ICO economic report: Call to arms

World-leading coffee roasters and traders joined forces with stakeholders to improve the economic sustainability of the industry and encourage other organisations and countries to do the same.

International coffee prices have been on a ongoing downward trajectory since 2016, and with coffee year 2018-19 marking the second consecutive year of coffee production surplus, the economic sustainability of the industry has been called into question.

To discuss a commitment to shared and individual time-bound actions on the coffee price crisis, industry leaders gathered in the United Kingdom under the guidance of the International Coffee Organization (ICO).

The first ICO CEO and Global Leaders Forum, held from 23 to 25 September, resulted in 12 roasters or traders – illycaffè, Jacobs Douwe Egberts, Lavazza, Mercon, Neumann Kaffee Gruppe, Nestlé, Ecom Trading, Olam, Starbucks, Sucafina, Tchibo, and Volcafe – signing the London Declaration on price levels, price volatility, and the long-term sustainability of the coffee sector.

The Latin American and Caribbean Network of Fair Trade Producers, Fairtrade International, Global Coffee Platform, Hanns R Neumann Stiftung, Sustainable Trade Initiative, National Coffee Association of USA, Oikocredit, Rainforest Alliance, Rusteacoffee, Specialty Coffee Association, and Sustainable Coffee Challenge have also supported the declaration. More industry leaders and organisations are considering joining this global effort.

Andrea Illy, Chairman of illycaffé, tells Global Coffee Report that the London Declaration has the merit to bring together a broad number of stakeholders to commit to a short-, medium-, and long-term plans on the sustainability of the coffee sector.

“We have to recognise that prices remain an issue on which we have to keep working hard. On one side, we are seeing the same dynamics of the past with long-term cycles and high volatility caused by oversupply and exogenous factors, while on the other side, the differentiation strategy has notably increased differentials,” Illy says.

“The best strategy for the future is undoubtably to continue on this same path, which entails investing more in differentiation though agronomical and genetic improvements, as well as new agricultural niches. Traceability and differentiation have also favoured and increased grower-roaster cooperation, giving them the opportunity to surprise and delight consumers, commanding at the same time higher premiums, with benefits – in term of economic, social, and environmental impact – for all the stakeholders involved.”

In the long term, Illy says a much higher investment is needed to address the sustainable livelihoods of the most impacted farming families.

“One investment in farm renovation and innovation could achieve four objectives at the same time – quality and differentiation, increased productivity, adaptation, and mitigation against climate change,” Illy says.

“This investment needs to be done directly by the coffee growers, who are the only ones capable of maximising the return in terms of quality and productivity. So the real challenge is to put them in a condition to invest in their plantations and, in order to do so, access subsidised long-term credit. This can be achieved by insuring the credit default risk through collaterals provided by traders or roasters.”

To this end, illycaffè has developed a possible financial strategy and is ready to start a pilot model with the United Nations Industrial Development Organization in Ethiopia.

In the medium term, Illy says the industry needs to better manage the balance between supply and demand.

“To prevent the cyclic oversupply recurrence it would be useful to establish an independent observatory for accurately predicting both coffee production and consumption and better estimate stocks,” Illy says. “Such an endeavour, which was probably nearly impossible in the past, would now be reasonably accessible thanks to the most up-to-date technologies in the field such as satellite images, big data, meteorological models, scan data, [and] online surveys.

“As far as the short term is concerned, to support the most impacted coffee families in coffee growing communities, I think that a philanthropic approach is needed through an advocacy and charity campaign, stemming from the pledge that ICO itself just launched on International Coffee Day.”

Through the London Declaration, signatories and supporting organisations have committed to “concrete shared and individual time-bound actions… as well as the extension of the coffee sector dialogue on long-term and transformational solutions”. These commitments focus on four key themes:

  • Promoting competitive and sustainable production – increasing resilience of farmers against shocks, improving access to finance, promoting research and development in new varieties, supporting further improvements in quality and differentiation, and improving production technologies among smallholders
  • Fostering responsible and equitable growth – contributing to increased market transparency regarding the living income gap, sourcing origins, and cost of production considering the diversity of producers and specific geographies, expanding responsible sourcing of sustainable produce, and trading coffee from a diversity of origins
  • Promoting responsible consumption – taking measures to stimulate demand for sustainably sourced coffee from diverse origins in traditional and emerging markets, especially in producing countries
  • Promoting public-private dialogue regarding policy development – exporting and importing to ensure efficient functioning of market institutions and prevent price distortion.

Also set out is a further commitment to take immediate action before the next meeting of the CEO and Global Leaders Forum during the fifth World Coffee Conference in Bengaluru, India in September 2020, establish market and supply chain information systems, actively participate in national dialogues, and promote the allocation of resources.

The signatory organisations call on all coffee sector stakeholders to sign and support the declaration and contribute to its further development and full realisation, and for development partners to provide technical and financial resources to support the realisation of these commitments. The signatories also called upon governments of both exporting and importing countries to act on:

  • Committing to and further developing joint solutions to address economic sustainability and diversity of production across the coffee sector
  • Respecting and promoting human rights through fighting child and other illicit labour practices
  • Ensuring the environmental sustainability of the sector through preventing coffee production-driven deforestation and forest degradation
  • Strengthening the policy environment for sustainable production and consumption, through government policies in exporting and importing countries regarding efficient functioning of market institutions, and responsible sourcing and trade.

In a public statement, Olam Coffee CEO Vivek Verma supported the London Declaration, but stressed that industry and governments must work together and quickly to develop a safety net for coffee farmers. Olam Coffee currently supports 56,000 smallholders through sustainability programs with customers and partners across 18 origins, but says this is only a drop in the ocean.

“With farmers now in the second year of very low prices, the industry fully recognises the scope of what must be achieved under the London Declaration, but we must act quickly. [It’s] critical to find a way to give farmers a safety net that will also help them be resilient in the face of climate change,” Verma said.

“Without the means to invest in more resilient hybrids and other adaptation methods for the future, farmers cannot be blamed if they give up. In turn, this could affect consumer choice as certain origins no longer support coffee production.”

Verma suggested a price stabilisation fund be implemented that subsidises farmers for reducing production capacity over the short term when prices are low, while recouping the subsidy when prices are high.

“If coffee were a product of the developed world, there would have been some price stabilisation mechanism put in place or, at the very least, there would have been subsidies at low prices. Unfortunately, coffee is grown in mostly developing and underdeveloped countries, which do not have the means to support farmers in times of low prices,” Verma said.

“Despite the different situations of producing countries, I believe this is achievable if the ICO, development organisations, commercial banks, and the industry come together.”

The first CEO and Global Leaders Forum was the culmination of the ICO’s structured sector-wide dialogue to implement Resolution 465, which promotes “dialogue among all stakeholders in the coffee value chain to ensure the economic sustainability of the coffee producers”.

ICO Executive Director José Sette, says that the declaration mobilised stakeholders in the coffee value chain and international roasting industry.

“Using the convening power of the ICO, we will continue our efforts to catalyse stronger political support and resources from all our member countries as well as from multilateral mechanisms, international organisations, and the private sector in order to address the short- and long-term sustainability of the coffee sector,” Sette says.

The International Coffee Council, governing body of the ICO, welcomed the efforts of the private sector companies and organisations that signed the London Declaration on 27 September during its 125th session.

“The ICO is now translating the coffee sector’s commitments into a detailed road map with clear targets and concrete actions engaging both private sector and [our] organisations, development partners, and civil societies that adhere to the Declaration and the government’s members of the ICO,” Sette says. “The process is due to produce measurable results and to transform the forum into a yearly event of industry and government leaders committed to making the coffee sector sustainable and economically viable for growers.”

The outcome of this taskforce will be considered at the second CEO and Global Leaders Forum.

For more information, visit www.ico.org, www.internationalcoffeecouncil.org, or contact patacconi@ico.org

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