Solidaridad’s Nico Roozen on lessons learnt from more than 30 years at the helm of certification systems, the disruptive power of new technologies, and why they’re needed to make an impact on the supply chain.
Nico Roozen is determined to break the stereotype of retirement. In June this year, the Co-founder of fair trade certification system and corporate social responsibility initiatives including Max Havelaar and Utz Certified, officially stepped down from his role as Executive Director of development agency Solidaridad. He handed the baton of responsibilities over to Jeroen Douglas to lead the next evolution of the foundation, but far from taking a back seat in the slow lane, Roozen is excited about the changes he can help implement as Solidaridad’s first Honorary President.
“If I can make a new contribution to society at the age of 66 rather than playing golf or chess, then why not?” Roozen tells Global Coffee Report. “[Solidaridad has] given me a position in the organisation to initiate new innovations all over the world, so that’s what I’m going to do.”
Roozen first joined the ecumenical development agency Solidaridad in 1984 and was made Director in 1989 after the successful launch of fair trade. Back then, the company was relatively small, working from a mandate from the Catholic Church with just six people, and turning over about US$4 million. When it gave back the mandate and reorganised its structure in 2001, the organisation moved into a new direction and built an international network with Regional Expertise Centres all over the world, and a turnover of about US$70 million with 600 staff.
“What I think is a characteristic of Solidaridad, for more than 30 years in coffee, is that we have always been an innovative organisation. We initiated fair trade at a time when there was a high level of reluctance from major Dutch retailers to work within the marketplace and offer fair trade goods,” Roozen says. “We had a lot of discussions with those who were roasting and those running so-called third world shops – they didn’t want to work with the main retailers because they were part of the problem, they were part of capitalism. But we broke through in creating a global fair trade initiative; however, we also saw the limitations of it, regarding corporate and social responsibilities.”
In the weeks since the announcement of Roozen’s departure from the top role at Solidaridad, he gave interview after interview reflecting on his past achievements and evaluation of the fairt rade certification system he helped create. But the message Roozen really wants to convey in his interview with GCR is the imbalance in the supply chain.
A larger slice of the cake
“There are two large elephants in the room: persistent low prices for coffee and a small part of the cake for farmers,” Roozen says. “Markets do not offer a fair share and a fair price for coffee farming communities. [These are] well-known issues, but there’s still no effective action to correct it. All economic, social, and ecological challenges for the sector cannot be solved without offering farmers a return on investment and a living income.”
Roozen says farmer share has further decreased to 6.7 per cent, with less than 10 per cent of aggregated wealth staying in coffee producing countries. In real terms, coffee prices have fallen two-thirds since the early 1980s and in that time, the real earnings of coffee farmers have halved in spite of their significant investments in quality and productivity.
“When we developed the first fair trade scheme in 1988 by launching the Max Havelaar logo in the Dutch consumer market – the first fair trade label for sustainable coffee to offer some protection to low prices with substantial premiums for producers – we guaranteed the coffee producers a minimum price of 120 US cents per pound,” Roozen says.
“Nowadays market prices are at 92 US cents per pound, while the fair trade minimum price is 140 US cents per pound, or in real terms 84 US cents per pound – an economic drama for farming families.”
Back in 1988, the first fair trade certificate was developed with no code of conduct for producers, only traders. Ten years later, Roozen, along with friend and now Solidaridad Executive Director Douglas, developed a code of conduct for fair trade bananas. But this time it was for producers, not traders. Roozen says it was socially and logically ambitious at the time, but a decision that’s made, and is making, a real difference.
“There is now an erosion of criteria for traders and brands, and an eruption of criteria for farmers,” Roozen says. “The code of conduct for producers involves dealing with the issues of production so that it is economically and socially sound, and that they are held accountable for spending the premiums.”
On reflection, Roozen says certifications have been unable to transform the entire market, with some lessons learnt the hard way, including the choice not to fix market premiums, but one thing is certain: “control-based systems don’t have a future and incentive-based solutions do.”
“We have turned a system that was controlling trade into a mechanism that only controls farms. It is the main lesson I’ve drawn from the evolution of the certification system,” Roozen says.
“A farmer in Brazil once said to me: ‘Nico, we don’t need police. We need doctors. We need structures, which support us and innovate. We don’t need structures that audit us and control us’.”
The other lesson Roozen learnt was that without scale, nothing is relevant. When he started fair trade, 25 to 30 per cent of consumers said they wanted to pay more for products that were sustainable. But in reality, only a few consumers are making a choice for sustainability. Roozen says there is a difference between what we see as important as citizens and what we buy as consumers.
“Unfortunately the consumer didn’t give us the power to transform the market. At just 25 per cent you can change a market. The tipping point for change in the market is much lower than in parliament where 50 per cent of the votes are required,” Roozen says.
“It was my vision for [fair trade and Utz] to be the dominant perception and dominant feature in the market, but in reality they are still the exception. We have to create incentives for farmers. Controlling is expensive and creates negative energy. Incentives reward good decisions, and good practices create continuous growth and developments.”
Roozen says sustainability has become a buzzword in the annual reports of coffee traders and brands, with actual investments related to sustainability extremely low.
“Given the industry value of US$200 billion, less than 1 per cent of the total coffee turnover is reinvested in increasing sustainability at the production side of the value chain. Fifty per cent of the industry’s sustainability efforts are paid from consumers through the premiums on certified coffees, and around 20 per cent from donor funding. We have seen the relative share for the farmer and the price of coffee in absolute terms go down,” which is largely attributed to under-consumption, high stock positions, and speculative movement, Roozen says.
“I’m a very optimistic person but sometimes I’m a little cynical and disappointed about using the word ‘sustainability’ in companies. The reality is that today in boardrooms, the main considerations of acquisitions and mergers is giving shareholders 12 per cent return and then focusing on sustainability.”
Currently in the market, Roozen says the concentration of coffee roasters comes down to Nestlé and Jacobs Douwe Egberts, and likely the Lavazza Group.
Roozen says optimists present the consolidation as an opportunity to mainstream sustainability efforts, but there is little evidence this is happening within the newly formed conglomerates.
Roozen says the key to a new platform lies in the ability to utilise basic and data-logging technologies to break monopolies and change the structure of the supply chain so that farmers can receive a fair income.
“The data revolution of our times will enable us to do the things which were considered impossible for a long time. Across borders, free from the control of large corporations that are just focused on the bottom line, producers can build a self-owned digital platform offering participating farmers an efficient cultivation registration of coffee varieties and a benchmark of different production methods and results,” Roozen says.
The key, however, is the ownership of data. Roozen says this requires a low-cost, neutral, decentralised, and green-updated internet, and a valuable digital currency. Such a breakthrough could bring disruptive changes in supply chains.
“If we can find out how to bring new technology to farmers without it linked to or stored by Google, it will given [farmers] an opportunity to audit and link their own data to a network, decentralise data storage, management, and ownership, and move away from the highly centralised, energy-consuming Googles of our world.”
Roozen says he is already in discussions with fair trade and Rainforest Alliance producer groups to initiate such data platforms and help build their bargaining position on prices.
“If we can strengthen the power of the primary producer and give them a better share of the cake, it could be very powerful, because at just 6 per cent, their share is extremely low,” Roozen says.
His most exciting example of how disruptive technologies can change market relations comes in the form of simple cool containers and the “almost disappearance” of banana distributor Chiquita, considered one of three oligopolists banana traders in the European market. That was until 1996 when along came Danish shipping company Mearsk, which introduced cool containers to transport bananas. This not only improved the quality of bananas shipped in a temperature-controlled environment, but “destroyed” Chiquita’s logistic power. While Chiquita took action to break up the initiative, it lost its market dominance and opened up space for AgroFair, the first fairtrade fruit company in Europe, to become a success with more than US$110 million in turnover, co-owned at 45 per cent by banana farmers.
“Not only do the farmers get a fair price, but a fair share and a fair say as members of the board,” Roozen says.
Return the power
For many decades, the coffee market has been dictated by demand, but signs suggest a drastic change will occur in the coming years. Roozen says supply in the coffee market will obtain a more dominant role due to the more general competition for fertile land and water, the urgent transition to climate smart production, and more specific factors such as age of producers, low investments, poor knowledge, and lack of available capital – all this in combination with a still steady growth in demand.
These tendencies make producers that remain in business realise that forward integration in the chain is the best way to expand and to get a fair share of profits. Professional producers and cooperatives are already investing in their own wet mills and “beneficios” for the export of coffee. More and more they are roasting their coffee on a small scale to meet local demand.
Roozen says this “next generation coffee” is distinguished from other initiatives in the sense that the primary producers become owners or at least shareholders of trading and marketing companies. A real breakthrough in the global coffee chain is blocked by the fact that roasters in consuming countries blend coffees from different origins. Individual countries are unable to produce these varied blends, and until now, none of the coffee producing countries can meet these international business requirements.
“It is essential that the global coffee producers somehow take away the boundaries and organise themselves in an international corporation. Producers want to look for consolidation of supply,” Roozen says. “Shortening the supply chain will reduce the power and margins of traders and brands. Entering the international market with ready-to-roast green coffee blends or – even better – with finished products for retailers or catering will make the producers the new supply chain directors of next generation coffee.”
Roozen may not be in management any longer, but he has a renewed passionate to bring the right people together to lead 50-year-old Solidaridad into the next phase of its evolution.
“The market is always smarter than we think, which demands attention,” he says. “Under the current situation the farmer is still poor and this cannot be accepted. This is the challenge we have, but there is a lot of new energy around this issue. It always starts with recognition of what’s gone wrong, learn from it, and discover what’s possible. If we can serve the interest of common people and not the interest of capital, then we can change a lot in society.”