Impacts and indicators of impact of fair trade, fair trade organic, specialty coffee

Sam Fujisaka, Thomas Oberthur, Raul Rosales, Herman Usma, and German Escobar October 18, 2006 Introduction.

The intent of the research reported on by this paper is perhaps best explained by a recent email from Michael Dupee, Vice President, Corporate Social Responsibility, Green Mountain Coffee Roasters:

“For many years, Green Mountain Coffee Roasters has supported a variety of collaboratively developed environmental, economic, and social initiatives in communities where we purchase coffee. Our goal has been to do good in the world, and while we believe that this has been the case, we have been challenged to measure the effectiveness and impact of these programs. We have often asked ourselves questions like: “Have these programs had the intended impact, and if so, how do we know?” “Can these programs be more effective, and if so how?” “What does success look like, and how do we measure it?” “In 2005, we decided to focus our efforts on four bottom line goals: reducing poverty, hunger, and waste, and increasing responsible energy usage in the communities we touch. Over the past few months, Green Mountain Coffee Roasters, the Sustainable Food Lab, CIAT (International Center for Agricultural Research), ForesTrade and other stakeholders, have undertaken a study and fieldwork focused on developing Key Performance Indicators (KPI’s) related to poverty and hunger in coffee-growing communities. Our hope is that these indicators will ultimately enable Green Mountain Coffee Roasters to be a better partner to these communities by being able to jointly develop goals for, and measure the impact of, the social programs and business practices we have developed with our partners throughout all of our supply chains. We also hope that these results may be of value to others in the specialty coffee industry, and beyond (Dupee 2006: personal communication)”

There are several approaches to indicators of poverty, ranging from single criteria to long lists of welfare variables to criteria elicited from the poor themselves. The World Bank has used single indicators (e.g., income of less than $2.00 a day) based on census estimates to establish baselines and to measure change for large numbers of people. Although widely criticized, the approach has served as a district, national, and regional level litmus characterization. Other single specific measures include our use of childhood stunting as the poverty measure for our global work on both crop biofortification and development of drought tolerant cultivars (Hyman, Fujisaka, Jones 2006). Large researcher-determined lists of indicators have been used to measure impact. Data elicited through large sample surveys include income sources and amounts, self-employment, seasonal and occasional labor, land and livestock holdings, costs of farm/enterprise inputs including family labor, housing and housing construction materials, holdings and value of different assets from radios to domestic appliances and motorcycles, levels of education, literacy, health measures, debt and savings, and

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access to water, power, health care, education, roads, and markets. Such data can be subjected to econometric analysis with results that are not always convincing but almost always expensive to come by. A somewhat more recent approach has been to measure changes in terms of human, social, physical, financial, and natural capital. One such approach is the DFID Sustainable Livelihoods Framework1. The approach is attractive in that gains and losses are estimated for the different capitals and that the capitals are recognized as convertible from one form to another (e.g., trees [natural capital] are cut down to provide funding [financial capital] for schooling [human capital]) which in turn can lead to better jobs [more financial capital] and to better housing [physical capital]). The difficulty of this and the long-list approach is in monetizing or standardizing values across indicators. More technical work on crop improvement or innovations in management can be analyzed in terms of changes in enterprise budgets and benefit-cost ratios. Such analysis is quantitative and focused, but deals neither with whole farm budgets nor necessarily directly with poverty. On the other hand, for farm families largely reliant on a single crop (e.g., coffee, rice), simple enterprise budget analysis may provide a good portrait of welfare improvement. In reaction against measures thought to be locally inappropriate, researchers have used different forms of indicators elicited from the poor themselves. One approach asks people about their classificatory systems regarding poverty and wealth. Once categories are elicited, definitions of each category are elicited; and these latter serve as locally appropriate indicators of poverty. In village x, for example, housing material may be irrelevant to local definitions of poor or rich; and the number of educated sons may be all important. The recommendation would be to use the locally agreed-upon indicators. The approach used in this study is similar to the one described above. Key to the work was the eliciting of livelihood circumstances in good vs. bad years and of the use or allocation of good year resources. As shown below, the approach generated a set of indicators relevant to coffee growers; albeit given heterogeneity of groups, each is not necessarily applicable to all groups.

1 The word `livelihood’ can be used in many different ways. The following definition captures the broad

notion of livelihoods: ‘A livelihood comprises the capabilities, assets (including both material and social resources) and activities required for a means of living. A livelihood is sustainable when it can cope with and recover from stresses and shocks and maintain or enhance its capabilities and assets both now and in the future, while not undermining the natural resource base.‘ (Adapted from Chambers, R. & G. Conway. 1992. Sustainable rural livelihoods: Practical concepts for the 21st century. IDS Discussion Paper 296. Brighton: IDS.) DFID stresses the importance to livelihoods of capital assets and distinguishes five categories of such assets: natural, social, physical, human and financial. It also stresses the need to maintain an 'outcome focus', thinking about how development activity impacts upon people's livelihoods, not only about immediate project outputs. DFID is operationalising livelihoods approaches in many different contexts. Broadly speaking one can aim to promote sustainable livelihoods through direct support to assets (providing people with better access to the assets) or contribute to the more effective functioning of the structures and processes (policies, markets, social relations, etc.) that influences not only access to assets, but also determines which livelihood strategies are open to poor people. The idea is if people have better access to assets they will have more ability to influence structures and processes so that these become more responsive to their needs. At a higher organisational level DFID has identified three types of activity that can contribute to poverty elimination: (a) enabling actions to support the policies and the context for poverty reduction, (b) inclusive actions that broadly improve opportunities and services generally, and (c) focused actions that are targeted directly at the needs of poor people.

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Methods.

Coffee producers were interviewed in three areas of Guatemala (Huehuetenango, Coban, and Barbarena) and in two areas of Mexico (Jatelnango in Chiapas and Huatusco in Vera Cruz). Three to five communities were visited in each area, with fieldwork facilitated by representatives of respective local organizations (Appendix 1) selling coffee to GMCR. The research team included Fujisaka, Oberthur, Rosales and Usma in Guatemala; and Fujisaka, Rosales, and Escobar in Mexico. Groups of small-holder coffee producers were interviewed using participatory methods in all communities except Barbarena, Guatemala (where three large-holders were interviewed). Elicited and prioritized in the group interviews were: • Livelihood activities or resources used in good and bad years, with “good” and “bad”

defined in terms of coffee production and price. The elicited responses identified the different enterprises, activities, and income sources that producers relied upon and their relative importance in both good and bad years. As a set of potential impact indicators, projects or programs such as fair trade payments and organic certification and premiums would strive to reduce “bad” year outcomes and to increase years approximating what farmers described as “good” years.

• Allocation of resources gained in “good” years. Farmers’ real or desired investments

in good years provide insights into desired outcomes that, if and when met, can serve as indicators of impact.

• Coffee production and coffee-related problems. Solution of prioritized problems

related to coffee production, processing, and marketing would have clear, positive impacts on the lives of farmers. Work on increasing benefit-cost ratios via problem solution and improvement of returns to factors of production within the coffee enterprise could be achieved through technical programs (not encountered in the course of the research).

• Rough estimation of costs-benefits. Farmer provided very rough estimates of yield,

production costs, prices paid for conventional specialty vs. organic/fair trade specialty coffee. Detailed enterprise budgets would have been desirable but were not possible to elicit given the limited time in the field and the number of researchers.

• Community problems. Groups identified and prioritized community level problems.

Programs seeking to ensure that price premiums benefit local producers could easily invest in community rather than individual needs.

In each of the above areas—except for the estimates of cost-benefits—respondents quantitatively prioritized the elicited items by distributing counters (100 beans or kernels of maize) relative to perceived importance. Interviews—conducted by the researchers working in pairs--required up to 21/2 hours; were preceded by an explanation of objectives and methods, possible outcomes, and a request to continue. Interviews ended with questions and concerns of the respondents. Group participation was universally lively and enthusiastic. Where strong, people would

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conduct heated discussions in their indigenous languages before turning back to provide decisions in Spanish. Both males and females participated. Each and everyone were encouraged to participate. The participatory work sessions were usually liberally sprinkled with humorous banter and jokes. Travel time was generally long and uncomfortable, albeit with incredible scenery. The team interviewed and visited the farms of three wealthy large-holder coffee producers in the area around Barbarena, Guatemala. Findings.

Livelihood activities and resources used in good and bad years. As expected, coffee production was the most important livelihood source, followed by hiring out as farm laborers (Table 1a). Other important sources of livelihoods were encountered in some, but not all communities: remittances (important in 10 of 14 communities), production of maize and beans (11 of 14 communities), and use of forest products (10 of 14 communities). Other sources were sales of home products (foods, crafts, other in 6 communities); chickens and pigs in five communities; government or aid assistance in three communities; cardamom production in the three communities in Coban, Guatemala; coffee seedling or flower nurseries in three of the five Huatusco communities; and cattle in one community. Other crops such as sugar cane, fruit, nuts, and vegetables also contributed to livelihoods in several communities. The good year-bad year contrast for livelihood activities or sources was strong (Tables 1a, 1b). Overall, in response to bad years, farmers relied less on coffee; had to hire out (work off-farm) more; relied more on remittances; and were able to hire less labor to work on their own farms (as is shown in the next section). Working as migrant laborers meant neglecting coffee plantations, parcels of maize and beans, and cardamom production (in the one Coban community in which respondents greatly increased hiring out in bad years). Producers also tended to rely somewhat more on forest products and on small livestock (chicken and pigs) in bad years. Impact indicators would have to include: • contribution of coffee to family livelihoods2, • need to work as laborers off-farm, • ability to remain on-farm to care for different whole farm enterprises, • need to rely upon remittances. Use/allocation of “good year” resources. Respondents’ major priorities for the allocation of good year resources were investment in the coffee plantation, improved diet and food intake, housing improvement or expansion, and health or medicine. Slightly

2 It is important here to note that most of the business models employed in the source

communities had most of the elements of a typical commodity model. The contribution of coffee to livelihoods may become more important if different “specialty coffee” business models such as direct relationship models are models that transparently transmit information and benefits between supply chain actors. A full supply chain analyses would be required in order to obtain the necessary insights into the workings of the currently used business models.

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more secondary priorities were clothing, school goods, increased hiring in, savings and/or debt payment, and less hiring out (Table 2). Important in terms of indicator development was the variability by location of the responses. Communities varied considerably in what they did with resources in good years. Not one of the categories was elicited across all communities visited; and what was a highest priority in one community might not be mentioned by another. For example: • Although plantation improvement was the highest priority in five communities, it was

not even mentioned in four. • Although health and education were highest priorities in two Huehuetenago,

Guatemala, communities, these were low priorities in two of the Coban, Guatemala, communities. Health was not mentioned at all by respondents in Nueva Colombia, Chiapas, Mexico.

• In the two Guatemalan communities in which health and education were highest priorities, one also prioritized food and clothing—items not mentioned by the other set of respondents.

• The ability to hire out less in good years was a strong priority in some communities, was not mentioned at all in others.

• Some communities were land-scarce; others were land rich. People with plantations on steep slopes with poor access needed mules; while others with easy access did not.

• Only respondents in two of the Huatusco, Mexico, communities saved for buying a pick-up truck—a priority not mentioned in any of the other areas.

The key lesson is that—to be useful and appropriate--impact indicators will need to vary according to (very) local circumstances. Baselines and change, however, can be measured in terms of the set of priorities elicited: those shown in Table 2 also indicate that the category “other” had relatively few entries across the board. Problems related to coffee. Price received was the major problem in 11 of 15 communities (Table 3) and the greatest problem overall (albeit two communities did not mention prices). Pests and diseases, cost and timely availability of hired labor, and cost of transport followed as problems. Other problems were excess rain, cost of fertilizers, lack of a local collection and storage facility, and lack of means for wet processing. Drought was a problem in three communities; hurricanes in the three communities in Chiapas. Lack of capital, poor harvest logistics, and the need to rehabilitate older plantations were also seen as problems in several cases. Again, for each category elicited, some groups of respondents failed to mention the same. The two communities not mentioning price paid for coffee were among the three in Coban, Guatemala, who also relied on the (lucrative) production and sale of cardamom. • Price received by farmers is a strong and obvious indicator. In the present study,

however, many of those interviewed were producing conventional coffees; and others were in transition to organic certification.

• Technical assistance to address pest and disease problems is needed in several

areas. Benefits to producers could be channeled through locally adapted IPM

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programs. Losses to pests and diseases would have to be monitored starting as a baseline activity.3

• Other indicators can include: Is coffee the only cash crop? If so, is coffee more

important compared to the others? If not, or if coffee is more important than other cash crops what are the marketing channels available? Are niche marketing channels generating substantially more income than other channels?

Community level problems. Groups complained about the lack of, or distance to, elementary schools and/or the costs involved in sending students to secondary schools in 13 of 15 communities. “Schools” represented the most pressing problem among those named in 8 communities. “Health” (i.e., lack of a health post, presence of a health post but lack of doctors, and/or presence of health post and doctors but lack of medicines) was also a problem in all but one community and was the highest priority in three. Six groups were concerned about the lack of potable water or the poor state of delivery systems. The lack of or poor conditions of access roads were problems for seven communities. Roads were good and travel times short in the areas visited in Huatusco; and none of the groups visited there mentioned roads as a problem. Long travel times and poorer roads in parts of Coban, Guatemala, and Chiapas, Mexico, were reflected in groups from these areas identifying roads as a problem. People in five communities wanted a community meeting center. Lack of latrines was a problem in four communities. Lack of or faulty electrification was a major problem in all three communities in Chiapas, a problem not mentioned elsewhere. Poor or inadequate nutrition was a problem in two communities in Guatemala. Petty crime was a problem in one community in Chiapas. Most common among the category “other” was the lack of a recreational area, i.e., a football field. • Communities face different mixes of problems, usually some combination of schools,

health, water, roads, community center, latrines, and electrification. Clearly, more prosperous and accessible communities (e.g., those in the Huatusco area) had to think a bit harder in order to come up with problems. Programs directing benefits to communities rather than individuals may do well to address problems in selected communities related to schooling, health, and domestic water systems where these are serious problems. Indicators would simply be measures of the direct changes in such infrastructure.

Large-holder coffee producers. We visited three large coffee plantations and conducted informal interviews with their wealthy owners. All three lived in Guatemala City (about an hour away by car) and relied more on other sources of income. One was a recent MBA from a US university; one was more interested in horse breeding; and the last was a city businessman. Two of the three had processing plants and long family

3 A functioning extension system was only found in the Sierra de las Minas region where

Forestrade is providing outstanding business and agronomic support services to the producers. Unfortunately the small difference between organic-fairtrade coffees and the currently strong market price for conventional coffees place this business model under pressures. Coincidentally the Sierras de las Minas region provides ample opportunity to develop business models that are based on a number of symbolic product qualities such as environmental service provision, not just certification schemes.

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histories in the regional production of coffee. All three relied on large numbers of seasonal labor (up to 2000 in one case). Attitudes regarding the welfare of the labor force ranged from enlightened benevolent paternalism to expressed indifference. Interest in welfare benefits and to poverty alleviation must, in the case of the large plantations, be directed at the seasonal labor force. • Findings ways to benefit the seasonal labor force on large plantations should be an

objective of programs designed to benefit the poor in the coffee producing areas. • The Farm-ID program generated clear benefits to only one large-scale producer. An

indicator would be the redistribution of premiums to contracted farm labor. Cultural differences. Groups visited differed in terms of what perhaps might be called “cultural integrity”. The Mam speakers of Huehuetenango were proud of their culture and language, have been largely independent of mestizo culture, and have adapted to present-day conditions by learning Spanish—while maintaining Mam—allowing them to work in Mexico or the US with relatively little difficulty. Although relatively poor, many had cell phones. By contrast, the ex-hacienda peones in the Coban area, while financially better-off due to cardamom + coffee production and land abundance, were more reticent with outsiders, perhaps more conservative in outlook. They learned far less Spanish and were less able to benefit from remittances sent from both other countries and even other areas of Guatemala. In the sense of livelihood assets, the Mam speakers were rich in human and social capital but poor in natural, physical, and financial capital. The Coban groups were wealthier in term of financial and natural capital, but poorer in terms of social and human capital. Returning to the bigger concerns. Don Seville of the Sustainability Institute kindly supplied feedback to the first draft of this report. His queries are addressed in this section. What was the current status of poverty and hunger? Coffee producers in Guatemala and Mexico are not the poorest of the poor. Childhood malnutrition and stunting were rarely observed. As pointed out above, the relatively financially well-off coffee-cardamom producers in Coban4 did not appear to be so; while the poorer (financially, in terms of land) Huehuetenango producers appeared to be in good shape because of cultural integrity and high social capital. The poorest of those associated with coffee production are the migrant workers; and this group includes those interviewed who work as laborers in bad years.

4 Interestingly these producers did not perceive an apparent link between the organic-fairtrade

business model they were part of and their livelihood situation. If there is dependence, then the lack of perception may jeopardize the sustainability of this production and business model.

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How can we measure reductions over time? How will we measure reductions in

poverty over time? Our research suggests a simple approach. Baselines can be established5 and then monitored for: • coffee producers in terms of comparative benefit-cost ratios (compared to

conventional specialty coffee) and their hiring out as low-skilled migratory labor; and • for migrant labor in terms of provision of shelter, wages, food and nutrition, and

medical care. Were returns to coffee sufficient? We previously conducted an ex ante impact study in Chiapas (in exactly the same area) of biofortified maize and beans. Maize and bean farmers without coffee are the area’s poorest-of-the-poor. Being a coffee farmer implies a relative degree of success6. On the other hand, the relatively poor economic benefits vis-à-vis conventional production supports that target benefits are not necessarily sufficient. The benefits of low or no cost credit and of timely payment cannot be underestimated as a financial incentive, however. How do we interpret the relative importance ratings of coffee prices and use of

investments in good years to access whether poverty was increasing or decreasing in those communities? On the one hand, change could not be measured given lack of baseline data. On the other, farmers described cyclical poverty, as expressed by good years-bad years. Although establishment of consumer-financed high floor prices might appear attractive, the approach would be economically dangerous: production efficiency would decrease and certification costs (including higher risk and cost of corrupting the process) would increase. Are the supply chains contributing to lifting people out of poverty? How much? True decreases in absolute poverty should probably be measured for the non-coffee producers and landless who work as seasonal labor. Certainly their welfare has improved with the overall increased demand for specialty coffees in developed countries. We do not know by how much. A possible limiting factor to increased benefits to workers is that all such workers are contracted by middlemen. Where there any other specific observations about those supply chains that

suggest problems that need to be fixed in the way the chain is structured or

important models to be learned from? Purchases from large holders should probably be made contingent upon their treatment of their respective labor forces. Some sort of additional certification would be required. Furthermore, it is important for GMCR to understand, through a supply chain analyses, whether the small amount of income obtained by growers through premiums for certified

5 It is important to note here that there is baseline information being collected in Guatemala by

various institutions. This information would be useful if GMCR decides to establish a monitoring system in order to track livelihood changes through time. 6 Please note that the surveys took place during an upswing phase in the international coffee

markets. Coffee producers supplying under the commodity coffee model have to generate sufficient resources in the boom phases of the commodity treadmill cycles in order to remain afloat during the bust phases. That this is usually not possible is sadly illustrated by thousands of farms in Central America abandoned during the last crisis or by those farms where productivity dropped to a level that cannot sustain farm families or the employment of migrant laborers. This we even observed in the large holder farms.

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coffee is related to supply chain governance and associated benefit distribution within the chain or simply to the fact that no fair price is being paid. Innovative business models such as those developed in the Sierras de las Minas region by Forestrade may merit closer consideration. Such business models may serve as pilot projects to explore the feasibility, and then implement and market product differentiation based on symbolic product qualities that are not exclusively relying on organic and/or fair-trade certification. Other symbolic product qualities may be built and marketed on environmental (such as biodiversity or hydrologic) services. Finally, examination of poverty in terms of natural, financial, physical, social, and human capital appears especially appropriate for the coffee producers. GMCR may want to address increases or maintenance of the non-financial capitals in the quest to reduce poverty.