratherthan how products are traded. It differs from organiccertification in that the standards are based onintegrated pest management (IPM) which allows forsome limited, strictly controlled, use of agro-chemicals. It goes beyond organic in its emphasis on

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69 http://hds.ucsd.edu/diningservices/wholeplanet.pdf;http://www.transfairusa.org/content/about/n_040227.php 70 Lewin, B, et al, 200471 International Trade Centre, Geneva, 2005, The Coffee Guide,www.thecoffeeguide.org

72 Dankers, C, 2003 73 International Trade Centre, Geneva,, 200574 Scholer, M, 200475 Giovannucci, D and Koekkoek, FJ, 2003


wildlife conservation and worker welfare. Certifiedcoffee farms are required to maintain diverse shade-cover of native trees to provide habitat for range ofspecies or to protect and restore native forestreserves. All farms are inspected every year and must show continual progress.

The Rainforest Alliance currently operatescertification of coffee farms in 11 countries in LatinAmerica. By October 2005 it had issued a total of 268 certificates for 2,822 operations involving 40,920hectares of coffee cultivated in a total farm area of95,115 hectares.76 It is also evaluating or certifyingfarms in Ethiopia and Sumatra.77

According to the Rainforest Alliance, just under 1%of all coffee produced is certified under theRainforest Alliance Scheme (however, not all of this isnecessarily sold as certified). Over the past two yearsthe distribution of Rainforest Alliance Certifiedproducts has grown considerably following efforts topersuade large companies, including roastercompanies such as Kraft, to buy certified coffee. TheRainforest Alliance is working with hundreds ofcompanies, large and small, global and nationalleaders such as Kraft Foods (Kenco, Gevalia andJacques Vabre brands), Procter and Gamble (Millstone),Lavazza, Italys market leader, and Ueshima Coffeecompany, the market leader in Asia.78

Rainforest Alliance requires a minimum 30% certifiedcontent for companies who want to use the schemesgreen frog label. This facilitates its take up forblended coffee products. A statement that specifiesthe percentage content of Rainforest Alliance certifiedcoffee must appear next to the green frog label.Companies that choose to blend certified productswith non-certified products must have the means toguarantee that the product claim is truthful and maybe required to undergo a chain of custody audit oftheir operation and other points in the supply chain.79

Some high profile users or consumers of RainforestAlliance coffee include the United Nations, whichserves it in all its venues in New York, the BelgianParliament and the Eden Centre in the UK. 80

Of particular interest is the partnership betweenKraft and the Rainforest Alliance in October 2003 toadvance the availability of certified sustainable

coffees in the mainstream market. In 2004 Kraftpurchased 5 million lbs (2,273 tonnes) of certifiedcoffee from farms in Brazil, Colombia and otherLatin American countries and expects to double thisquantity in 2005.81 This certified coffee will beblended into several mainstream coffee brands inwestern Europe such as Carte Noire, Kenco andMaxwell House. In addition it has launched 100%certified brands in the UK (Kenco instant coffee) andin the US (All Life) for sale in away-from-home foodservice settings. Kraft has recently launchedRainforest Alliance certified coffee in Denmark andSweden. The entry into the UK market provedcontroversial with concerns being raised about theimpact on Fairtrade. In 2005 over 13 million lbs(5,900 tonnes) of Rainforest Alliance certified coffeewill be available in Kraft brands, doubling theprevious years purchase.82

Utz Kapeh83

Utz Kapeh which means goodcoffee in a Mayan language fromGuatemala was founded in 1997by Guatemalan coffee producersand the European coffee roaster,Ahold Coffee Company, with theaim of allowing roasters andbrands to respond to a growing consumer demandfor assurance of responsibly produced coffee. UnlikeFairtrade, which works only with smallholders, UtzKapeh is open to all scales of production and typesof ownership including state-owned.

Producers are certified by an independent thirdparty auditor to check that they comply with the Utz Kapeh Code of Conduct which requires baseline standards of good agricultural practice incoffee production, worker welfare including accessto education, and healthcare. A key objective is toenable responsible producers to differentiatethemselves from conventional coffee growers and to link up with responsible buyers. Utz Kapeh alsoaims to channel technical assistance to producers toimprove farm management and lower productioncosts and to improve access to credit facilities.

As of December 2005, there were certified producers(both arabica and robusta) in 16 countries, mostly in

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76 Luis Guedes Pinto, Director, Imaflora, presentation 14/10/0577 Chris Wille, personal communication, 200578 Sabrina Vigilante, Rainforest Alliance, personal communication,e-mail 14/11/05 79 Ibid.

80 Ibid.81 www.kraft.com82 Luis Guedes Pinto, Director, Imaflora, presentation 14/10/0583 Except where otherwise stated, this section draws oninformation from: www.utzkapeh.org

From bean to cup

Latin America but also in Asia (India, Indonesia,Vietnam) and Africa (Ethiopia, Tanzania, Ugandaand Zambia). The scheme is expanding rapidly. Atthe end of 2004, 61,000 tonnes of green coffee werecertified from a total of 66 producers including co-operatives (up from 38 the year before) in 14countries. As of early December 2005, a total of 131farms and producer groups were certified with totalcertified volume approaching 140,000 tonnes ofgreen coffee. More than 200 additional farms andproducer groups were registered with Utz Kapehand in the process of certifying.84

A key aim of Utz Kapeh is to improve the terms oftrade for producers but the programme does notintervene in price negotiations, nor is there any setpremium or floor price as in other schemes. Thepricing policy states that producers should berewarded w

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