"Sustainability Looks Different Wherever You Are": Coffee production practices in a risky landscape
The annual World of Coffee event, held in early June in Berlin, Germany, is known as the largest professional conference devoted to the coffee sector in Europe, where the sheer breadth and depth of the sector can be seen in full force.
A wide range of attendees converged on Messe Hall: everyone from baristas competing for who can make the best “latte art,” to farmer organizations presenting their products and approaches to coffee cultivation, to brewing machine manufacturers exhibiting their wares.[i]
The coffee sector indeed appears to be in its heyday: coffee consumption is on the rise and is no longer concentrated in just the traditional markets of North America and Europe.[ii] The International Coffee Organization (ICO) found that global coffee consumption hit a record of over 160 million bags of coffee in 2017/18, with much of that coffee traded across national borders.[iii]
Yet the buzz around the growing demand for coffee belies some of the sector’s many challenges, which were raised by research organizations, non-profit organizations and sustainability advocates during the lecture series held within the Berlin event, as well as at the International Coffee Congress on Sustainability held the day before by the German Coffee Association in cooperation with the World of Coffee and organized by the Specialty Coffee Association.[iv]
Consumption and Demand Trends
Currently, coffee production is heavily concentrated among a select set of countries: only five countries account for nearly three quarters of overall production in 2015.[v] With consumption on the rise, the world will need at least 21 million more bags of coffee produced per year by 2031—a number that could double, or even triple, depending on growth trends.[vi]
Coffee production needs to diversify among more countries and producers to meet this demand, while ensuring that growth does not lead to severe environmental strain. This has proven difficult: despite the growth in coffee consumption, which is due largely to having greater retail options available, the production side of the sector struggles constantly with uncertainty due to years of volatile prices, along with the effects of changing weather patterns on coffee yields.[vii] Many coffee farmers, for their part, have a challenging time making ends meet, and in some cases find it too expensive to stay in the coffee sector at all. Some of these farmers, both in the world’s least-developed countries and in many emerging economies, still live in poverty.
Moving the sector toward a wider uptake of sustainable production practices in this landscape is thus a challenging but necessary task, despite the costs of investing in these practices. Speakers at two of the Berlin lectures found that there are some promising signs across different coffee-producing countries that speak to the interest in and benefits of moving in this direction.
Looking more closely at coffee production, recent figures suggest that the level of certified coffee has been on the rise in recent years.[viii] Coffee that complies with one or more voluntary sustainability standards (VSSs) can be identified by a seal or other type of labelling to denote that the product in question has undergone a process that is mindful of environmental and social impacts, as well as a rigorous VSS certification process. In the coffee sector, the main VSSs include primarily 4C, UTZ/Rainforest Alliance,[ix] Fairtrade and Organic.[x]
“Coffee is a particularly strong example of the potential for certified product,” said International Institute for Sustainable Development (IISD) Associate Laura Turley in Berlin while presenting the inaugural Global Market Report: Coffee. The report is published by IISD’s State of Sustainability Initiatives as part of a series devoted to providing a market performance overview for key VSS-compliant agricultural commodities.[xi],[xii] “The trends that we’ve noticed in this report is that the growth of VSS-compliant coffee outpaces conventional coffee growth. In this period, from 2008–2016, conventional production is down by 8 per cent, while VSS-compliant production is up by 24 per cent,” she continued, referring to the compound annual growth rates measured over that time.
While coffee consumption is on the rise, getting consumers to pay for certified coffee rather than conventional coffee is another challenge, with the demand for certified coffee often not matching up with the growing supply. In 2016, where the latest data is available, 34.5 per cent of the coffee market overall was compliant with at least one VSS.[xiii] This share may actually be even higher: up to 21.4 per cent of the coffee market may be compliant with one of these standards, but data limitations make it difficult to know for sure.[xiv]
The production of conventional coffee does not account for environmental and social costs, and therefore neither does its price. Conventional coffee therefore appears to be cheaper to produce than certified coffee, and thus have a lower price when being sold. Given that overall price environment for coffee, most farmers will often produce coffee at prices that are actually below their production costs.
Until end consumers are willing to pay the higher price for certified coffee, farmers who choose to meet VSS requirements can find it difficult to recoup the investments they have made in meeting those standards. There are also well-documented cases of certified coffee ultimately being sold as conventional coffee, which some research suggests could be a product of end consumers not being fully aware of the label and what it means, and therefore not willing to pay the higher price.xv]
“There seems to be an oversupply of VSS-compliant coffee, which is good for end-users, but for producers this is a real challenge: we’re making this effort, we’re taking these steps, but where is the demand? Who is buying this compliant coffee?” Turley said, describing some of the challenges facing sustainable coffee production.
Growing Interest in Sustainable Practices
According to sustainability advocates, the growing demand for coffee overall will need to be matched with a boost in consumption of VSS-compliant coffee, particularly given that the supply of this certified coffee is already on the rise. If these efforts are successful, they can have important implications for the social and environmental contexts in which farmers live and work, especially in countries that are facing a suite of developmental challenges, such as biodiversity loss, income inequality and environmental degradation.
“If this trend in VSS-compliant coffee continues to grow, then maybe we should look at the potential for low human development countries (LHDCs) and not just the top growing countries,” said Steffany Bermúdez, a data collection and analysis specialist at IISD who co-authored the Global Markets Report: Coffee.[xvi]
The Global Market Report: Coffee found that LHDCs represent 11 per cent of total coffee production, but the growth in VSS-compliant coffee production in those countries has been significant. The report showed a compound annual growth rate in VSS-compliant coffee of 19 per cent in LHDCs from 2008 to 2016, much higher than the growth seen in those same countries for conventionally produced coffee.[xvii]
“We know that there are existing challenges in developing this potential [in LHDCs],” Bermúdez added. Among these challenges are the high cost of certification, the multiple certifications available, meeting the “sometimes complex criteria for VSS” and the need for “supportive services” to implement these requirements at the farm level. Boosting demand for certified coffee across the value chain is also crucial, she said, as is dealing with the existing environmental challenges that many farmers deal with.
The multiple VSS certifications mean that farmers are often juggling several costly processes at once; at the same time, the number of certifications available does speak to the private sector’s interest in VSS-compliant coffee.
“There are a lot of other companies that are playing around with having some certified coffee, companies investing in their own systems and their own sourcing and standards systems, with the idea that it’s cheaper and more efficient than adhering to the existing standards systems,” said Sjoerd Panhuysen from Hivos, a Dutch-headquartered development organization devoted to social change. Panhuysen works with Hivos’s productive landscapes program and is the lead author of the Coffee Barometer 2018.[xviii]
“What we see in the sector is a lot of double, triple and even quadruple certification,” said Panhuysen in Berlin. “There are a lot of underlying, different standards, which are aligned with Fairtrade and Rainforest, and then you get double- and triple-certified farms.” Moreover, there is clear evidence of a gap between how much standard-compliant coffee is available at the producer level, relative to the volumes procured in practice by the buyer as standard compliant. That gap is growing, though the statistics are not sufficiently clear due to problems in recording data when multiple certifications are involved. One example, he noted, is that the figures for Organic coffee are believed to overlap by some 50 to 70 per cent with coffee that is certified under the Fairtrade standard.
Research by IISD’s State of Sustainability Initiatives has also highlighted the importance of making sure that new initiatives, including industry ones, have the necessary third-party overview and the appropriate governance structures in place, with stakeholders’ involvement from the standards’ design through to their implementation and audits.[xix],[xx]
Norbert Schmitz, of 4C, noted during a separate presentation that despite these challenges, there have been signs of how producing certified coffee can boost crop yields, farmer incomes and the implementation of conservation measures. This does not ignore the fact that certification has yet to live up to its full potential, as shown by farmer incomes not matching up with the efforts they make in producing sustainably, and the costs of implementing these requirements not being compensated by the market. Poorer smallholders often cannot undergo these certification processes, and certification audits are costly and difficult.
Farmers bearing the cost and risk of trying to produce sustainably must be able to sell their products at sufficiently high prices to recoup the costs of their investments and earn a sufficient profit; in addition, these prices must be consistent enough that they can make long-term business decisions. Cooperation and collaboration across the value chain will thus be crucial in addressing those challenges, so that this clear interest in VSS-compliant production, despite the associated difficulties, is not lost.
Adapting to Different Circumstances and Sharing Risks
Looking ahead, the challenges that are involved in transitioning to more sustainable coffee production practices cannot be addressed solely in the aggregate, and sustainability, while now a common term, actually can hold varying definitions depending on the starting point of the countries and coffee producers involved.
“Sustainability looks different wherever you are,” said Miguel Zamora, Director of Market Transformation at Rainforest Alliance, in Berlin.[xxi] More specifically, the challenges that farmers face in different countries, and therefore the solutions that need to be developed, will often vary, such as when it comes to improving land ownership and labour rights regimes in their respective countries. This holds especially true for LHDCs.
“What we have found in some of the challenges to help producers to become certified is that smallholders in Ethiopia and Uganda are small in terms of the land they own,” Zamora added. “That makes it more expensive to get them to trainings, to get the investment they need to be compliant [with these sustainability standards]. […] We want to make sure producers have the chance to choose the sustainability path that brings the most value to them.”
Growing coffee is an activity that is indeed fraught with risk: the coffee sector is famous for its price volatility, for example, with prices fluctuating regularly and, at times, wildly. According to José Dauster Sette, Executive Director of the International Coffee Organization, the ICO composite indicator price shows an “almost continuous drop” since the start of 2016, and that price in January sat at 32 per cent below the 10-year average.
The implications of this price volatility are damaging both for producers and for the coffee value chain overall, Dauster Sette said in Berlin. Not only does price volatility create an economic disincentive for coffee producers, but it has also been linked to increased migration from coffee-producing countries, especially in Central America; greater social unrest; the “pauperization” of rural areas; and environmental harm, due partly to producers being increasingly concentrated in certain countries.
Climate change is also making its mark on the sector, with multiple examples already demonstrating how changing weather patterns or freak weather events can hurt coffee yields or create marked differences in coffee quality.[xxii] This risk also tends to affect farmers first, rather than being spread out across the coffee value chain.
“What we see, when we talk about risk sharing, is that there is no risk sharing: the risk is pushed toward the farm at this moment,” said Panhuysen. While some research is trying to quantify the environmental and social risks that farmers face, those risks have yet to translate into an appropriately representative “price definition.”
“A farmer actually takes a certain amount of risk going into a trajectory to become certified, which comes back every year. It comes at a cost to the farmer,” who expects these efforts to translate into a better income, Panhuysen continued. The success of these VSSs requires that all stakeholders in the coffee sector are committed to the necessary capacity-building supports and measures, as well as trade relations, to ensure that farmers and the communities in which they live ultimately see improved livelihoods as well as working, social and environmental conditions.
Private and Public Sector Actions, Options: Looking ahead
Current trends confirm that there is a need to increase coffee supply to meet demand, especially in the near term, which will require expanding production beyond the traditional countries and actors to newer participants. Whether this will require the uptake of VSSs or other approaches, and what role certification will have in this context, remains to be seen. These are important questions to consider going forward. To ensure that this supply involves sustainably produced coffee, however, it is essential to find ways to make these production methods more profitable for farmers and draw in investments. It will also involve ensuring that the coffee produced is of high quality, and that farmers have access to both alternative income sources and to high-value market segments.
To ensure that farmers have the incentive to adopt more sustainable production methods, despite their costs, also requires making sure that consumers, including end consumers, show a higher demand for sustainable, certified coffee, rather than their conventionally produced equivalent. Sustainability advocates argue that this change in consumer preferences is vital to ensuring that there is a high incentive to produce sustainably, even with the level of investments required.
Mechanisms for sharing risks will also be vital, sustainability experts say, and require actors from across the value chain to take action. Governments must adopt practices and policies that provide an enabling environment for coffee production, especially sustainable production, to thrive. Among the options that are being debated by policy-makers is establishing a minimum price, which Ghana and Côte d’Ivoire have recently announced they will do with cocoa.[xxiii] Those governments have also pledged to communicate that price information to producers, among a host of other steps to address price volatility for that sector. Governments also have a role in developing legal and regulatory frameworks that support the uptake of sustainable coffee production practices, including when it comes to improving labour and environmental laws and practices, making it easier for female farmers to obtain credit and other productive inputs, and facilitating access to markets.[xxiv]
Another option could involve finding ways to ensure that farmers can cultivate larger plots of land, potentially making it easier to reap the returns of their investments and any support they receive. Tackling costs and mapping out the impact that certification has in practice will also be key, and some promising steps have emerged in this respect, such as the use of new technologies by 4C and Rainforest Alliance to capture information about deforestation and other key metrics about supply chain traceability and sustainability. These are just a few examples; context and collaboration are key to making sure the right tools are chosen for the right situation.
Some of the steps that the private sector can take include providing better support to smallholder farmers, improving chemicals management in production and pushing for biodiversity conservation, according to Nanda Bergstein, Director of Corporate Responsibility at Tchibo, a coffee retailer headquartered in Germany that sells products such as coffee machines. Tchibo is one of the top roasters and retailers globally, as ranked by Euromonitor.[xxv] Speaking in Berlin, Bergstein also raised the point that any private sector initiative would need to cater to farmer needs, rather than what the private sector assumes their needs to be.
The private sector has a role to play in ensuring that end consumers, as in those people that buy and consume coffee as part of their daily lives, show the necessary interest in buying more sustainable products, even if it means paying a higher price. The private sector also needs to consider ways to share some of this risk so that it does not fall solely or primarily on farmers.
Ultimately, the various challenges that the coffee sector faces —price volatility, climate variations, consumer preferences—make the road to adopting more sustainable production methods difficult. However, there is a clear interest in many developing countries, and the benefits could far outweigh the costs in the medium and long terms. The growing demand from non-traditional markets provides a clear window of opportunity for expanding coffee production into newer markets, including in poorer countries that already have some share of global coffee production. This transition, however, will involve the uptake of sustainable production practices in those newer markets, which will need to be adapted to those producer countries’ particular needs. It will also require new approaches to collaboration among value chain actors that focus on supporting farmers as they adopt these practices, thus averting environmental and social harm and ensuring that they receive the necessary returns on their investments.
Looking ahead, this collaboration across value chain actors will be vital in safeguarding against risk and in ensuring that the efforts of producing sustainably can ultimately reap the desired rewards. Communication channels will need to be open and experiences and ideas must be shared regularly among industry players. This should go beyond just the major players in the industry, such as the top roasters and retailers, to include everyone from smallholder coffee producers to government officials to baristas to end consumers. Transparency along all steps of the value chain could play an important role in changing consumer preferences, so that the end consumer is ultimately aware of the benefits of certified coffee and willing to pay that higher price point, whether at the store or at their local coffee shop.
[ii] Voora, V., Bermúdez, S., & Larrea, C. (2019). Global market report: Coffee. Retrieved from https://www.iisd.org/sites/default/files/publications/ssi-global-market-report-coffee.pdf
[iii] International Coffee Organization (ICO). (2018, October). Record exports in coffee year 2017/2018. Coffee Market Report. Retrieved from http://www.ico.org/documents/cy2018-19/cmr-1018-e.pdf
[v] Voora et al., 2019.
[vi] ICO, 2018.
[vii] Panhuysen, S., & Pierrot, J. (2019). Coffee barometer. Retrieved from https://www.hivos.org/assets/2018/06/Coffee-Barometer-2018.pdf
[viii] Voora et al., 2019.
[ix] UTZ and Rainforest Alliance were merged in 2017 under one certification.
[x] Voora et al., 2019.
[xi] Voora et al., 2019.
[xii] State of Sustainability Initiatives. (n.d.) About SSI. Retrieved from https://www.iisd.org/ssi/
[xiii] Voora et al., 2019.
[xiv] Voora et al., 2019.
[xv] State of Sustainability Initiatives. (2014). Chapter 8. Coffee market. SSI Review. Retrieved from https://www.iisd.org/pdf/2014/ssi_2014_chapter_8.pdf
[xvii] Voora et al., 2019.
[xviii] Panhuysen & Pierrot, 2019.
[xx] International Institute for Sustainable Development. (2019). Voluntary sustainability standards. Retrieved from https://www.iisd.org/topic/voluntary-sustainability-standards
[xxii] Panhuysen & Pierrot, 2019.
[xxiii] Government of Ghana. (2019). Ghana, Cote d’Ivoire sign agreement on cocoa. Retrieved from http://www.ghana.gov.gh/index.php/news/4512-ghana-cote-d-ivoire-sign-agreement-on-cocoa
[xxiv] Sexsmith, K. (2019). Leveraging voluntary sustainability standards for gender equality and women’s empowerment in agriculture: A guide for development organizations based on the sustainable development goals. Retrieved from https://www.iisd.org/library/leveraging-voluntary-sustainability-standards-gender-equality-and-womens-empowerment
[xxv] Euromonitor. (2017). Tchibo GmbH in hot drinks. Retrieved from https://www.euromonitor.com/tchibo-gmbh-in-hot-drinks/report