Coffee
Coffee
Coffee
From bean to cup: how consumer choice impacts on coffee producers and the environment
ISBN – 1-902391-63-2
24 Highbury Crescent
London N5 1RX
United Kingdom
Denmark Forbrugerrådet /Taenk (The Danish International Institute for Environment and
Consumer Council) – Torsten Raagaard Development
Principal author and research manager: Maryanne
Finland Kuluttajat-Konsumenterna ry – Johanna Grieg-Gran
Parikka Altenstedt Research adviser: Bill Vorley
2
Contents
Contents
Brief explanation of terms 4
Foreword 5
Executive summary 6
Chapter 1 – Introduction 11
References 56
3
From bean to cup
Foreword
Efforts to reduce poverty have been hampered by But the main focus is on the impact of consumer
declining and volatile commodity prices and the choice. When a consumer chooses to buy certified
environmental impacts of industrial agriculture. coffee what effects ripple along the commodity chain,
There is an urgent need to make commodity markets from retailer to grower? What are the factors that
work in fairer and more sustainable ways. Coffee, prompt consumers to buy certified coffee – and
with its high smallholder involvement and equally, what are factors that keep them from such a
increasingly variable prices, typifies the problems. purchase? Is it the price differential, or is it other
The collapse of the International Coffee Agreement in factors, such as lack of information, low visibility, or
1989 and the devastating impact of the slump in unfamiliar packaging or taste? The report also raises
coffee prices on communities have been well- the issue of the entry of big roasting companies into
documented by researchers. existing certification schemes.
Certification is often advocated as one solution to This report, produced in collaboration by Consumers
problems caused by volatile commodity markets. International (CI) and the International Institute for
Coffee, as the first Fairtrade labelled product, is an Environment and Development (IIED), is a
important test of the viability of certification. In contribution to that debate and concludes with
theory, certification should enable consumers to use recommendations for stakeholders in the coffee
their purchasing power to support sustainable commodity chain. CI has produced a short
products and so drive social and environmental documentary to accompany this report. Just coffee
improvements along the commodity chain. was filmed in Brazil, Denmark and London and is
available on DVD (see page 10 for more details).
However, certification faces several problems. It is
typically associated with niche markets, a low profile This report is timely, coming as the International
with retailers and the public, and limited prospects Coffee Organization is giving greater consideration to
for market expansion. Certification may also become issues of sustainability and is reviewing the future of
another requirement for market access and a barrier the International Coffee Agreement. While the report
for small producers rather than an opportunity. focuses on the role of consumer choice and the
priorities for consumer organisations, it recognises
Not enough is known about the effects of certification that if certification is to realise its potential it requires
of coffee even though schemes are relatively well- action from a range of stakeholders. We urge these
established. Research into certification schemes have stakeholders – governments, donor agencies,
studied small initiatives and have bypassed the certification organisations, roasters and retailers – to
largest producing countries. This report focuses on take forward the recommendations in this report.
Brazil and Vietnam, the world’s two largest coffee
producers, and the major coffee consumer markets of
Denmark, Finland, Portugal and the USA. It Richard Lloyd Camilla Toulmin
describes the main certification schemes, their unique Director General Director
characteristics and their impact on growers, traders Consumers International International Institute
and retailers. for Environment and
Development
5
From bean to cup
Executive summary
Background Consumers International and several of its member
organisations in coffee producer and consumer
Coffee is one of the world’s largest traded countries have teamed up with the International
commodities, produced in more than 60 developing Institute for Environment and Development (IIED) to
countries, and consumed mainly in developed examine the impact of certification along the coffee
countries with over US$70 billion of retail sales each commodity chain from producer to consumer and to
year.1 At least 14 countries depend on coffee for 10% consider how to expand the market for certified
or more of their export earnings. It is estimated that coffee. This report is targeted primarily at
coffee growing provides a livelihood for 25 million stakeholders who can influence consumption
people and that in total 100 million people are patterns in developed countries, as this is where the
involved in the sector from agriculture through to demand for certified coffee is likely to grow – at least
processing and sale. for the near future.
Between 1997 and 2001 coffee prices fell by 70% in Research on coffee production was carried out in
nominal terms and to below the costs of production Brazil and Vietnam, the two largest producers of
in many producing countries2 with drastic coffee. Research on coffee consumption was carried
implications for rural livelihoods. The slump in out in Denmark, Finland, Portugal and the US. The
world coffee prices in 2000-03 led many organisations choice of countries reflects their importance as coffee
to focus attention on the adverse impacts on coffee producers and consumers, and the interest shown by
producers. Prices have since improved but are still consumer organisations in those countries in the
relatively low and very variable. topic of sustainable consumption.
1
International Coffee Organization, 2005
6 2
Food and Agriculture Organization, 2004
Executive summary
The period of low coffee prices since early 2000s has Certification raises concerns about the difficulties of
had devastating consequences for coffee farmers and access for small producers because of the high fixed
producer countries, with increases in poverty, cost element in the application and audit process
unemployment, migration and school dropout rates. which means that it costs relatively more for small
Declines in prices to growers have not been producers. Fairtrade certification is specifically
accompanied by declines in retail prices to the same aimed at small producers and both the direct and
extent. There is consensus among the numerous indirect costs are low. However, only a small
studies conducted that the share of overall revenues proportion of fair trade production capacity is
from coffee that accrues to the grower and to currently sold at fair trade prices so this type of
producer countries has declined over the last 15 certification can only help a small proportion of
years. There is less consensus about the reasons – producers. Evidence of the impacts of coffee
while everyone agrees that oversupply is a cause, certification around the world is mixed but generally
some give more emphasis to changes in market positive for fair trade in terms of producer benefits
structure and the power held by traders, roasters and (although for relatively small numbers of producers
retailers. as supply exceeds demand), and more mixed for
other certifications depending on the location and
the practices of growers before certification.
Sustainable coffee certification
Certification schemes have emerged as one approach Brazil’s experience with coffee
to try and raise the economic, social and certification
environmental standards of coffee production and
trading. There are presently five certification Our survey of coffee growers in Brazil gives findings
schemes operating for coffee: broadly consistent with this picture worldwide.
Revenues for certified coffee growers have generally
• Fairtrade addresses the trading system, ensuring increased as a result of certification, and access to
that producers receive a minimum price for their export markets has been facilitated. This is
coffee plus a premium for investment in particularly striking for the Fairtrade certified
community projects. Some environmental growers. The evidence from the Cooperativa dos
protection standards are also included. Agricultores Familiares de Poço Fundo, one of the
six co-operatives of small coffee farmers in Brazil
• Organic certification requires the elimination of that are certified Fairtrade, is that achieving this
chemical fertilisers and pesticides as well as certification has made a marked improvement to
practices to conserve or enhance soil structure. their living conditions.
7
From bean to cup
Organic producers have also benefited but are seeing only Utz Kapeh has any presence, and then only
the differential with conventional coffee diminish as with state-owned companies. These companies have
coffee prices increase. For some organic producers incurred costs in meeting the social requirements of
the price premium does not compensate for the Utz Kapeh. While these costs exceed the price
additional costs of production in terms of reduced premiums, the companies concerned appear to be
yield. Premiums have also declined for the Utz committed to certification and considerable
Kapeh scheme but here it appears that market access expansion is expected of Utz Kapeh in Vietnam.
and the ability to negotiate long-term contracts are
more important as benefits of certification.
Markets for certified coffee
There is evidence also that it is not just the coffee
farmers who are benefiting but also estate workers The report reviews the status of certified coffee in
and local communities. Large companies are taking four markets, Denmark, Finland, Portugal and the
measures to meet the social requirements of certifi- US, all significant coffee consuming countries but
cation schemes. While some observers point out that with varying interest in certification. Brazil is a major
companies are simply meeting their legal require- source of imports for all these four countries.
ments, enforcement is lax in Brazil so additional
incentives to meet legal requirements are useful. There Organic certification is currently the most significant
are also important environmental benefits associated of the coffee certification schemes in terms of sales
with all four types of certification, particularly in but Utz Kapeh and Rainforest Alliance are
relation to reduced or better managed use of agro- expanding rapidly as they target roasters such as
chemicals and, in the case of Rainforest Alliance Sara Lee and Kraft. There is variation in the level
certification, the restoration of native vegetation. and growth of demand for certified coffee by country
and by certification scheme. Fairtrade is stagnant in
Certification in Brazil has so far mainly been taken Denmark but expanding rapidly in US and Finland.
up by large and medium coffee growers. This As yet, it is not clear whether the emergence of new
underlines the important contribution of the coffee certification schemes such as Utz Kapeh and
Fairtrade certification system which targets Rainforest Alliance will expand the market or lead to
smallholder co-operatives. It is notable that increased competition for more established schemes
compared to the other certification schemes, such as Fairtrade and organic. Much will depend on
Fairtrade has proceeded relatively slowly in Brazil. how the schemes and their unique characteristics are
Utz Kapeh, introduced relatively recently, is now the communicated to consumers.
most extensive coffee certification scheme in Brazil. It
is therefore important that the Utz Kapeh and Certified coffee appears relatively expensive because
Rainforest Alliance schemes are seeking ways to of the use of conventional coffee in some countries
work more with small producers and that some (Denmark and Finland) as loss leaders with
producer groups are in the process of certifying with substantial discounts. This is a significant barrier to
Utz Kapeh. Whatever the certification scheme, expansion of certified coffee.
maintaining and improving the quality of coffee is
vital to securing access to new markets. Where discounts are not used, it is very difficult for
consumers to compare prices on a rational basis
because so little information is given on the origins
Coffee certification in Vietnam and quality of the mainstream coffee brands. There is
so much variation in the price of coffee, depending
The enormous growth of Vietnam’s coffee on the brand and the outlet.
production has been achieved with significant
environmental impact in terms of deforestation and There are also non-price barriers to the expansion of
water use. As coffee is mainly a smallholder crop, to certified coffee consumption. Where countries have
a large extent grown by poor people and ethnic marked preferences for a particular coffee taste, as in
minorities, the fluctuation in world prices has been Finland and to a lesser extent Denmark, this
devastating in its social impact. represents a barrier for certified coffee which often
involves single origin products or is unlikely to
Evidence from Vietnam on the impact of certification match the traditional taste. There are also concerns
is very limited because certification is so new and about the low visibility of certified coffees in the
8
Executive summary
countries examined in this study, particularly in • The role that quality plays in facilitating the sale
Portugal. of certified coffee, whether Fairtrade, organic or
other schemes.
A recent development is the entry of large roasting
companies into certification. While the adoption of • The uneven acceptance of certification, as the
certified coffee appears to be a positive development chains show a trader who does not like ‘cause
that may result in an expansion of demand, some coffees’ but still buys organic coffee and buyers
observers have raised concerns about the motives of who pay a premium for certified coffee but do not
the companies and the impacts on other Fairtrade put a label on the package.
and sustainable certified coffees. The dominant
approach is to add a new certified brand to the
portfolio of brands to attract a different group of Recommendations
customers. So far, there is little indication that the
mainstream coffee roasters intend to use certified Consumer organisations
coffee on any major scale in their established brands. Consumer organisations should work to uphold
consumer rights to a healthy environment, to
There are concerns about the effects on consumers of education and to information in appropriate and
multiple certification schemes as more schemes understandable languages. They can help to expand
become established eg Utz Kapeh and Rainforest demand for certified coffee by:
Alliance in markets such as Denmark where
Fairtrade has dominated the certified niche. • Explaining to consumers about the differences
However, similar fears raied in the US a few years between coffee certification schemes and the
ago have proved unfounded and knowledge about rationale for price differentials between different
certification among consumers and the industry has types, qualities and brands of coffee.
generally increased.
• Lobbying mainstream roasting and retailers to
make a more substantial commitment to certified
Linking up producers and coffee, for example making certification a
consumers requirement for all own label coffee.
The report presents some illustrative case studies of Consumer country governments
certified commodity chains in order to show the Governments in consumer countries need to revisit
links between impacts at the local level in Brazil and requirements on companies to make information
the consumers who buy the certified coffee in available to consumers. At present, consumers are
Denmark, Finland and the US. not given enough information about the quality and
origins of conventional coffee to compare prices of
• The Cooperativa dos Agricultores Familiares de certified and conventional coffee on a rational basis.
Poço Fundo of small family farmers, certified
under the Fairtrade scheme, exporting to US and Institutional buyers of coffee in the public and private
also to Denmark. sectors (local governments, hospitals, large companies
etc) can lead the way by buying certified coffee for
• The Fazenda Santa Terezinha, a small-medium staff, customers, patients, etc, to raise awareness and
certified organic coffee grower employing hired make such coffee more visible for consumers.
labour, exporting to Finland via the UK.
Certification organisations
• Ipanema, one the largest coffee estates in Brazil, On the demand side of the market, certification
certified under Utz Kapeh and Rainforest organisations need to:
Alliance, exporting to Denmark and to the US.
• Improve the visibility of certified coffee and
A number of key observations can be made: provide more information on how the various
certification schemes differ.
• The importance of buyer interest even when other
links in the chain may be driven more by • Promote certified coffee through buyers‘
philanthropy. networks (if necessary creating a separate
9
From bean to cup
organisation for this purpose to avoid conflicts of • Including in the company’s policy a significant
interest) and adopting strategies which take commitment to increase their supply of
account of national cultural conditions of the sustainable certified coffee, for example by
coffee market, eg in Finland creating a Fairtrade making it a requirement for all own label coffee.
or sustainable equivalent to the ‘Paula Girl’.
Donor agencies
On the supply side of the market, at the producer Donor agencies can take action on both the supply
level, certification organisations need to: side and demand side of the market. On the supply
side they can support measures to reduce barriers to
• Streamline their application and evaluation small-scale producers entering certification, and to
requirements so that multiple certifications (ie promote the formation of coffee producer
from more than one scheme) can be obtained at associations and groups. On the demand side,
lower cost. donors can support establishment of certified coffee
buyer networks and activities to promote demand
• Step up their efforts to promote group for certified coffee.
certification and find ways of reducing
certification costs for small producers. Further research needs
Developments in certification change rapidly such
Coffee importers and roasters that the short-term impacts of certification may bear
association/specialty coffee associations little relation to the long-term outcomes. It is
These organisations should promote greater therefore necessary to track the longer-term
traceability and transparency. They can also provide economic, environmental and social impacts of
information to consumers to help them understand certification as initiatives become more established.
the differences in prices between conventional coffee
of different types and certified coffee of different It is also important to assess the impact of multiple
types. certification schemes and the move by the
mainstream companies into certified coffee. Will
Retailers these two developments expand the market for
Retailers can support certified coffees by: certified coffees or will they take business away from
• Improving the visibility and expanding their the existing specialist fair trade and certified
range of sustainable certified coffees. suppliers?
Just Coffee: how consumer choice impacts on coffee producers and the environment
Just Coffee follows the certified coffee chain from the farms
of Brazil to the supermarket shelves of consumer countries. It
includes exclusive interviews with certified coffee farmers,
roasters, consumer representatives and some of the major
players in the international coffee sector.
The DVD is free to NGOs and academic institutions and $US 5 to others.
10
Introduction
Chapter 1
Introduction
It is estimated that coffee growing provides a But consumers are now facing a growing complexity
livelihood for some 25 million people and that in of ethical and environmental claims in coffee and
total 100 million people are involved in the sector there is concern about confusion and lowering of
from agriculture through to processing and sale. standards. It is also possible that certification may
Three countries – Brazil, Colombia and Vietnam – become another requirement for market access and a
account for almost 60% of world production.3 barrier for small producers. In this case, certification
may be an advantage for large coffee estate
Between 1997 and 2001 coffee prices fell by 70% in producers and irrelevant for the majority of small
nominal terms and to below the costs of production coffee farmers. The key issue is whether certification
in many producing countries4 with drastic initiatives can help to address the social, economic
implications for rural livelihoods. The International and environmental problems of coffee production
Coffee Organization (ICO) in its 2002/3 Annual and improve the livelihoods of coffee farmers.
Review observed that the crisis was the worst in the
history of coffee ‘with low prices giving rise to One important factor is the consumer and how they
growing levels of poverty, unemployment, social respond to the presence of certified coffee of different
violence and unrest in producing countries’. The types on retailers’ shelves. This will depend on
slump in world coffee prices in 2000-03 led a number factors related to their income, aspirations and ethics,
of organisations, including Oxfam, to focus attention as well as the reality of the impact of certification on
on the adverse impacts on coffee producers in the ground and how this is conveyed to them. Often
comparison with the healthy situation of companies there is a gap between reality and perception.
involved in trading, roasting and retailing in
developed countries. Prices have since improved but For this reason, Consumers International (CI) and
are still relatively low and very variable. Some member organisations in coffee producer and
analysts5 are concerned that even if consumption consumer countries (see Annex 1 on page 59 for
increases, the volatility of prices is likely to recur. details) have teamed up with the International
Institute for Environment and Development (IIED) to
Over the last few years a number of certification examine the impact of certification along the coffee
schemes for coffee have come to prominence commodity chain from producer to consumer and to
building on established organic certification schemes. examine the market for certified coffee and how it
Much hope has been pinned on these emerging can be expanded.
sustainable coffee initiatives which aim either to pay
1
International Coffee Organization, London, 2002 4
Food and Agricultural Organization (FAO), Rome, 2004.
2
International Trade Centre, Geneva, 2002 5
Eg Lewin, B, et al, 2004 11
3
Ibid.
From bean to cup
12 6
CIMS, 2004
Introduction
13
From bean to cup
Chapter 2
Background to the coffee chain of state marketing boards and their replacement by
private sector traders and exporters. New producers
There are two main coffee species: arabica which of coffee came on to the market, notably Vietnam
accounts for 60-65% of supply and robusta which which in 1980 produced only 8,400 tonnes and by
accounts for 35%, compared to only 25% some 20 2004 had increased its production tenfold to 890,000
years ago. Arabica fetches higher prices, but robusta tonnes.10
is easier to produce, more resistant to diseases and
can be grown at lower altitudes.7 Arabica is mostly Trading became increasingly consolidated at
produced in Latin America but there are also large international level after the collapse of the ICA in
suppliers in Ethiopia, Kenya, India and Papua New 1989. There was a period of restructuring which saw
Guinea. Robusta is produced mainly in Vietnam and mid-sized traders go bankrupt, merge with others or
Brazil. be taken over by the major traders.11 Five companies,
Dreyfus (France), ED & F Man/Mercon (UK), Esteve
Coffee goes through a number of stages from the (Brazil), Neumann (Germany) and Volcafe
grower to the final retail outlet: preliminary (Switzerland) cover about 40% of the total volume of
processing, milling, export, import, roasting, green coffee traded worldwide.12
wholesale, retail. The basic stages are set out in
Box 1. Roasting is consolidated as a sector with four
companies, Sara Lee, Kraft/Philip Morris, Procter
and Gamble and Nestlé, buying half of all green
Trends in the structure of the beans traded, and the top ten companies accounting
coffee commodity chain for 60-65% of all sales of processed coffee in 2000.13
There has been very little vertical integration
The nature of this commodity chain and the between roasters and international traders, with one
relationships between players at different stages and exception being Tchibo which has vertically
between stages have changed over the last 15 years. integrated all the way into estate production in
Between 1962 and 1989, coffee was subject to an Tanzania.14 Some roasters are said to source from
international commodity agreement, the local exporters as well as international traders in
International Coffee Agreement (ICA). Export quotas order to reduce their dependence on any one actor.15
were agreed for signatory countries with a view to
preventing fluctuations in supply and price and to In 2003, only 6.9% of coffee exports from producing
ensure that price remained at a reasonable level in countries were in the form of instant or roast or
relation to costs of production. ground beans and most of this was instant.16 Talbot17
explains how roaster companies in the US and
The ICA broke down in 1989 and there were also European countries in the first half of the 20th
other significant changes on the world market. Many century developed distinctive national blends based
producing countries had state-controlled coffee on the types of coffee that had been available from
marketing boards which bought the output from former colonies or other historic links. US blends, for
producers, and exported it, ensuring that ICA quotas example, were based on Brazilian blends while in
were observed. The move to structural adjustment France, coffee blends had a high proportion of
from the late-1980s onwards resulted in the break up Robustas, as these were common in West Africa.
7
Scholer, M (2004) 14
Ponte, S, 2001
10
VINASTAS and VICOFA, 2005 15
Ibid.
11
Ponte , S, 2001 16
ITC, 2005
12
ITC, 2002 17
Talbot, JM, 2002
14 13
Ibid.
Coffee and sustainable development
Growing
Once planted, coffee takes about three to five years to reach full yield, but will then continue yielding coffee
cherries for at least 20 years. This means that supply is price inelastic in the short-term. Factors that
significantly affect supply are frost, drought and coffee berry disease. Coffee can be grown with shade cover or
in full sun. The main factor that affects the quality of the coffee at this stage and hence the price to the
grower 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 processing8
This normally takes place on the farm or estate, but occasionally farmers sell unprocessed cherry to local
traders. 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 regarded
as 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 remove
twigs and dirt. Cherries are then dried in the sun and on larger plantations, mechanical drying will also be
used to speed up the process. Drying has a crucial effect on quality as over-drying will result in broken
beans and insufficient drying will lead to fungal attack.
Wet processing requires specific equipment and substantial amounts of water. Removal of the fleshy pulp is
first done mechanically and the residual pulp is then often removed through a fermentation process. The
fermentation process requires monitoring as the coffee can acquire sour flavours. This is followed by
washing in tanks or machines and then drying in the sun or in machines to give parchment coffee. As with
the dry processing method, the drying process can affect quality. In Brazil, the fermentation process is rarely
used 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 Paraguay
and almost all robustas. The wet method is used for most other arabicas and rarely for robustas.
Export/import
From the mill the coffee goes to a trading company, directly or via an intermediary, either for export or less
commonly to local roasting companies for domestic consumption.
Roasting
Roasting of coffee beans usually takes place in the consuming country or close to point of final sale because
of its short shelf-life compared to green beans.9 Blending of different types of coffees to achieve a desired
taste is also an important activity of the roasters.
Retail
Roasted beans and/or ground coffee is then sold to retailers or to commercial catering outlets or coffee
houses either directly or via a wholesaler.
8
Except where otherwise, stated this section draws from the ICO website: http://www.ico.org/field_processing.asp 15
9
Fitter, R and Kaplinsky, R, 2001
From bean to cup
Blending enables roasters to substitute coffee within Coffee growing like all agriculture has an
the four broad types (robustas, unwashed arabicas, environmental impact. However, this has to be seen
medium quality and high quality washed arabicas) relative to other crops or land uses. As a perennial
according to price and availability, while maintaining tree crop it provides some soil cover. Given the life
a consistent taste. More recently, new technologies span of the coffee plant, the soil is prepared only once
such as steam cleaning have enabled the roasters to in 20 years so that there is minimal disturbance. If
use lower quality beans in their blends and so appropriate techniques such as mulching and control
reduce costs. of pests and disease are followed over the lifespan of
the coffee plant, the soil is protected more than for
At the retail level several trends are noticeable: annual crops.21 Traditional shade coffee is considered
to be the most environmentally benign and
• increasing concentration in supermarket chains ecologically stable agro-ecosystem in northern Latin
• shorter supply chains as supermarkets strip out America.22
some tiers of intermediaries
• increasing out-of-home consumption of coffee
with the increasing popularity of the café culture Concerns about coffee
and the emergence of global café chains like
Starbucks. Coffee is associated with a number of concerns with
inter-related economic, social and environmental
In spite of the development of private coffee labels by implications:
supermarkets, the roasters have been able to
maintain their brands, but at the expense of heavy • declining and variable prices which have knock-
advertising.18 on effects for social welfare and environmental
impact
• declining shares of revenues for producer
The development potential countries and growers
of coffee • poor conditions for farmers and workers on coffee
farms
The importance of coffee to developing countries is • deterioration of the local environment.
without question. As ICO (2003) points out, since
coffee can only be grown in frost-free areas it is Declining and variable prices
important for non-arid tropical countries, many of Between 1997 and 2001 coffee prices fell by almost
which are Least Developed Countries (LDCs). Coffee 70% in nominal terms, falling to below the cost of
23
is a key export commodity for developing countries, production in many countries. Prices reached their
providing employment, cash income and foreign lowest levels for 30 years in nominal terms and for
24
exchange. 100 years when adjusted for inflation. These price
trends had severe consequences for coffee growers
Coffee is also important for rural livelihoods. who were forced to sell below cost and saw their
Smallholder involvement in coffee production is very incomes drastically reduced. Economic losses for
high. According to Oxfam,19 70% of production in small coffee farmers have been estimated at US$4.5
2000 was on farms less than 10 hectares, 15% on billion per year and with further knock-on effects on
medium size (10-50 hectares) and 15% came from children’s education and healthcare.25 The loss of
plantations of over 50 hectares. Coffee has relatively foreign exchange also led to fiscal constraints for
high labour demands compared with other governments of coffee-producing countries such as
traditional smallholder crops. In Guatemala, for Ethiopia and Nicaragua.26
example, coffee requires 73 person-days per hectare
compared to 58 for corn and 61 for beans.20 It During the last three years there has been some
therefore is a key provider of rural employment. improvement in prices – the ICO composite price
However, a trend to large-scale, low-cost production, indicator increased by 30% between 2002 and 2004
primarily in Brazil and Colombia, is threatening this and there have been further increases in 2005. The
model of production. ICO is predicting that production in 2005/06 will be
18
Ponte, S, 2001 23
FAO, 2004
19
Oxfam, 2002 24
Lewin B, et al, 2004
20
Rice and Ward, 1996 25
Ibid.
16 21
Thomaziello, RA, et al, 2000. 26
ICO, 2003
22
Rice and Ward, 1996
Coffee and sustainable development
108 million bags (down from a high of 122 million in US$ 6 billion from a market twice the size,
2002) and below world consumption estimated at 115 equating to less than 10% of the retail value of
million bags in 2004.27 This reflects reductions in coffee. The growers in 2002 received roughly
supply, mainly arabica, from a number of countries, 6% of the value of a pack of coffee sold in retail
primarily Brazil but also Indonesia, Cote d’Ivoire and outlets.
Colombia.28 However, supply of robusta has declined
33
only slightly from its 2002 peak, reflecting contraction • Fitter and Kaplinsky using data for 1995
in African producer countries while continuing to estimated that coffee growers received from
increase strongly in some countries, primarily 10-21% of the retail price and that 40% of the final
Vietnam.29 product price accrued to developing countries.
34
Problems of declining prices are compounded by • Talbot examined trends in revenue shares over
price volatility making rational adjustment to price time, finding a significant reduction in the share
changes difficult. According to Baffes30 both arabica retained by growers in the late 1980s and early
and robusta prices varied by a factor of five during 1990s. Between 1975 and 1985 it was consistently
the 1990s. The principal contributing factor was the above 20%. After the collapse of the ICA in 1989
weather conditions in Brazil where frost and it ranged between 10-12% until 1993/4 when a
droughts affect the coffee crop every few years. shock to supply brought some improvement.
Recent fluctuations in coffee prices (price levels in • Studies of specific value chains, Cote d’Ivoire to
September 2005 were the lowest since the beginning France and Costa Rica to Germany, found that in
of 2005) have shown how factors outside the sphere 1994 the grower’s share of total retail price was
of coffee production can contribute to this variability. 13.8% and 14.6% respectively.35
The ICO review for September 2005 emphasises how
coffee prices in September were below expectations • Daviron and Ponte36 examine the trends in green
because of speculative movement in petroleum coffee import prices and retail prices for roasted
products, which influenced the activities of coffee in the US between 1980 and 2002. They find
investment funds.31 a sharp decline in import prices over the period
and a marked increase in the gross margin
Even if prices do increase, there will still be concerns between retail prices and import prices from
that growers are receiving a decreasing share of the 80 cents per lb at the beginning of the 1980s to
coffee revenues. US$ 1.80 by 2000. This implies that the importing
country was capturing an increasing share of the
Declining shares for growers and retail value of coffee.
producer countries
The apparent widening of the gap between prices Researchers give different emphasis to the various
received by growers and retail prices has prompted reasons for this trend in declining grower and
studies comparing the share of the final retail price producer country share. All agree that the problem is
accruing to growers with that of other stages of the one of imbalance between supply and demand. There
value chain, and also examining trends in the share is general agreement that oversupply of green coffee
of total value of coffee retained in producing is the principal contributing factor to the slump in
countries. Some of these studies are snapshot prices and that this is more than a cyclical problem,
estimates for a single year, others examine trends. reflecting the short-term inelasticity of coffee supply,
Considering them together, there is some indication but also a result of some major restructuring.37
of a declining share over time both for growers and
for producing countries: New low-cost producers have come on to the market,
notably in Vietnam and in the Brazilian Cerrado, a
• Oxfam32 estimated that producer countries in 1992 region less susceptible to frost, where a large-scale,
retained about US$ 10 billion or 33% of the retail highly mechanised, high density and input-intensive
value of coffee but by 2002 they received less than form of coffee farming has become prominent.38
27
IOC, September 2005 34
Talbot, JM, 1997
28
IOC, September 2005; ICO January 2005 35
Pelupessy, W, 1999, cited in Ponte, S, 2001
29
Ibid. 36
Daviron, B and Ponte, S, 2005
30
Baffes, J, et al, 2005 37
Oxfam 2002; RIAS 2002; ICO 2002/3; Scholer, M, 2004; Lewin,
31
International Coffee Organization, September 2005 B, et al, 2004
32
Oxfam, 2002 38
Lewin, B, et al, 2004 17
33
Fitter, R, and Kaplinsky, R, 2001
From bean to cup
Higher cost traditional smallholder producers are the national and international (EU) competition
least able to compete and are either being forced out authorities monitor them and have so far not
of the coffee market or having to look for other ways identified monopolies and/or cartel-like behaviour.45
of increasing their competitiveness.
Gibbon46 has reviewed a number of econometric
On the demand side, consumption is increasing only studies of market power carried out for periods
very slowly in developed countries despite the ranging from 1972 to 2001. These examine either the
perception of a coffee boom and the emergence of relation between final prices and firm-level marginal
coffee shop chains and a coffee culture. Per capita cost or the extent of price transmission – that is, the
consumption has gone down in many countries.39 extent to which input price changes translate into
World consumption for 2004 is expected to be about output price changes, taking into account elasticity
3% higher than in 2003 but this is primarily due to the of demand. He finds that these studies give little
growth of consumption in exporting countries.40 support to a hypothesis of market power being held
by roasters and retailers. However, he points out that
There is less agreement on the role of market power these studies mostly examine periods when green
held by roaster companies. Oxfam41 contrasted the coffee bean prices were rising.
losses, or at best tiny margins, made by farmers and
exporters in developing countries with the This review included a study of the Swedish market
‘extraordinary profits’ being made by roaster by Durevall 47 who has also studied market structure
companies in the US and Europe on their retail coffee in Finland and Denmark and has not found evidence
business suggesting that the market power held by of collusion or lack of competition in Nordic
these companies was a major contributing factor. consumer markets. He concludes that competition in
the coffee consumer market is good. He added that it
Lewin,42 while acknowledging the importance of is changes in demand and consumer preferences
corporate concentration, places considerable away from coffee among the generation born after
emphasis on two factors. First, the roasting 1960 that is driving the distribution of revenues
companies have been able to take advantage of along the chain.
various value-adding activities such as marketing,
branding, differentiation and flavouring. Second, the Living and working conditions for coffee
non-coffee components of the retail price of coffee farmers and estate workers
such as wages, packaging and marketing have grown Concerns are often raised about the wages and
and now represent a more significant share of the working conditions of coffee farmers and plantation
retail price than the coffee itself. The ICO stresses the workers, the use of child labour and the health and
problem of too much low-quality coffee and safety implications of handling pesticides.
insufficiently dynamic growth in consumption but
also acknowledges that the value chain is skewed In 2003 the ICO asked representatives of coffee-
against producers.43 producing countries to describe the impact of the fall
in coffee prices. The responses summarised below48
May et al 44 argue that while there may be indicate how closely linked coffee prices are with
circumstantial evidence of roaster influence on retail rural social development:
prices there is little evidence of roaster influence on
world market prices for green coffee. This is because • Increase in households under the poverty line
concentration in the physicals market is not reflected (Colombia, Costa Rica, Ethiopia). In Colombia,
in the futures market where benchmark prices are where coffee provides 30% of rural employment,
established – roasters, traders and investors interact the percentage of households in coffee-growing
in the futures market creating a more competitive areas living under the poverty line grew from
environment. A report by Rabo International 51.4% to 61% between 1997 and 2000. The results
Advisory Services is also sceptical about the extent of included increasing malnutrition and inability to
market power of the roasters, pointing out that pay for children’s education.
39
ICO, 2003/4 44
May, PH, et al, 2004
40
ICO, October 2005 45
Rabo International Advisory Services (RIAS), 2002
41
Oxfam, 2002 46
Gibbon, P, 2004
42
Lewin, B, et al, 2004 47
Durevall, D, 2004
43
ICO, 2002/3 48
ICO, 2003
18
Coffee and sustainable development
In another coffee-growing region in the state of The aim was to increase yields. For example,
Espirito Santo, the study found poor living and Colombia, in a space of 25 years, went from mainly
working conditions for hired workers, with no traditional systems of coffee to 68% of its coffee areas
formal signed work papers, and no respecting of being intensified.53 It has been estimated that shade
holidays, while paid time did not include travel time monoculture and sun coffee account for 40% of the
from the city to the field. Indiscriminate use of agro- coffee producing area in northern Latin America.54
chemicals was claimed to have caused considerable
harm to farm workers. This trend has had significant environmental impact.
Studies have shown that shade coffee supports a
Environmental impact of coffee diversity of species and migratory birds. Greenberg55
production found that both planted shade coffee plantations and
Coffee tends to be grown in high biodiversity areas rustic shade coffee (ie grown under a natural forest
and areas of natural forest. The destruction of the canopy) in Ocosingo, Chiapas, Mexico, supported a
Atlantic forest in Brazil in the 19th century owes high diversity of bird species, exceeded regionally
much to coffee50 but deforestation to make way for only by moist tropical forest. Coffee plantations
49
Observatorio Social, 2004 54
Ibid.
50
Dean, W, 1995 55
Greenberg, R. et al, 1997
51
Losch, B, 1992, cited in UNCTAD,1994 56
Gillison, AN, et al, 2004
52
Castro F, et al, 2004. 57
Gooding, K, 2003 19
53
Rice, RA and Ward JR, 1996
From bean to cup
Drying sheds at Fazenda Santa Terezinha, Minas Gerais, Fairtrade coffee beans in sacks, each marked with the name
Brazil (see page 49) of the family farm, Poço Fundo association, Minas Gerais,
Brazil
appeared to act as a refuge for many omnivorous of coffee plants, led farmers to abandon their coffee
bird species, in particular migrant birds from North and deforest new areas of forest.60
America. Gillison et al 56 examined the impact of
different coffee farming systems on biodiversity, Processing also has an environmental impact. Wet
along a spectrum from simple, intensive, non-shaded processing of coffee uses substantial amounts of
systems to complex, shaded smallholder systems in water and as the process involves fermentation of
Sumatra. They found that biodiversity increased the residual pulp surrounding the cherry, it
along this spectrum. generates wastewater with high concentration of
biochemical oxygen demand.61 In Central America
The decline in coffee prices has led to further coffee processing in the 1990s was considered the
concerns about the impact on the more environmen- region’s most polluting agro-industry. The Rio
tally friendly smallholder producers. In some cases, Grande de Táricoles, which runs through Costa
the fall in prices has led to replacement of shade Rica’s main coffee growing area, was reported to be
coffee by other crops such as pasture and sugar cane, devoid of all life at the beginning of the 1990s.62 Well-
considered more environmentally damaging.57 In established treatment techniques exist but add to
Ecuador, shade coffee was replaced by annual crops costs of production for producers already feeling the
or grass and there were concerns about the squeeze of lower prices.
environmental impact.58 In India, farmers in shade
coffee areas were ‘tempted to remove trees and sell
them as timber, leading to deforestation and loss of
ecological balance’.59
58
ICO, 2003 61
UNCTAD/IISD, 2003
59
Ibid. 62
Jacquet 1991, cited in UNCTAD, 1994
20 60
Gooding, K, 2003
Sustainable coffee certification
Chapter 3
The concept of certification Some of these elements are present in some buyer-
driven approaches such as that of Starbucks (Box 2
It has been common for companies to make on page 22) and multi-stakeholder initiatives such as
environmental and social claims about their products the 4Cs (Box 3) and the Sustainable Commodity
often without substantiation, raising concerns about Initiative (Box 4). However, there are fundamental
‘greenwash’ . Certification aims to address these differences. Buyer-driven approaches usually involve
concerns in that an outside body assesses the a company setting its own standards for suppliers to
performance of the company against an agreed set of achieve. The 4Cs aim to develop a global code of
standards, and decides whether the option of using a conduct for sustainability along the coffee
label can be awarded. A certification scheme typically commodity chain but does not envisage the
consists of the following elements: introduction of a labelling scheme.
• A set of process and performance standards often Certification schemes vary in a number of aspects:
set out as a code of practice, covering different
aspects of the production of the product such as • The comprehensiveness of standards, with some
environmental impact, health and safety schemes such as Fairtrade concentrating on the
considerations, relations with the local community trading relationships and leaving detailed
and worker rights. environmental issues to others.
• Independent verification of compliance or • The way in which standards are set and the
performance with these standards by an extent of stakeholder participation, although the
independent organisation usually separate from ostensible aim of most schemes is to achieve
the standard-setting body - the initial verification multi-stakeholder input.
is followed up by periodic audits usually on an
annual basis with some schemes also applying • The degree of emphasis given to process
unannounced random inspections. standards as opposed to performance standards.
ISO 14001 and the certification system of the
• A system for accrediting the certifying Brazilian Specialty Coffee Association (BSCA), for
organisations that provides the evaluation service. example, certifies management systems, requiring
continuous improvement rather than achievement
• A product label to enable producers to of determined performance standards.
communicate to buyers/consumers that the
product meets the standards of the certification
scheme. In this way producers, in theory, can Certification schemes for coffee
benefit from the willingness of consumers to pay
extra for products meeting high environmental or At present there are five certification and labelling
social standards as demonstrated by the label. schemes operating for coffee:
• Fairtrade
• Chain of custody certification for those handling • Organic
the product – traders, processors, or a traceability • Rainforest Alliance,
system – to provide assurance that the labelled • Utz Kapeh
product in the retail outlet has come from a • Smithsonian Bird Friendly.
certified source and has not been falsely labelled The schemes and their distinguishing characteristics
or mixed with non-certified products. are summarised in Table 2 on page 28.
21
From bean to cup
Starbucks piloted a Preferred Supplier programme to responsibility (40 points); environmental leadership
link preferred supplier status with social and in coffee growing (45 points) and in coffee
environmental performance. Price incentives, processing (20 points). A preferred supplier has to
offering a premium over the market price, were meet the essential requirements and a score of at
based on a points system for environmental (50%), least 60% of the maximum possible scores for each
social (30%) and economic criteria (20%). In addition, subject area.
the programme offered long-term contracts to
provide some stability for producers. By the end of The social and environmental guidelines are
2004, 248 suppliers representing 20 countries had comprehensive, covering hiring practices and
applied and more than 50 million lbs (22,700 tonnes) employment policies, worker conditions, protection
of coffee had been purchased by Starbucks under of soil and water resources, conservation of
this programme over the two year period. biodiversity, ecological pest and disease
management and reduction of agrochemical use,
This programme was relaunched in March 2004 as waste management and energy use. They stress the
the Coffee and Farmer Equity (C.A.F.E.) Practices. importance of equity of financial reward. ‘It is
One of the significant changes was to make supply expected that Starbucks coffee suppliers will pass
chain transparency a pre-requisite. Starbucks aims on an equitable share of coffee revenues (ie financial
to purchase the majority of its coffee under these rewards) up the supply chain to coffee farmers and
guidelines by 2007. The evaluation guidelines cover processors.’
product quality, (essential requirement); economic
accountability (essential requirement); social Source: Starbucks, 2004
This is a joint initiative of coffee producers, trade harvest processing and trading of mainstream green
and industry, trade unions, and social and coffee. It is supported and facilitated by Deutscher
environmental NGOs to develop a global code of Kaffeeverband and GTZ.
conduct aiming at social, environmental and
economic sustainability in the production, post- Source: www.sustainable-coffee.net
The United Nations Conference on Trade and strategies on a sector-by-sector basis. The first phase
Development (UNCTAD) and the International of the SCI will focus on the identification of
Institute for Sustainable Development (IISD) strategies for the coffee sector. The coffee phase will
launched the Sustainable Commodity Initiative build upon existing initiatives with the objective of
(SCI) in December 2002 in recognition of the identifying novel ways for addressing supply chain
fundamental link between commodities and and market issues in a co-ordinated way that is
sustainable development. The principal objective of suitable for substantial application in the coffee
the SCI is to improve the social, environmental and sector.
economic sustainability of commodities production
and trade by developing global multi-stakeholder Source: www.iisd.org/trade/commodities/sci.asp
22
Sustainable coffee certification
Fairtrade 63
of these were in Central America (93), South America
(63) and the Caribbean (9), as well as 27 in Africa
The fair trade criteria defined by and 5 in Asia.
the Fairtrade Labelling
Organization (FLO), which is the Coffee was the first Fairtrade labelled product ,
umbrella group for various fair launched in 1989 and is still the best known
trade organisations in different Fairtrade labelled product among consumers in
countries, include a minimum Europe, North America and Japan. Sales of roasted
producer price which varies Fairtrade coffee in 2004 were 24,323 tonnes,
according to the type of coffee and the region, as corresponding to about 0.42% of demand.66 The
shown in Table 1 (below). If the market reference largest markets for Fairtrade coffee in 2004 were the
price (the New York C contract price plus or minus a US, followed by the UK, the Netherlands and
quality differential) is higher than the Fairtrade Germany. Sales worldwide were up 26% from the
minimum price, the market price applies. In previous year and there has been significant growth
addition, a Fairtrade premium of 5 US cents per lb since 1999. About 12% of all Fairtrade coffee sales in
of green coffee is paid on top of the minimum or 2004 were also organically certified.
market reference price. Where coffee is certified
organic as well, an additional premium of 15 US Fairtrade coffee consumption is still confined to
cents per lb of green coffee is paid.64 importing countries in Europe and North America.
The only producer country where there has been any
Registration with FLO is at the group level. To significant consumer interest in the concept of
qualify for the Fairtrade system, smallholders have Fairtrade coffee is Mexico but not necessarily as part
to be organised into producer groups or co- of the FLO system.
operatives which must be democratically run and
politically independent. The Fairtrade premium is Mainstream roaster companies have started to take
paid to the group, usually for investment in group or an interest in Fairtrade certification. Towards the end
community projects, and its use is monitored. Some of 2003, after a concerted campaign by Oxfam and
environmental protection standards are included in other organisations, Procter and Gamble started to
the standards for Fairtrade coffee including a ban on sell Fairtrade certified coffee as part of its specialty
the most toxic pesticides and requirements to coffee business (Millstone), with a commitment to
implement Integrated Crop Management.65 Fairtrade increase the volume of Millstone’s Fairtrade sales to
importers are also required to offer pre-financing to at least two to three million lbs (909 to 1,363 tonnes)
producer groups if requested. within two years.67 Millstone sells Organic Fairtrade
certified coffee as part of its ‘Signature Collection’
As of March 2004, there were 197 coffee which also includes Rainforest ReserveTM Rainforest
co-operatives working with the FLO initiatives. Most Alliance Certified.68
Sara Lee has been selling Fairtrade coffee on US • use of non-organic fertilisers, pesticides and
university campuses in the dining services since the biological pest control methods is limited.
early 2000s following a student campaign. The
company’s Prebica Whole Planet Blend is certified as The standards formulated by the International
Fairtrade by TransFair US. It is also certified as Federation of Organic Movements (IFOAM) form the
organic and shade-grown. This has been followed by basis on which public and private standard-setting
supply of Fairtrade coffee to other Sara Lee accounts bodies develop more specific standards.72 Different
such as 250 Borders cafés.69 standards apply in different countries or regions, the
EU, US and Japan. A transition period of three years
In October 2005 Nestlé launched its Fairtrade is usually required before coffee converted to organic
certified instant coffee in the UK, known as Partners production can be sold as organic.
Blend. This has proved extremely controversial with
heavy criticisms being raised by the Baby Milk The International Trade Centre estimates consumption
Action Group among others. of organic coffee in major consumer countries at
720,000 bags (43,200 tonnes) in 2002/3, making this
Some retailers have also taken action to promote the most significant of the certification schemes so far
Fairtrade coffee or to position themselves as sellers in terms of sales.73 It estimates that world production
of Fairtrade coffee. The Co-op was the first UK of organic coffee in 2001/2002 was 800,000 bags
supermarket to switch all its own label coffee to (48,000 tonnes), indicating that there was some over-
Fairtrade in November 2003. Marks and Spencers in supply. According to Scholer 74 producers have
the UK has a policy of using only Fairtrade coffee in received premiums which more than compensate the
its store cafés. additional costs involved in certification such as
labour and, in some cases, lower yields, but there has
been a tendency for premiums to decline as organic
Organic supply expanded. In 2003, organic green bean
premiums ranged from 15 cents to 30 cents per lb but
Requirements of organic were widely predicted to decline over time.75
certification systems involve
management practices to
conserve or enhance soil structure, resilience and Rainforest Alliance
fertility and use of non-synthetic nutrients and plant
protection methods.70 Coffee is one of a number of
tropical products certified under
Unlike other certification systems, organic the Rainforest Alliance system.
certification standards are often set or regulated by The sustainable agriculture
governments. For example, the EU regulations on standards aim to cover all aspects
organic production71 stipulate the following of production: environment,
standards: rights and welfare of workers and the interests of
local communities. These standards have been
• cultivation of legumes, green manures or deep- developed following a process of consultation with
rooting plants in an appropriate multi-annual social and environmental groups, industry,
rotation programme government and other stakeholders.
• incorporation in the soil of organic material,
organic livestock manure and vermicompost Rainforest Alliance distinguishes itself from Fairtrade
• pests, diseases and weeds to be controlled by in its emphasis on how farms are managed, rather
using appropriate varieties, rotation programmes, than how products are traded. It differs from organic
biological pest control, mechanical practices and certification in that the standards are based on
flame weeding integrated pest management (IPM) which allows for
• seeds and propagation material organically some limited, strictly controlled, use of agro-
produced chemicals. It goes beyond organic in its emphasis on
69
http://hds.ucsd.edu/diningservices/wholeplanet.pdf; 72
Dankers, C, 2003
http://www.transfairusa.org/content/about/n_040227.php 73
International Trade Centre, Geneva,, 2005
70
Lewin, B, et al, 2004 74
Scholer, M, 2004
71
International Trade Centre, Geneva, 2005, The Coffee Guide, 75
Giovannucci, D and Koekkoek, FJ, 2003
24 www.thecoffeeguide.org
Sustainable coffee certification
wildlife conservation and worker welfare. Certified coffees in the mainstream market’. In 2004 Kraft
coffee farms are required to maintain diverse shade- purchased 5 million lbs (2,273 tonnes) of certified
cover of native trees to provide habitat for range of coffee from farms in Brazil, Colombia and other
species or to protect and restore native forest Latin American countries and expects to double this
reserves. All farms are inspected every year and quantity in 2005.81 This certified coffee will be
must show continual progress. blended into several mainstream coffee brands in
western Europe such as Carte Noire, Kenco and
The Rainforest Alliance currently operates Maxwell House. In addition it has launched 100%
certification of coffee farms in 11 countries in Latin certified brands in the UK (Kenco instant coffee) and
America. By October 2005 it had issued a total of in the US (All Life) for sale in away-from-home food
268 certificates for 2,822 operations involving 40,920 service settings. Kraft has recently launched
hectares of coffee cultivated in a total farm area of Rainforest Alliance certified coffee in Denmark and
95,115 hectares.76 It is also evaluating or certifying Sweden. The entry into the UK market proved
farms in Ethiopia and Sumatra.77 controversial with concerns being raised about the
impact on Fairtrade. In 2005 over 13 million lbs
According to the Rainforest Alliance, just under 1% (5,900 tonnes) of Rainforest Alliance certified coffee
of all coffee produced is certified under the will be available in Kraft brands, doubling the
Rainforest Alliance Scheme (however, not all of this is previous year’s purchase.82
necessarily sold as certified). Over the past two years
the distribution of Rainforest Alliance Certified
products has grown considerably following efforts to Utz Kapeh 83
76
Luis Guedes Pinto, Director, Imaflora, presentation 14/10/05 80
Ibid.
77
Chris Wille, personal communication, 2005 81
www.kraft.com
78
Sabrina Vigilante, Rainforest Alliance, personal communication, 82
Luis Guedes Pinto, Director, Imaflora, presentation 14/10/05
e-mail 14/11/05 83
Except where otherwise stated, this section draws on
79
Ibid. information from: www.utzkapeh.org 25
From bean to cup
Latin America but also in Asia (India, Indonesia, Limited which have now been joined by Bombay
Vietnam) and Africa (Ethiopia, Tanzania, Uganda Burmah Trading Corp Ltd, an Indian roaster
and Zambia). The scheme is expanding rapidly. At company. At the beginning of November 2005, there
the end of 2004, 61,000 tonnes of green coffee were were 161 exporters, traders and buyers registered
certified from a total of 66 producers including co- with Utz Kapeh.88 Purchases of Utz Kapeh certified
operatives (up from 38 the year before) in 14 coffee totalled 21,200 tonnes in 2004, up 50% from
countries. As of early December 2005, a total of 131 2003.89 As of December 2005, purchases of certified
farms and producer groups were certified with total coffee were approaching 30,000 tonnes for the year.90
certified volume approaching 140,000 tonnes of
green coffee. More than 200 additional farms and Like the Rainforest Alliance, Utz Kapeh is targeting
producer groups were registered with Utz Kapeh roasters and retailers rather than consumers. For this
and in the process of certifying.84 reason it is not so concerned about promoting the
Utz Kapeh label to consumers. As David Rosenberg,
A key aim of Utz Kapeh is to improve the terms of Executive Director of Utz Kapeh, explains,
trade for producers but the programme does not certification is geared to niche markets, involves a
intervene in price negotiations, nor is there any set significantly higher price and is positioned to call
premium or floor price as in other schemes. The attention to itself rather than the brand, with the
pricing policy states that producers should be result that the certification label overshadows the
rewarded with a premium greater than zero for brand. Utz Kapeh, in contrast, is trying to support the
compliance with the code of conduct and that if brand starting from a fundamental premise that is
either a roaster or a producer consistently pays or different from niche-positioned certification schemes:
accepts low or no premiums they will be excluded consumers expect professional coffee companies to
from the programme. To improve the negotiating take responsibility for their products and to have
process, participants in the programme are given minimum environmental and social standards. But
information on the weekly average reported they are not willing to pay extra for this.
premiums per country and the sales per quality per Responsibility is an expected element of a brand’s
country. According to Utz Kapeh, this up-to-date identity rather than a unique selling point to increase
market information enables producers to negotiate a sales in the short term. Utz Kapeh requires blended
better price. Premiums in the second half of 2004, coffee products to have at least 90% Utz Kapeh
when the Utz Kapeh programme started collecting certified content for them to have the option of using
and reporting this data, ranged from 1 to 9 cents per the label. This differentiates it from the Rainforest
lb with an average of 4 cents per lb.85 In 2005, they Alliance which has a lower threshold (30%).91
are approaching 5 cents per lb.86
David Rosenberg, Director of Utz Kapeh, says: ‘Utz
In addition to the founding company, Ahold, Utz Kapeh makes it possible for brands to make a credible
Kapeh buyer members include well-known names claim about their sourcing across the board, rather than
such as Sara Lee, (The Netherlands), ICA (Sweden), for a small segment of premium priced products.’
Friele (Norway), Safeway (UK), Somerfields (UK),
Casino (France), Mitsui (Japan), and Java Trading
Company (US). Sara Lee has formed a partnership Bird Friendly coffee 92
84
David Rosenberg, personal communication, 2005 90
David Rosenberg, personal communication, 2005
85
Utz Kapeh, 2005 91
David Rosenberg, personal communication, 2005.
86
David Rosenberg, personal communication, 2005 92
Except where otherwise stated this section draws from
87
Utz Kapeh, press release, 12/4/05 information provided on: http://nationalzoo.si.edu/ConservationAnd
26 88
Utz Kapeh newsletter, November 2005 Science/MigratoryBirds/Coffee/Farms
89
Utz Kapeh, 2005
Sustainable coffee certification
The scheme currently operates in four countries in up the Coffee Support Network to help producers
Latin America (Colombia, Guatemala, Mexico and become certified by providing training and
Peru) and involves 12 farms, some of which are improving management systems.95
co-operatives, and 615 growers on more than 3,600
hectares. The amounts of certified coffee produced Impact on behaviour
are small relative to the other schemes: 2,989,841 lbs It has also been observed that typically the first
(1,359 tonnes). producers to go for certification are those whose
existing practice is already close to the standards
Companies that sell Bird Friendly coffees contribute required by certification. Certification merely allows
25 cents per lb to support the research and good producers to differentiate themselves from poor
conservation programmes of the MBC. The coffee is performers, but has limited impact on the behaviour
sold in the US and Canada through retail stores, of poor performers. This has been observed for
internet sales and by mail order. It is also sold in certification in the forestry sector96 and for
Smithsonian National Zoo stores and restaurants. certification of a range of organic agricultural
products including coffee.97
As this scheme is not operating in Brazil and Vietnam,
the two producer countries that are the focus of this
research, it is not considered further in this report. Benefits to producers
The concern is that because of the tendency for price
premiums to decrease as supply of certified products
Key issues raised by certification increases and because of the direct and indirect costs
involved in certification, little benefit accrues to
Access for small producers producers. Certification becomes a market hurdle
A commonly raised concern about certification is that rather than a means of achieving benefits.
because of the costs involved and the large fixed cost
element involved in the certification process, it costs Experience differs across the different certification
relatively more for small producers, and thus has systems. For Fairtrade coffee, existing studies have
typically been taken up by large producers. Fairtrade mostly concluded that certification has benefited the
has been specifically aimed at small producers; the growers. Milford98 who examines the ISMAM and
direct costs of certification are considerably lower than KAFFE co-operatives in Chiapas, Mexico, concludes
for other certification schemes and the indirect costs of that they could not have achieved their level of
compliance are low, as the emphasis on the scheme is success without the Fairtrade and organic premium.
on the prices rather than production practices. Ronchi99 in a study of the Coocafe organisation in
Costa Rica finds that Fairtrade certification improved
However, Fairtrade remains an option available for the quality of life for the growers although they
only a small number of producers and those that are themselves had low awareness of the Fairtrade
organised into democratic associations. Moreover, system. A study of Fairtrade coffee in Bolivia100
only about 20% of the global fair trade production showed that the most important effect was the
capacity is sold at fair trade prices.93 The emphasis on assistance of the Fairtrade premium in achieving
high quality specialty markets in Fairtrade means quality improvements in the coffee and hence a
that there is limited attention to the low end of the reduction in the quality differential against the
market and in particular to robusta, given that most reference price of the New York Coffee Exchange.
Fairtrade coffee is arabica.94
An earlier study of the experience of coffee
Both Utz Kapeh and the Rainforest Alliance are co-operatives with Fairtrade in Tanzania in the 1990s101
looking for ways to facilitate access for small is more guarded in its conclusions, pointing out that
producers; in the former case partly because buyers since most of the fair trade organisations and
are asking for coffee from certain regions where importers deal with the co-operatives the farmers are
production is predominantly smallholder. Together hardly aware of fair trade, there is a minimal effect on
with the Dutch NGO, Solidaridad, Utz Kapeh has set the price received by the farmer as only a small
93
Lewin, B, et al, 2004 98
Milford, A, 2004
94
May, PH, et al, 2004 99
Ronchi, L, 2002
95
David Rosenberg, personal communication, November 2005 100
Dankers, C, 2003, citing Eberhart and Chauveau, 2002
96
Bass, S, et al, 2001 101
Dankers, C, 2003, citing Jones, S and Bayley, B, 2000
97
Dankers, C, 2003 27
Fairtrade Organic Rainforest Alliance Utz Kapeh Smithsonian
Bird Friendly
Mission Ensure equitable trading Create a verified sustainable Integrate productive agriculture, To enable coffee producers Promote certified coffee as
arrangements for agriculture system that biodiversity conservation, and human and brands to show their a viable supplemental
disadvantaged smallholders produces food in harmony with development commitment to sustainable habitat for birds and other
who are organised into nature, supports biodiversity development in a market- organisms
co-operatives and enhances soil health driven way
History and Began in 1970s as Max Havelaar Began in early 1970s as a Begun in 1992 by Rainforest Alliance and a Begun in 1997 as initiative Founded in 1997 with
development in Netherlands. Now several farming movement and coalition of Latin American NGOs. First from industry and criteria based on scientific
national organisations under developed into internationally coffee farm certification in 1996 producers in Guatemala. fieldwork
the umbrella of the Fairtrade recognised system Became an independent
Labelling Organization (FLO). NGO in 2001. First certified
Coffee first labelled product in coffee farm in 2001
1989
Requirements Smallholders organised in Use of non-synthetic nutrients Sustainable farm management, integrated pest Good agricultural practice Use native canopy trees to
for farmers democratically run and plant protection methods, management, worker welfare, community and worker welfare, based provide shade for the
organisations, ban on most toxic soil conservation relations, biodiversity conservation through on adaptation of coffee as well as meet
pesticides, Integrated crop maintenance of shade cover or protection and EurepGAP standards criteria for organic
management restoration of native forest reserves production
Market focus Niche markets and promotion Specialty coffee Specialty coffee and mainstream brands Mainstream brands Business to consumer
Table 2: Coffee certification schemes
and promotion to the consumer Business to consumer Business to business Business to business Business to business
Price Floor price of US $1.01-1.21 per US$0.15-US$0.30 per lb (2003) US$0.05-US$0.15 per lb (Brazil) US 0.01-US$ 0.09 per lb – Some growers have
premium lb depending on type and average of US$0.04 per lb received US$0.05-US$0.10
origin plus US$ 0.05 per lb (US$ (2004) per lb above the organic
0.15 if also organic) on top of premium.
floor price or market reference
price
Sales of 24,323 tonnes (roast, ground and 43,200 tonnes (2002/2003) Not available 21,200 tonnes (2004) 1,359 tonnes
certified instant) equivalent to at least approaching 30,000 tonnes
coffee 28,944 tonnes* of green coffee in 2005
(2004)
From bean to cup
28
Sustainable coffee certification
proportion is sold at the fair trade price and that the A study on shade coffee in El Salvador105 showed that
premium is not paid to farmers but used for projects. growers of Rainforest Alliance certified coffee were
It does however, identify benefits in terms of pre- disappointed with the small volume of sales
financing, capacity-building and trade facilitation. achieved and the low premiums, and were regretting
that they did not also seek organic certification for
For the other types of certification scheme the their coffee. Small-scale coffee growers in another
experience is more mixed. While organic Rainforest Alliance certified area in El Triunfo in
certification appears to have been the most effective Chiapas, Mexico, received more substantial
in terms of producer benefits, there is considerable premiums but this was primarily because they were
variation. A study of ten pairs of organic and also organic certified. A recent Oxfam study of the
conventional coffee farmers in Costa Rica found on coffee sector in Central America and Peru states that
average lower coffee yields, higher variable small-scale farmers stress the need to be
production costs and lower net income for the compensated for added cost of compliance with
organic farmers. However, there was large variation sustainability certification programmes.106
between the pairs and three of the organic farms
had higher net income than their conventional Multiple certification schemes
counterparts.102 The proliferation of certification schemes for coffee
leading to packages having two or even three
Smallholder coffee farmers in Huehuetenango, one different sustainability labels, coupled with
of the poorest areas of Guatemala, experienced companies’ own claims about their coffee products,
yield increases of 38-67% in five years, from 0.86 to has led to fears about consumer confusion and
1.40 tonnes per hectare, after converting to organic. reduced credibility. Giovannucci and Koekkoek107 in
Other coffee farmers shifting to organic in their survey of sustainable coffee expressed the view
Guatemala had usually experienced reductions in that this could ultimately undermine the market
yield. The difference in this case reflected low prospects for certified coffee.
inputs and low yields before conversion as well as
better shade and application of organic fertilisers
and soil conservation measures.103 Production costs Certification of mainstream
increased because of the need for more labour but roasters – moving beyond niche
after initial quality problems, prices increased by markets?
25%. Average family income increased from US$
1,250 per year to US$ 1,970 per year.104 The two years 2003-05 have seen major changes in
the certified coffee market as mainstream coffee
roasters have started to take an interest in
certification. As mentioned previously, all of the big
four have started to certify a small proportion of
their production under more than one scheme.
Procter and Gamble, Sara Lee and Nestlé are
involved in Fairtrade certification, Sara Lee has a
partnership with Utz Kapeh, while Kraft is working
with the Rainforest Alliance.
102
Dankers, C, 2003 107
Giovannucci,D, and Koekkoek, FJ, 2005
103
Dankers, 2003, citing Damiani, O, 2002a; Cifuentes, I, undated 108
Ransom, D, New Internationalist, 2005
104
Ibid. 109
Carter, M, 2005
105
Pagiola, S, and Ruthenberg, IM, 2002 110
http://www.babymilkaction.org/press/press6oct05.html
106
Daniels, S, and Petchers, S, 2005 29
From bean to cup
30
Impacts of certification on coffee growing areas
Chapter 4
Brazil’s experience with coffee 2004/5 and 60% of total arabica production. São
certification 111
Paulo state is the second largest producer of arabica
coffee. Together 80% of the certified coffee producers
in Brazil are located in these two states. For this
Background to coffee production reason the survey carried out for this study was
Brazil is the largest producer of coffee in the world concentrated in these two states.
(38 million bags in 2004) and the second largest
consumer (15.5 million bags in 2004). Coffee was for The survey
many years the country’s major export but in recent The survey was of certified and conventional
years has lost importance falling from 60% of exports coffee producers in the Cerrado, south and centre-
in 1962 to 2.8% in 2000. Nevertheless, coffee is still south of Minas Gerais and the Mogiana region of
very important for rural livelihoods: it is produced São Paulo state. Interviews involving visits to the
by 370,000 rural properties in Brazil, 25% of them selected farms were carried out in August 2005.
family farms.112 It generates, directly and indirectly, Twenty-eight certified farms belonging to 20
around 8.4 million jobs. companies or farmers were covered by the survey.
This included two of the largest coffee estates in
In addition to the coffee farms, there are 11 instant Brazil, Ipanema and Monte Alegre, and at the
coffee firms, 77 co-operatives and 166 exporting other end of the spectrum, six smallholders from
companies. In the State of Sao Paulo, alone there are the Fairtrade certified Cooperativa dos
250 roasters, mostly micro and small family Agricultores Familiares de Poço Fundo. In
enterprises. Coffee is mainly exported as green beans addition, two farms from the Cerrado region of
but there are also small volumes of roasted and Minas Gerais were randomly selected as well as
instant coffee, corresponding to less than 1% of the seven medium-sized coffee farms from all three
value of total coffee exports from Brazil. The main regions of the state. Three coffee farms from Sao
export markets for green coffee from Brazil are Paulo state were also randomly selected. The
Germany, US, Italy and Japan. Denmark and Finland certification schemes involved were Fairtrade,
are of lesser importance as export destinations but organic, Utz Kapeh and Rainforest Alliance with
are still included in the top 15 markets. some of the farms having certification from more
than one scheme. Ten conventional coffee
The area planted with coffee in Brazil has been producers (seven in Minas Gerais and three in São
declining but production has been increasing, Paulo) were also surveyed.
indicating increasing yields resulting from large-
scale production and use of modern techniques. In addition to the survey, visits were made
subsequently in October 2005 by the whole project
Coffee is produced in 17 states of Brazil but the team to three of the certified farms (Ipanema, Sete
major producer is the state of Minas Gerais, which Cachoeiras and the Poço Fundo association) and one
corresponds to nearly 50% of total production in of the conventional producers (Fazenda São Gabriel).
111
Except where otherwise stated, this section draws from the 112
Bliska, F, and Pereira, S, 2005, citing IBGE, 2004
report prepared by Flavia Bliska and Sergio Pereira of the Centro
de Café Alcides Carvalho, Instituto Agronômico, Secretaria de
Agricultura e Abastecimento do Estado de São Paulo, October
2005 31
From bean to cup
113
de Souza, M, 2004 119
All the information in this paragraph is from a presentation by
114
Giovannucci and Koekkoek 2003 Luis Guedes Pinto, Director, Imaflora at IDEC, São Paulo,
115
FLO, personal communication, 2005 14/10/05. The data refers to 1/10/05.
116
Luis Adauto Oliveira, personal communication, 2005 120
David Rosenberg, personal communication, 2005
32 117
Observatorio Social, 2004 121
www.utzkapeh.org, 16/11/05
118
OCA, 2005
Impacts of certification on coffee growing areas
Organic certification in the time of low coffee prices with Utz Kapeh are receiving some technical support
made a marked difference to revenues for the coffee from regional co-operatives interested in buying
growers concerned. According to Ivan Caixeta, ex- certified coffee from small producers.127 The
President of ACOB, when prices of conventional Rainforest Alliance is looking for ways to promote
coffee were US$ 60 per bag, organic coffee was the participation of small producers in certification
fetching US$ 160-180. As conventional prices have (see section on Barriers to certification on page 35 for
risen the price differential between conventional and further discussion).
organic coffee has been reduced. This has prompted
as many as 30 organic producers to revert to Costs of certification
conventional production. There are also some organic The direct costs of certification vary according to the
farmers who are exporting their high quality coffee certification scheme. The Rainforest Alliance scheme
(screen 14 upwards122) and sending their lower is reported to be the most expensive. The seven
quality coffee for processing into organic 100% conventional producers interviewed all indicated
arabica instant coffee, which is mostly exported to that the costs of certification, whatever the scheme,
Japan.123 would be very high for small producers.
Utz Kapeh certification has yielded premiums but for The indirect costs of certification depend on the
Ipanema at least these have gone down from US$ 7 nature of the certification scheme and the existing
cents per bag to 3 cents. More important for Ipanema practices of the farms. The survey found that in
has been the access that Utz Kapeh certification has some cases the coffee growers involved were
facilitated with the buyers to develop more stable already close to meeting the requirements of the
and closer relationships. It has thus been able to scheme and so indirect costs were not
agree a fixed price for its coffee with the Norwegian considerable. In particular, two farms that were
company Friele until 2011.124 It also has a similar already in compliance with ISO quality and
fixed price arrangement until 2011 with Starbucks. environmental management requirements had
virtually no cost involved in meeting the
Premiums achieved under the Rainforest Alliance requirements of the Utz Kapeh scheme. The main
scheme range from 5 to 15 cents per lb of coffee, costs were the direct costs of the certification
bringing the price for Brazilian coffee up to the same schemes. Five farmers pointed out that
level as the New York Board of Trade.125 certification had prompted a rationalisation of
their production systems leading to cost-savings
Non-financial benefits from certification and making them more competitive.
None of the certified producers interviewed
indicated that they had received any support in the The Rainforest Alliance is more costly for producers
form of training or technical assistance as a result of than Utz Kapeh because its environmental and social
certification, whether from government or an NGO. requirements are more stringent, particularly with
The family farmers in the Poço Fundo association regards to the requirement to restore native
were already organised as a co-operative before they ecosystems. The latter requirement sets it apart also
contemplated certification, and had developed their from organic certification and Fairtrade. Brazilian
own organic production techniques without external law requires that in areas previously covered by the
technical assistance.126 The medium and large Atlantic forest , 20% of the area of each property
producers have, as a result of certification, invested should be kept under forest cover as legal reserves.128
in training for their workers on, for example, use of It is also a requirement that riparian areas and areas
safety equipment, use of agricultural machinery, fire critical for water resources should be permanently
control and environmental education. They have also preserved. Both requirements have proved hard to
contracted consultants to develop projects and enforce. The Rainforest Alliance scheme requires that
training without any financial support. not only should the law be respected, but that
additional areas of land be restored to native
However, it appears that this is changing. The small ecosystems in order to provide ecological corridors
producer groups that are in the process of certifying for wildlife to pass.
122
This refers to the size of the holes in a sieve used for grading 125
Luis Guedes Pinto, Director, Imaflora, presentation, 14/10/05
the coffee 126
Luis Adauto Oliveira, personal communication, 2005
123
Ivan Caixeta, personal communication, 2005 127
E Sampaio, personal communication, 2005
124
Washington Rodrigues, personal communication, 2005 128
Young, CEF, 2002
33
From bean to cup
The costs of establishing and maintaining these interviewed indicated that as a result of these good
reserves can be very high. Two companies with this working conditions they experienced no shortage of
type of certification estimate costs ranging from US$ workers interested in working for them. The major
10,000 to US$ 50,000 to cover consultancy costs, benefits indicated by six medium and large farms are
seedlings, planting, management and the job security, medical and hospital treatment with the
opportunity cost of the land in terms of foregone on-site presence of a nurse and social worker. Seven
land use. In the case of the Sete Cachoeiras farm, the of the certified farms, but also one conventional
land area occupied by natural forest and other native farm, claim to provide housing, basic food
vegetation equals as much as half of the area planted provisions, training for employees and their families,
with coffee.129 However, the Rainforest Alliance vegetable gardens, meals and canteens, drinking
scheme is not as demanding as organic certification water and toilets.
in other aspects and permits the use of agro-
chemicals if well managed and if there is a There have been improvements in health and safety
commitment to reducing their use.130 It also does not also as a result of certification with workers required
insist on contour planting. This facilitates the use of to use and being provided with protective clothing
machines for harvesting and other activities.131 and equipment when applying agrochemicals. But
according to nine of the medium and large farms
For organic certified producers in Brazil, there is surveyed, there has been some resistance among the
considerable variation depending on the workers to using this protection equipment because
circumstances of the farmers, the other activities on of problems of heat and discomfort.
the farm and the length of time as an organic farmer.
Where coffee farming is combined with livestock It could be argued that these companies are simply
farming, the availability of manure makes the meeting the requirements of the law. Brazilian legal
substitution of chemical fertilisers by organic more requirements are strict although law enforcement is
viable. While there may be initial reduction in yields lax. Therefore, additional incentives to meet legal
in the transition to organic because of insufficient requirements are useful.
minerals, this improves over time as minerals build
up in the soil.132 Impact on local environment
In order to meet the requirements of certification,
This explains why there have been varied responses certified coffee farmers have improved the treatment
to the recent narrowing of the price differential and recycling of water used for the processing of
between organic and conventional coffee. It is the coffee. This, together with the reduced use of agro-
producers who converted more recently to organic chemicals, is the most noticeable impact so far. The
who have now reverted back to conventional in projects restoring native vegetation of the Rainforest
order to increase their yields. The price differential Alliance certified estates are significant but too recent
between organic and conventional was not sufficient to have any major impact as yet. There is anecdotal
to offset the costs of reduced yield. This applies also evidence however, that armadillos are returning to
to some Fairtrade producers who, after a period of the area and that there is greater availability of wild
combined Fairtrade and organic certification, have plants traditionally used for food by the local
reverted to single certification, as Fairtrade implies population.
little indirect cost at the level of the producer. More
established organic producers who have higher There have also been indirect effects on the
yields have stayed with their organic status. environmental performance of other farmers in the
regions. Certified coffee farmers in Brazil claim that
Impacts on farm/estate workers and they are influencing the environmental awareness
communities and performance of neighbouring coffee farmers.
Large companies are taking measures to meet the They have served as a model for other farmers in the
social requirements of certification schemes and region and stimulated other coffee growers to seek
improve basic working conditions for their certification. Farmers in the Poço Fundo association
employees. Nine of the medium and large farmers and six of the certified medium and large farmers
129
www.7cachoeiras.com.br Renato Farhat Brito, personal communication, 2005
131
130
Luis Guedes Pinto, Director, Imaflora, presentation 14/10/05 EPAMIG, 2002
132
34
Impacts of certification on coffee growing areas
interviewed pointed to the effect of their small farmers. It has set up a fund for this purpose
environmental practices on their neighbours. After which is made up of a proportion of the revenues
observing the certified farmers, neighbouring from the certification fees charged to large farms and
farmers have started to recycle their waste, have a grant from the European Union.135 It is also
stopped polluting streams and cutting down trees. working together with the Brazilian organic
They have also improved working conditions for certifying organisation, Instituto Biodinamico, on
their employees. developing a joint audit to reduce costs for
producers of double organic and Rainforest Alliance
Barriers to certification for coffee certification.
growers
The direct costs of certification appear to be a barrier
for small producers. All the conventional farmers Vietnam’s experience
interviewed in the survey considered that the costs of
certification would be a major difficulty for small Problems of conventional coffee
producers. They did not distinguish between schemes In 1980, Vietnam had about 22,500 hectares planted
in their response but it would seem that Fairtrade is with coffee of which only half was productive and its
an exception. The costs are considerably lower for total production was only 8,400 tonnes. The 1990s
Fairtrade – US$ 500 a year for the Poço Fundo saw phenomenal growth in the area planted with
association – which spread among a group of farmers coffee, export driven by the high coffee prices that
is fairly low. The barrier in this case is not so much prevailed until 2000, making Vietnam the world’s
cost but achieving the level of collective organisation second largest producer country after Brazil.
required to access the Fairtrade scheme as it does not
work with individual farmers. In 1995 the unit price of exports peaked at US$ 2,394
per tonne, but by 2001 when production had
The costs of annual audits for the Rainforest Alliance increased to 900,000 tonnes, the unit price of exports
scheme vary between US$ 1,000 and US$ 5,000 in the had dropped sharply to US$ 400 per tonne.
case of Ipanema. The organisation acknowledges that Production and export, as well as the coffee planted
this would be too much for some small producers. area, all fell for the next two years and only
Certifications under the Utz Kapeh scheme and the recovered in 2004. However, the crop for 2005/06 is
Rainforest Alliance scheme have so far been issued forecast to be 10-10.5 million bags (about 600,000
mainly for large properties producing more than tonnes).136 The policy of the Vietnamese coffee
10,000 bags (600 tonnes) per year. Of the 54 farms industry is now to reduce coffee production and area
certified under Utz Kapeh only three are less than planted and concentrate on quality.137
50 hectares in size.133
As there were no effective measures to control leaf
But both schemes are striving to work with small rust in the 1980s, the Vietnamese coffee industry
farms and co-operatives. Utz Kapeh, which like developed on the basis of robusta, which was well
Rainforest Alliance has started with the largest suited to the hot, and humid weather conditions of
companies, is now in the process of certifying several southern Vietnam. A highly mechanised and
co-operatives of farmers. Of the 30 farms currently intensive approach was developed with high density
working on Utz Kapeh certification, as well as two of planting, high volume watering, heavy use of
individual farms with less than 50 hectares, there are mineral fertilisers and no use of shade trees. As a
three producer groups all with numerous farmers result high yields were obtained: 3-4 tonnes per
with less than 50 hectares.134 hectare and in some areas as high as 8-9 tonnes per
hectare. Steps are now being taken to promote the
The Rainforest Alliance through its local partner production of arabica coffee in the north of Vietnam
organisation, Imaflora, is working to overcome these and in high altitude areas in the central highlands
barriers by providing information about certification, and in the south. Bourbon coffee, which is of high
organising capacity-building workshops and quality, is being grown in these areas.
subsidising the costs of certification for groups of
133
David Rosenberg, personal communication, 2005 136
Doan Trieu Nhan, 2005
134
David Rosenberg, personal communication, 2005 137
Ibid.
135
Luis Guedes Pinto, Director, Imaflora, presentation, 14/10/05
35
From bean to cup
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
1980 1985 1990 1995 2001 2004
Coffee is an important export crop for Vietnam, to-one.138 The problem is not due to high costs or
second only to rice. About 95% of coffee produced is profits in Vietnam because the coffee producers get a
exported to 50 countries, the main markets being the high percentage of the export price, nearly 90% in
US, Germany and Japan. The domestic market is 2000139 and an average of 95% in 2005, according to
very small as coffee is consumed only by middle and the producers, millers and export companies
high-income people in urban areas. The remaining interviewed for this report. The problem is that the
70% of the population, living mainly in rural areas, export price is itself so low.
rarely drinks coffee.
About 70% of the coffee planted area belongs to
The coffee industry currently employs over 600,000 small farmers with 0.1-10 hectares per household
people directly, increasing to 700,000-800,000 in the (but very few have as much as 10 hectares). There
harvest season, and nearly 200,000 people indirectly,. are also a number of state-owned farms with areas
corresponding to about 3% of agricultural ranging from 400-1,500 hectares. Yields on the
employment. Assuming an average household size smallholder coffee plots, with many achieving 4-6
of five, this means that 2.5 million people in rural tonnes per hectare, have typically been higher than
areas were dependent for their livelihood on coffee. on the state-owned farms where yields have been
Of these coffee-producing households, 46% were 2.5-3 tonnes per hectare.
living below the official poverty line and 30% of
them were ethnic minorities. The fall in prices after Despite high yields, smallholder farmers have
2000 had serious consequences for these families and problems of quality in processing. In some
some of them were forced to abandon coffee for mountainous areas, and particularly in ethnic
other crops. minority areas, there is a lack of cement or
brickyards for drying coffee, so it is difficult to
The effect of the price decline was explained in stark prevent coffee mould and Ochratoxin A
terms in Vietnam’s response to the ICO’s request for contamination. These small producers cannot afford
information on the impact of the coffee crisis: while to buy a milling machine and face problems in
one kilo of coffee in the mid-1990s exchanged for five getting their coffee processed. They therefore have to
bags of rice, by 2002 this ratio had dropped to one- sell their coffee unprocessed to intermediaries.
138
International Coffee Organization, 2003
139
Le Dhin Sohn, FAO 2000
36
Impacts of certification on coffee growing areas
Extension services for smallholder coffee producers niche market interested in arabica coffee, of a high
particularly in mountainous and ethnic minority quality. Environmental practices in the industry are
areas are very limited – these producers rely on very poor so the industry is a long way from
extension staff from district and commune levels meeting the requirements of organic or Rainforest
who have few qualifications. So concepts of good Alliance certification. For most smallholder farmers,
agricultural practice and good manufacturing struggling to make a livelihood, environmental
practice have not been widely disseminated to these protection is not a priority. There are also problems
remote producers. of obtaining financing to invest in improving
production practices and processing methods.
The intensive nature of Vietnam’s coffee production
has also been problematic from the environmental With its preponderance of small coffee farmers,
viewpoint. Large amounts of water are needed for Vietnam should be ideally suited for Fairtrade
irrigating coffee, putting pressure on groundwater certification but the low quality of its coffee works
resources in coffee areas. In the last drought in 2003, against this. Another serious obstacle is that there is
some provinces had to stop producing rice in order little tradition of smallholder democratically run
to ensure that the coffee had sufficient water. Yet coffee co-operatives and this is a pre-requisite for
VICOFA, the Vietnam coffee producers association, Fairtrade certification. Nor are there more than a few
estimates that the volume of irrigation water needed of the institutional top-down type of co-operatives
for coffee could be reduced by 40% in Dak Lak still existing in the coffee sector as these are no
province without influencing yield and production. longer supported and subsidised by the government.
The development of coffee plantations required There has been little government-sponsored
extensive clear cutting of forests. Soil erosion has sustainability initiatives in Vietnam.
been caused by practices of not planting on terraces
or contour lines. Excessive use of mineral fertilisers, According to David Rosenberg,142 Utz Kapeh’s
urea in particular, has also contributed to soil success so far is due to efforts by exporters to
degradation while some coffee areas have suffered mobilise farms to participate in the programme. Utz
pollution because of poor pesticide management. Kapeh has been working with CafeControl as
certifier since 2002 and significant resources have
It is acknowledged by VICOFA that the low quality been invested by Utz Kapeh and the Coffee Support
of Vietnamese coffee remains a big problem. Network to train both CafeControl inspectors and
agronomists from the participating farms. That initial
Current status of certification in Vietnam knowhow is being spread to other farms and
The only certification scheme that has any presence agronomists. There have been three pilot
in Vietnam is Utz Kapeh which has very recently sustainability projects in the form of public-private
opened an office in Hanoi. So far, six state-owned partnerships by Sara Lee, Kraft, and Nestlé, together
companies have been certified by Utz Kapeh, five in with Neumann Gruppe’s consulting arm EDE and
2002 and one in 2003. In 2004, some 4,000 tonnes of donor GTZ. One of these projects led to Utz Kapeh
green coffee was exported from Vietnam as Utz certification.
Kapeh certified. As of December 2005, in addition to
the state farms, projects to pursue certification in Interviews conducted by VICOFA with three of the
2006 had been initiated by two co-operative groups Utz Kapeh certified state-owned companies reveal
and three farms. It is predicted by the Utz Kapeh that the costs of meeting the requirements of this
representative that because of local endorsement by certification scheme were estimated at US$ 40 per
VINACAFE140 and VICOFA, the amount certified will tonne of green coffee. These costs resulted from
increase substantially in coming years.141 changing farm practice and introducing social
projects such as schools for workers’ children.
One reason for the absence of the other certification Higher prices were received for the coffee produced
schemes is probably the preponderance of robusta as a result of Utz Kapeh certification but only an
coffee in Vietnam, coupled with its low quality. increase of US$ 10-20 per tonne, which was not
Certification schemes until recently have targeted a sufficient to offset the increased costs. There was no
37
From bean to cup
improvement to financing terms either. Thus so far, For certification to play a more important role in
there is little apparent financial incentive to Vietnam, the quality of the coffee produced has to
producers to opt for certified production. improve. The experience of certified producers in
Brazil shows that certification was insufficient for
Yet it seems that interest is growing in Utz Kapeh. market benefits and that achieving quality standards
According to VICOFA this is because of the was also necessary. The other lesson to be taken
potential it brings for market access and more stable from Brazil is the potential role that smallholder
contracts. Utz Kapeh representatives believe that co-operatives could play in promoting better
producers are interested in Utz Kapeh because they environmental practices in coffee production and
see opportunities to improve production processes ensuring a higher return for the growers.
and reduce costs. They argue that in a country like
Vietnam, with relatively high inputs and a new
coffee culture, producers welcome the opportunity to
rationalise inputs and improve management skills.143
Decrease
• mineral fertiliser
• pesticide
• water use for coffee irrigation
Increase
• shade trees
• organic fertiliser
• pruning
Prohibit
• Picking green, over-ripe or dry falling cherries
Source: VICOFA
143
David Rosenberg, personal communication, December 2005
38
Markets for certified coffee
Chapter 5
Overview of the markets in re-export of roasted and ground coffee, for example
consumer countries to Finland, from other European countries
(Netherlands) and from Finland to Russia and
This section examines the status of and prospects for Baltic countries.
consumption of certified coffee in some key
importing countries, Denmark, Finland, Portugal In all four countries, the importing and roasting of
and US, which source their coffee from Brazil and coffee is highly concentrated in a small number of
Vietnam. While Brazil is a major consumer of coffee, companies. In Finland, particularly, one company,
the market for certified coffee is tiny and limited to Paulig (a Finnish company established over a
high-income sections of the population. The major century ago) has 60% of the market with its own
impact on the coffee commodity chain in Brazil is brand but also roasts another 15% for other
more likely to come from markets for certified coffee companies. The other main Finnish company, Meira,
in countries importing from Brazil. For this reason, which has 20% of the market, is owned by the Italian
the market for certified coffee in Brazil is not company, Segafredo. In Denmark, two
considered further in this report. multinationals, Sara Lee and Kraft, have high shares
of the market, 31% and 27% respectively, but two
The US is the world’s largest consumer of coffee in Danish companies have about 30% between them.
absolute terms, but at 4.26 kilos per year its per The US market is dominated by Sara Lee, Kraft and
capita consumption is low relative to Denmark Procter and Gamble (and Nestlé), which between
(9.43 kilos) and Finland (11.99 kilos), the world’s them import and roast nearly half of the US’s coffee.
highest consumer in per capita terms, which have In Portugal, Nestlé controls 33% of the market but
more of a coffee-drinking culture. Portugal has the remaining 70% is covered by around 70 roasters,
similar per capita consumption to the US at 4.4 kilos some operating at a very small local scale.147
per year.145
In spite of the coffee house boom and emergence of
In both the US and the two Scandinavian countries, coffee as a life-style product, coffee in Denmark and
there has been a growth in the number of cafés Finland has conservative connotations. The Danes
suggesting a booming market for coffee, but while tend to be conservative in their choice of coffee,
consumption continues to grow in the US (by 7.4% sticking with specific brands. In Finland, some of the
over the period 2001-04) it appears to be stagnating popular brands, such as Presidentti and
in Denmark and Portugal. In particular, in Denmark, Kultakatriina introduced in 1937, have not changed
there is a marked difference in consumption patterns for decades, nor has their packaging. Coffee in
between the older generation who are heavy coffee Finland is associated with tradition and nostalgia
drinkers and the younger generation who prefer soft and to some extent with the church. There is a
drinks. In Denmark, whereas 85% of the population traditional Finnish taste coffee which is light roasted
over 50 years-of-age drinks coffee, this percentage arabica mixed with some mocca (see Box 6 on page
drops to 50% for those under 30.146 40).
148
Transfair USA website 150
Transfair USA website
40 149
Calculated from FLO sales figures for 2003 and 2004 151
SCAA, 2004
Markets for certified coffee
introducing consumers to this type of coffee in their opening times are restricted) and several private
workplace, which leads them to buy it for their home shops selling organic products. Fairtrade coffee is not
consumption.153 sold in supermarkets. There are no national
importers of Fairtrade products. Two Spanish
Other types of certification are not present in the importers, IDEAS and Alternativa3, and one Italian
Finnish market apart from some organic coffees company, Ctm-altromercato, sell their products in
also introduced to Finland in 1999. Fairtrade coffee Portugal.
is available in the mainstream outlets as well as
the specialist sector including the development
organisation shops, Africafe and church shops, Barriers to increasing demand for
which together correspond to about a fifth of certified coffee
Fairtrade coffee sales in Finland but also do some
export, eg Finnish church Fairtrade organic coffee Price differentials
is exported to Sweden and sold in the Coop chain. The theory is that the price premium of certified
Today, there are about 100 companies, coffee coffee, particularly for Fairtrade coffee, can act as a
shops and institutions selling Fairtrade coffee in constraint on demand. In practice, the variety of
Finland.154 conventional coffee brands and quality on offer and
the differences in prices, coupled with a lack of
Denmark, which has the second highest per capita information to consumers about the country of origin
consumption of Fairtrade coffee after the and the quality, makes a like-for-like price
Netherlands, presents a contrast to Finland as sales comparison of certified coffee with conventional
of Fair Trade/organic coffee have stabilised after coffee quite difficult under ‘normal’ trading
several years of growth. Fairtrade coffee and organic conditions. Prices for both certified and conventional
coffee constitute about 2-3% of all coffee sold on the coffees vary considerably depending on the brand
Danish market and this percentage has been fairly and how it is positioned, the nature of the outlet,
stable in the five years 2000-05. Certified coffees can supermarket or specialist, the country of origin,
be found in virtually every supermarket chain as including whether it is known or not, and the
well as smaller grocers and convenience stores like quality. This can be seen from Table 3 on page 42,
7-Eleven. There are now 20-25 labelled Fairtrade which shows prices for a range of roasted and
coffee products and seven companies registered to ground coffee products in Finland in summer 2005.
trade Fairtrade coffee.155 A high proportion – 49% in
2004156 – of the Fairtrade coffee sold in Denmark is Almost all the ordinary coffee in Finland is a blend
also organic. of Colombian coffee and Santos from Brazil but the
mixture varies and is not disclosed for commercial
However, there was a decline in sales of Fairtrade reasons.159 As the blend is a commercial secret, it is
Max Havelaar certified coffees after a peak of 742 not possible to make a value-for-money comparison
tonnes in 2000. To address this, Max Havelaar set up between certified coffees and conventional blended
coffee clubs and a billboard campaign that featured coffees based on quality. Even if the information on
well-known people on with opposing views sharing sources was provided, the consumer would not
a cup of coffee.157 The organisation expects sales to necessarily be able to interpret and assess which is
grow again in the next couple of years.158 Organic the better deal. Ultimately, it is the taste of the coffee
coffee sales in Denmark were 1,448 tonnes in 2001 that matters for the consumer and so a brand with a
and 1,320 tonnes in 2002/3. familiar taste will be preferred.
In Portugal certification of coffee is very recent and However, price comparisons can become clear in
so far Fairtrade is the only certification scheme with cases where supermarkets use conventional coffee as
any presence. However, this is sold only in specialist loss leaders to attract shoppers into the store. The
outlets such as ‘world shops’, (there are 11 in the coffee is sold on offer at low prices and this makes
country and being dependent on volunteers, their the price differential with Fairtrade coffee more
152
Calculated from sales figures provided by Finnish Fair Trade 156
Calculated from FLO sales figures for 2003 and 2004
153
Ann Hedman, Product Chief, Finnish Fair Trade, personal 157
Judith Kyst, personal communication, 2005
communication, 2005 158
Judith Kyst, personal communication, 2005
154
Ann Hedman, Product Chief, Finnish Fair Trade, personal 159
Paula Suutarinen, Tuko Logistics, Finland, telephone interview,
communication, 2005 10/8/05
155
Judith Kyst, personal communication, 2005 41
From bean to cup
Specialty outlets
42
Markets for certified coffee
working on a promotion initiative to display a range in Denmark. It is too soon to be able to observe the
of different Fairtrade products together in impact of these various developments.
supermarkets to convey the fair trade message in a
more powerful way. It is also putting more emphasis Kraft believes that because of its position in the
on traceability which is at the heart of the fair trade market, the high quality of the coffee it imports and
system and demonstrating to the consumer the link the type of certification involved (ie more holistic
between the product they are buying and the than the single issue organic or Fairtrade
certified producer group.160 certification), it can reach the mainstream market and
not the current niche of Fairtrade. It acknowledges
The entry of new certified labels on these markets, the challenge of explaining complex certification to
and the very recent initiatives of mainstream consumers but believes that it has the capacity and
companies to sell Fairtrade or Rainforest Alliance determination to do so.163
coffee may compound these problems of consumer The Max Havelaar Foundation believes that entry of
information. In the US, where a multiplicity of Kraft and other big players into certification need not
certification schemes emerged early on, there were be a problem if handled well and could result in an
initial fears of consumer confusion, as expressed by expansion of the market for certified sustainable
Giovannucci’s 2001 survey of sustainable coffee which coffee, but there are dangers of increasing consumer
warned that: ‘failure to promote or educate about confusion.164 A particular concern of Max Havelaar is
standardised terminology will very likely lead to the that small marginalised producers may lose out
deterioration of terms such as “Shade coffee” until because most of the new certified products coming
they are as meaningless to a consumer as the word onto the Danish market are from larger producers.
“natural”.’161 This survey also showed that there was a For example, the Fairtrade label provides benefits to
lack of clarity within the coffee industry itself as to producers in the form of the floor price, not provided
what each of the sustainable coffees represents, by other schemes. If consumers think that the
probably contributing to consumer confusion. schemes are all the same, then Fairtrade producers
will lose out as consumers interested in sustainability
Four years on, it appears that these fears have not will pick the cheapest certified product.165 This means
materialised. According to Rodney North from Equal that consumers will need to understand what the
Exchange, the terms organic and Fairtrade are more different labels stand for.166
strongly established than before and more widely
recognised but ‘shade coffee’ still suffers from low In Finland, the most well known certified coffee is
understanding among the public. There is also Fairtrade, in particular that sold by the Finnish
improved knowledge within the specialty industry Protestant Church, but according to a range of key
where the large majority knows the meaning of the informants (consumer journalists, the information
terms organic, Fairtrade and shade. This applies officer at the Fair Trade Foundation and a retailer)
particularly to the importers and roasters who are there is a low level of knowledge and considerable
closest to the producers, and less so to the retailers.162 consumer confusion. Even the professionals do not
always know the difference between the brands and
Until very recently, there were practically only two the certifications. Events such as the Fair Trade week
certification schemes for coffee in Denmark, Max in October 2005 was helped by increasing media
Havelaar and the organic certification controlled by coverage of fair trade in newspapers, magazines, and
the Danish authorities. This helped to keep matters on television and radio. The impact that an extensive
simple for consumers, but as discussed previously, advertising campaign can have on coffee
there were still problems of insufficient consumer consumption is demonstrated by the case of Meira
knowledge. This has changed, as from October 2005 and its top product Kulta Katriina which was re-
Kraft Foods Nordic started marketing several launched in spring 2005. After several weeks of
Rainforest Alliance labelled coffees in the Danish consumer and trade paper advertising, the retail
market (but not in Finland because of the difficulties market share of Kulta Katriina rose from 14% to 21%
of meeting Finnish taste requirements). Utz Kapeh nationwide.167
has also signalled its intention to sell certified coffees
160
Judith Kyst, personal communication, 2005 165
Judith Kyst, personal communication, 2005
161
Giovannucci, D, 2001 166
Judith Kyst, personal communication, 2005
162
Rodney North, personal communication, 2005 167
http://www.segafredo.it/eng/news-e_online.html , viewed on
163
Bors Brito Westelius, personal communication, 2005 12/1/06
44 164
Judith Kyst, personal communication, 2005
Linking up producers and consumers
168
Dobson, PW, 2003 169
Judith Kyst, personal communication, 2005 45
From bean to cup
Chapter 6
Linking up producers
and consumers
This section presents some case studies of certified those involved along the chain on how certification
coffee commodity chains in order to show the links has affected them or their business, and on barriers
between impacts at the local level in Brazil and the and opportunities for expansion of the market for
consumers who buy the certified coffee in Denmark, certified coffee.
Finland and the US.
A number of key observations can be made:
These case studies are illustrations and cannot be
taken as representative of all certified coffee chains. • There are diverse drivers leading to certification.
They serve to demonstrate the diversity of situations Buyer interest is clearly important but linking
in which certified coffee makes its way from the interested buyers with certified producers in one
producer to the final consumer and the range of of these cases required personal contacts and
drivers which bring about these trading appears to be driven more by philanthropy than
relationships. expectations of direct business benefits.
The chains have been selected with the aim of • The role that quality plays in facilitating the sale
providing a link between the producer countries and of certified coffee, whether Fairtrade, organic or
consumer countries in the study, across different other scheme.
types of certification schemes. Given the difficulties
involved in tracing the source of coffee, the ease of • The uneven acceptance of certification, as the
identifying the various links in the chain has also chains show a trader who does not like ‘cause
influenced our choice. coffees’ but still buys organic coffee, and buyers
who pay a premium for certified coffee but do not
Three chains are presented below: place a certification label on the package.
• Cooperativa dos Agricultores Familiares de Poço • The varied range of benefits of certification along
Fundo, a co-operative association of small family the chain. While the premiums are important for
farmers, certified under the Fairtrade scheme, the growers, particularly for the small and
exporting to US and Denmark. medium growers, there are other less tangible
benefits, such as improved market access, longer-
• The Fazenda Santa Terezinha, a small-medium term contractual arrangements, reduction in risk
certified organic coffee grower employing hired and more transparency in negotiations.
labour, exporting to Finland via the UK.
46 170
Luis. Adauto Oliveira, personal communication, 2005
Linking up producers and consumers
171
Taylor, PL, 2002 47
From bean to cup
drawing on local knowledge of farming practices of our greatest reward, as well as forming part of
previous generations and facilitated by links with social responsibility initiatives, since we do not
local research institutes and companies producing make any financial profit on this operation.’174
organic fertilisers. They use a mixture of cow dung,
coffee husks and an oleaginous plant (mamona). Two years on, Flúvio Henrique Selvati, the
Marketing Director of Exprinsul, believes that the
After the conversion to organic, the association then export of Fairtrade coffee has benefited the
encountered a marketing problem, as at that time company by increasing its visibility and creating
(1999/2000) the Brazilian market was not aware of the trust and may well have contributed to increasing
differences between organic and conventional coffee. sales. Some clients who first got to know the
Although other organic products were on the market company through purchase of Fairtrade coffee are
in Brazil, organic as a concept was not common. now also buying conventional coffee from Exprinsul
Before certification the Association sold their coffee to as well. Dealing with Fairtrade and double certified
a national company (Cooxupe). Fairtrade certification fair trade/organic coffee has required some
opened up the potential of export sales. adjustments to keep these coffees separate from
conventional coffees but this has had minimal cost
The Association has looked into the possibility of implications. The company intends to continue
Rainforest Alliance certification but believes that the exporting Fairtrade coffee and is preparing to
audit fee of US$ 4,000 per year is too high in relation export Utz Kapeh certified coffee in the future. It is
to the expected price premium to make it viable. listed as a new registered buyer in the Utz Kapeh
newsletter in November 2005.
The trader172
Coffee produced by the Cooperativa dos The importer175
Agricultores Familiares de Poço Fundo is exported Blazer Wolthers imports Utz Kapeh and Fairtrade
by Exprinsul, a large coffee exporter. It started coffee to the US, European and Japanese markets.
exporting Fairtrade coffee in 2003 with 1,280 bags The company is owned by Christian B Wolthers
and by 2004 had expanded to 11,300 bags drawn who is also Chairman of the Utz Kapeh Board. In
from four Fairtrade co-operatives (Poço Fundo, 2000, the company’s sales of certified coffees
FACI, Santana and Novo Rezende). The Fairtrade represented 5-6% of sales. This proportion has risen
coffee is exported to US, Canada, Spain, in five years to as much as 50%. Certification is in
Netherlands, UK and Germany. Nevertheless, this line with the business vision of the company and
represents only a tiny proportion of the company’s the desire for better trading practices and
total coffee exports. While the Poço Fundo relationships within the sector of sustainable
association now does its own milling, two of the certified coffees.
other Fairtrade co-operatives send their coffee beans
to Exprinsul to be milled there. As a result the However, there are other advantages in that dealing
proportion of the export price that goes to the in certified coffee is less speculative. Christian
producing co-operatives varies from 93% to 95%. Wolthers believes that certification is likely to
become increasingly important in the context of
The motive for taking on this role of Fairtrade coffee food security and food safety in both the US and
exporter appear to be primarily philanthropical, a Japanese markets given the bans on certain
desire to help the small coffee producers. An chemicals in food and concerns about bio-terrorism.
important factor was the good links between the Certified coffee schemes have traceability schemes
President of Exprinsul and a roasting and importing in place that meet existing and future legal
company, Blazer Wolthers in the US, which arranged requirements in both countries. This may help to
the sale of the first shipment in 2003 to Dunkin’ expand the market for certified coffee.
Donuts.173 When the first shipment was made Cleber
Marques de Paiva, the President of the company, was The coffee from Poço Fundo is sold to Dunkin’
quoted as saying: ‘It is an honour for Exprinsul to be Donuts for use in the chain’s espresso blends under
recognised worldwide as the company which is a 24-month contract. It is roasted by three different
managing to make Fairtrade sales viable in Brazil. To companies on a contract basis for Dunkin’ Donuts.
be known as a company which practices fair trade is In this case, the interest in Fairtrade coffee has been
172
All material in this section comes from Flúvio Henrique Selvati, Ibid.
174
Exprinsul, except where otherwise stated Christian B Wolthers, personal communication, except where
175
48 173
Gazeta Mercantil, 2003 otherwise stated.
Linking up producers and consumers
Almeida believes that the price premium will be By 2007, Mercanta aims to have full traceability of its
maintained in his case and not eroded but stresses coffee – in other words direct and personal
that this is because of the high quality of his coffee. relationships with all the growers it buys from. It
He intends to stay with organic certification and intends to expand its import of coffee certified under
does not envisage applying for Rainforest Alliance or schemes like those of the BSCA and SCACR. ‘We will
Utz Kapeh because of the demanding social and continue to support those farmers who produce
environmental requirements. exceptional coffee and who manage their workers
and land fairly and responsibly. But we will not buy
The trader180 “badges” such as Fairtrade in an effort to
Mercanta is a specialist coffee importer, founded in demonstrate our credentials’.
1996, with the aim of supplying fine coffees to
specialty coffee roasters. It sells coffee to roasters in
14 countries. It buys and imports green coffee Case study 3 – The large Utz
directly from the Santa Terezinha farm, stores it in its Kapeh and Rainforest Alliance
specialty warehouse facility in London and certified estate
re-exports it to a specialty coffee roaster companies
worldwide, including Mokkamestarit in Tampere, The grower182
Finland. Ipanema is claimed to be one of the largest coffee
growers in the world with 4,000 hectares planted
The company’s main emphasis is on quality, so its with coffee on its three farms, producing 120,000
priority is to buy coffees which carry a certification bags (7,200 tonnes) of green coffee per year (natural,
to demonstrate quality as well as responsible social fully washed and semi-washed). It is a vertically
and environmental practice. It considers that the integrated company, involved not only in coffee
certifications of the Brazil Specialty Coffee growing but also trading on the international and
Association (BSCA) and Costa Rica Specialty Coffee domestic market and roasting, describing itself as a
Association (SCACR) certification meets its needs in ‘seed to cup solution provider’. Some 15-20% of its
this respect. The BSCA has developed a set of production is for the domestic market. It also has
standards for social and environmental management some cafés under the name Cafeera in São Paulo city.
systems for coffee which address issues such as child
labour, forced labour and freedom of association as The company is owned by Cia Bozano, also engaged
well as a range of environmental requirements in the aeronautical and real estate sector, and Trilux
relating to soil and water conservation, permanent Participaçoes which is active in sugar cane. Ipanema
preservation and legal reserve areas, bio-diversity, Coffees was set up in 1970 and moved into export in
ecosystem, forest and endangered species.181 1991. It has a permanent management, commercial
and agriculture staff of around 770 and employs a
But Mercanta is critical of what it terms ‘cause further 2,000 in the harvest season.
coffees’ (Fairtrade, Utz Kapeh, Rainforest Alliance
and Bird Friendly) and states that it has chosen not The company moved into specialty coffees at the
to carry these coffees because it believes that cup beginning of the 1990s as a way of differentiating
quality should come first. Its motivation for buying itself from other producers. A few years later as other
the coffee from Santa Terezinha was primarily its companies moved into specialty coffees, there was a
high quality rather than its organic status. It need again for differentiation. Ipanema saw
acknowledges though that there is a steady but advantages in certification as this provided a way to
growing demand for organic certified coffees and prove to the market that it was producing coffee
one of Mercanta’s customers buys only organic. sustainably and was therefore different from other
There are several buyers in the UK and elsewhere companies. It was already close to meeting the
waiting for the Santa Terezinha coffee before it is requirements of certification (for Utz Kapeh) and had
even picked and if Mercanta could import more of a number of social projects with its workers and the
this coffee it would be able to sell it. It stresses that local community.
there is a lot of work involved in importing organic
coffee and if it were not for the high quality of the Ipanema was the first coffee estate in Brazil to be
Santa Terezinha coffee they would not import. certified under the Utz Kapeh system in 2002. This
was because it was involved from the outset of the variety which is sought after by Starbucks because of
process to adapt the EurepGAP standards (a series of its sweet flavour. This variety was common in Brazil
sector specific farm certification standards created by in the 1950s but was gradually replaced by higher
retailers and their suppliers to demonstrate good yielding varieties. Starbucks is also contributing
European agricultural practices). EurepGAP and the around US$ 3 per bag to Ipanema’s social projects.
Utz Kapeh Foundation worked in collaboration to
adapt the code for fruit and vegetables to coffee. As certification becomes more widespread, Ipanema
is searching for new ways to differentiate itself. For
In 2004, some 30,000 bags (1,800 tonnes) of coffee this reason it is developing traceability systems. Each
were sold as Utz Kapeh certified. The company has pack of coffee will have a code number and both
also become certified under the Rainforest Alliance buyers and consumers will be able to find out from
scheme and is the world’s largest supplier of the website where the coffee corresponding to that
Rainforest Alliance certified coffee at 5,000 bags (300 number has come from. According to Washington
tonnes) in 2004. It considers the codes for these two Luis Rodrigues, the CEO of Ipanema, the challenge
schemes to be very similar but the requirements of is to educate the consumer and make clearer what
the latter are more complex. In order to comply with everyone along the chain is doing.
the Rainforest Alliance scheme, Ipanema is restoring
the original ecosystem to areas of land that were The buyer/trader and roaster183
deforested over 300 years ago. This requires Estate Coffees started in 1996 with a mission to
considerable investment. provide a new angle on coffee for the consumer by
treating it like wine and emphasising differentiation
Ipanema feels that what the company receives in by taste and origin and roast (light, medium and
money from certification does not compensate all the dark). The company set out to buy the best coffees
effort involved. The advantages of certification for from each producing country. It is important for the
Ipanema have been the facilitation of market access company to buy directly from the farmer or
and the opportunity to reach large buyers to co-operative in order to get the right quality coffee.
negotiate long-term contracts. For example, through Estate Coffees buys about 3,000 bags per year (180
its involvement in Utz Kapeh, Ipanema has secured a tonnes) of which about 40 tonnes are from Ipanema
fixed price contract with the Norwegian company and two other farms in the South Minas region.
Friele until 2011. The Rainforest Alliance scheme has
been less helpful in this regard but Ipanema has Estate Coffees has been buying from Ipanema from
decided to go for this certification because it is the outset, partly because it was aware that the
important in the US market. Some of the buyers of company had good social conditions and some social
Ipanema’s certified coffee, Friele for example, and projects. The first criterion is taste (ie quality) and
some buyers in the US do not put the certification where that can be achieved, certification is a plus
label on the package even though they are paying a point and another source of differentiation. Now that
premium for it. According to Ipanema, this is because Ipanema is certified with Utz Kapeh, Estate Coffees
buyers need to be sure of the system before making is paying a premium but is not placing the label on
the commitment to put the certification logo on the the coffee packages, as there is currently insufficient
packaging. consumer recognition and knowledge of this label in
Denmark where Fairtrade and organic have more
Ipanema’s focus at present is on establishing long- meaning for consumers. The sales of certified coffee
term relationships with buyers and maintaining and are growing for Estate Coffees but primarily because
improving quality. About 30% of its coffee is it is able to combine the certification with high-
currently sold under long-term contracts. It has a quality coffee. In this case it appears that it was the
long-term contract with Starbucks until 2011 which reputation of the company rather than the
also involves a fixed price. It is this agreement which certification that interested this buyer.
has enabled Ipanema to re-introduce the bourbon
183
Søren Sylvest, Director, Estate Coffees, Denmark, interview
25/10/05 51
From bean to cup
Chapter 7
52 184
Pagiola, S and Ruthenberg, M, 2002
Conclusions and recommendations
because so little information is given on the origins although buyer interest is clearly the most
and quality of the mainstream coffee brands. There is important.
so much variation in the price of coffee, depending
on the brand and the outlet. • The important role that quality plays in
facilitating the sale of certified coffee, whether
Adoption of certified coffee by the mainstream coffee Fairtrade, organic or any other scheme.
roasters appears to be a positive development that
may result in an expansion of demand. Nevertheless • The uneven acceptance of certification, as the
the dominant approach is to add a new certified chains show a trader who does not like ‘cause
brand to the portfolio of brands to attract a different coffees’ but still buys organic coffee and buyers
group of customers. There is little indication that the who pay a premium for certified coffee but do not
mainstream coffee roasters intend to use certified place a certification label on the package.
coffee on any major scale in their established brands.
• The varied range of benefits of certification along
Where markets and countries have marked the chain. While the premiums are important for
preferences for a particular coffee taste, as in Finland the growers, particularly for the small and
and to a lesser extent Denmark, this represents a medium growers, there are other less tangible
barrier for certified coffee. benefits along the chain such as improved market
access, longer-term contractual arrangements,
Visibility reduction in risk and more transparency in
There are concerns about the low visibility of negotiations.
certified coffees in the countries examined in this
study, particularly for Fairtrade coffee in Portugal.
This is an acute problem as certified coffee is not Recommendations
available in mainstream retail outlets.
Consumer organisations
Consumer confusion Consumer organisations should work to uphold
There are concerns about the effects on consumers of consumer rights to a healthy environment, to
multiple certification schemes as more schemes education and to information in appropriate and
become established, eg Utz Kapeh and Rainforest understandable languages. They can help to expand
Alliance in markets such as Denmark where demand for certified coffee by:
Fairtrade has dominated the certified niche.
However, similar fears raised in the US several years • Explaining to consumers about the differences
ago have proved unfounded, and knowledge about between coffee certification schemes and the
certification among consumers and the industry has rationale for price differentials between different
generally increased. types, qualities and brands of coffee.
• There are diverse drivers leading to certification Institutional buyers of coffee in the public and
such as personal contacts and philanthropy, private sector (local governments, hospitals, large
54
Conclusions and recommendations
companies, etc) can lead the way by buying certified Coffee importers and roasters
coffee for use by staff, customers, patients etc, to association/specialty coffee associations
raise awareness and make such coffee more visible These organisations can play a role in promoting
for consumers. greater traceability and transparency. They can also
provide information to consumers to help them
Certification organisations understand the differences in prices between
conventional and certified coffee of different types.
Certification organisations on the demand side of the
market need to: Retailers
Retailers can support certified coffees by:
• Improve the visibility of certified coffee and • Improving the visibility and expanding their
provide more information on how the various range of sustainable certified coffees.
certification schemes differ. This is important for
Utz Kapeh and Rainforest Alliance, which target • Including in the company’s policy a significant
roasters and retailers rather than individual commitment to increase their supply of
consumers, with the result that their logo is not sustainable certified coffee, for example by
always present on the coffee package. If their making it a requirement for all own label coffee.
ultimate goal is consumer acceptance, they
should also be making efforts to communicate Donor agencies
directly to consumers. Donor agencies can take action on both the supply
side and demand side of the market. On the supply
• Promote certified coffee through buyers’ side they can support measures to reduce barriers to
networks (if necessary creating a separate small-scale producers entering certification, and to
organisation for this purpose to avoid conflicts of promote the formation of coffee producer
interest) and adopting strategies which take associations and groups. On the demand side,
account of national cultural conditions of the donors can support establishment of certified coffee
coffee market, eg in Finland, a ‘Paula Girl‘ to buyer networks and activities to promote demand
promote sustainable certified coffees. for certified coffee.
• Streamline their application and evaluation Developments in certification change rapidly such
requirements so that multiple certifications (ie that the short-term impacts of certification may bear
from more than one scheme) can be obtained at little relation to the long-term outcomes. It is
lower cost. therefore necessary to track the longer-term impacts
of certification as initiatives become more
• Step up their efforts to promote group established. Given the phenomenal growth of the
certification and find ways of reducing Utz Kapeh scheme and the fears about its effects on
certification costs for small producers. other certification schemes, it will be particularly
important to evaluate its impact. Such impact
Such efforts to promote access should not involve a assessment needs to examine in depth the economic,
relaxing of the standards required for certification, environmental and social impacts of certification to
otherwise these certification schemes will lose their enable a comparative analysis of sustainability of
effectiveness in raising the economic, social and each scheme.
environmental standards of coffee production and
trading. The other development that is important to track is
the move by the mainstream companies into certified
coffee. How will this affect consumer perceptions
and buying habits? Will it have the effect of
expanding the market for certified coffees or will it
take business away from the existing specialist
Fairtrade and certified suppliers?
55
From bean to cup
References
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Christian B Wolthers, owner, Blazer Wolthers,
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La Crisis Cafetalera: Estrategias para Hacerle Frente,
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dinámicos, May 2001, cited in Dankers (2003) Economics and Commercial Law, Göteborg
University, Sweden
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FAO – Food and Agricultural Organization of the
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‘commodity’ be de-commodified, and if so, who is to gain?,
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Certification and Labelling for Cash Crops, Food and Studies, Brighton
Agriculture Organization of the United Nations, Rome
FLO - Fairtrade Labelling Organizations
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Assocation of America; World Bank; available at:
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(RSPB); available at: http://www.rspb.org.uk/Images
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The Impact of Fair Trade (R 2004:6) Christian
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From bean to cup
Annex 1
Participating organisations
60
Consumer organisations
Brazil Portugal
Instituto Brasileiro de Defesa do Consumidor (IDEC) Associaçáo Portuguesa Para a defensa Do
Rua Dr. Costa Junior, 356 Consumidor (DECO)
Agua Branca Rua da Artilharia Um, 79 - 4º
Sao Paulo - SP - CEP 05002-000 1269-160 Lisbon
Tel: +55 11 3874 2150, fax +55 11 3862 9844 Tel: +351 21 371 02 40, fax : +351 21 371 02 99
Website: www.idec.org.br Website: www.deco.proteste.pt
Contact : Lisa Gunn, e-mail: [email protected] Contact: Maria de Fátima Ferreira,
e-mail: [email protected]
Denmark
Forbrugerrådet (FBR) – Danish Consumer Council United States
Fiolstræde 17 Consumers Union of US Inc
Postbox 2188 101 Truman Avenue
DK-1017 Copenhagen K Yonkers, NY 10703
Tel: +45 77 41 77 94, fax: +45 77 41 77 42 Tel: +1 914 378-2754, fax: +1 914 378-2928
Website: www.fbr.dk www.taenk.dk Website: www.consumersunion.org
Contact: Torsten Raagaard, e-mail: [email protected] Contact: Kristi Wiedemann,
e-mail: [email protected]
Finland
Kuluttajat-Konsumenterna ry Vietnam
Kasöörinkatu 38 Vietnam Standards and Consumers Association
Helsinki, 00520 (VINASTAS)
Tel :+358 9 8775 0120, fax:+358 9 8775 0120 214/22 Ton That Tung Street
Website: www.kuluttajat-konsumenterna.fi/ Dong Da District, Hanoi
Contact: Johanna Parikka Altenstedt, Tel: +84 4 852 0981, fax: +84 4 852 7769
e-mail: [email protected] Contact : Do Gia Phan, e-mail: [email protected]
Just Coffee: how consumer choice impacts on coffee producers and the environment
Just Coffee follows the certified coffee chain from the farms
of Brazil to the supermarket shelves of consumer countries. It
includes exclusive interviews with certified coffee farmers,
roasters, consumer representatives and some of the major
players in the international coffee sector.
The DVD is free to NGOs and academic institutions and $US 5 to others.
Consumers International
24 Highbury Crescent
London N5 1RX, UK
Tel: +44 20 7226 6663
Fax: +44 20 7354 0607
e-mail: [email protected]
www.consumersinternational.org