Market Reports

The future of certified coffee

When the second-largest UK supermarket chain told tea growers in Nairobi last June that it would drop the Fairtrade line to test its own pilot ethical trading program, outrage ensued. Confused producers feared Sainsbury’s promise to retain similar tea trade practices were empty. Critics decried the initiative as a cost-cut scheme that could lead to the demise of UK’s Fairtrade Foundation if extended to other products such as coffee and bananas. Fairtrade International’s retail sales were US$8.1 billion in 2015, with its largest market in the UK worth US$2.4 billion. Sainsbury’s is one of the label’s biggest backers and holds a 16.9 per cent share of the UK supermarket sector. “We were all very sad to see Sainsbury’s take a different path,” Fairtrade International Global Chief Executive Officer Dario Soto Abril tells Global Coffee Report. “What they were looking for was a little bit different than what the Fairtrade model is.” Sainsbury’s is just one of a growing number of corporations re-thinking their current ethical and environmental trading schemes. With coffee industry consolidations likely to ramp up private sustainability initiatives, independent certifiers are already strategising on how to stay in the game. State of certification
A recent International Trade Centre (ITC) report estimates at least a quarter of all coffee grown in 2015 was compliant with one of the five largest standards. However, it’s hard to gauge an exact figure as it is common for producers to hold multiple certifications. In its 2017 State of Sustainable Markets, ITC says 4C, Fairtrade International, Organic, Rainforest Alliance/Sustainable Agriculture Network and UTZ certified a minimum 2.6 million hectares and a maximum of 4.6 million hectares in 2015. That represents a 63.3 per cent increase in certified area from 2011. Its largest buyers were Nestlé, Mondelez, D.E. Master Blenders, Tchibo, Keurig Green Mountain, UCC Coffee and Starbucks. Now known as Baseline Common Code, 4C claimed the highest share of licenced coffee area in 2015 with 15.2 per cent (1.6 million hectares) of the global coffee area, reporting 2.6 million metric tonnes (MT) of  compliant coffee. Fairtrade International held 12.4 per cent of global coffee area (1.3 million hectares) with about 560,000 MT produced, representing a growth of more than two thirds in five years. Organic estimated its harvested area was almost 800,000 hectares (7.6 per cent of global coffee area), with more than 340,000 MT produced. Rainforest Alliance/Sustainable Agriculture Network certified more than 405,000 hectares, with over 520,000 MT reported. UTZ certified nearly 550,000 hectares worth 5.2 per cent of total coffee area, and produced 821,000 MT, representing 9.3 per cent of global coffee production. With figures such as these, ITC Executive Director Arancha González believes coffee is on its way to becoming the first sustainable agricultural product. “Consumers are powerful, and not afraid to wield their power both on their own behalf and on that of the planet,” she states in the report. “They are helping to ensure that the environmental impact and labour conditions associated with agriculture are duly monitored, and that appropriate sustainability standards are adopted and respected.” Add private voluntary sustainability initiatives such as Nespresso’s AAA Sustainable Quality Coffee Program or Starbucks CAFÉ Practices, and the potential volume of sustainable coffee could be much higher. It’s not clear what degree of impact future “fairly traded” schemes could pose to the certification sector in an increasingly crowded market, but growing consolidations could mean fewer large companies buying certified coffee Nestlé and JAB already claim more than 33 per cent of the global retail sector for coffee, increasing competition for a smaller share of the market. Fairtrade International is already feeling the heat of a growing trend. Cadbury, owned by US food giant Mondelez, pulled out of Fairtrade chocolate last year. It promised to invest US$400 million into its cocoa supply chain through its new Cocoa Life programme, though Fairtrade will remain a partner by independently assessing its progress. In another blow, UK grocery chain Tesco announced plans to swap its Fairtrade coffee for Rainforest Alliance earlier this year. Despite the financial impact Sainsbury’s departure from tea will have on the Fairtrade system, including farmers and workers, Soto Abril remains optimistic about the future. “We’re definitely losing one of our biggest partners in tea,” he says. “At the same time, we’re introducing new ways of working with corporate partners.”
Soto Abril says the certifier recently launched a new offer that includes supply chain services for businesses and expands its range of services for future and commercial partners. Fairtrade International isn’t the only one brainstorming how to lure new partners. Last June, UTZ and Rainforest Alliance announced they would merge by the end of 2017. The unified NGO will keep the name Rainforest Alliance and tackle environmental and social issues including climate change, deforestation and unsustainable farming in a new certification standard to be launched in early 2019. Alex Morgan, Global Director of Markets Transformation at Rainforest Alliance, tells Global Coffee Report that while they have yet to iron out what the new certification will look like, there will be definite cost savings to producers. “The vision we see is an organisation that is stronger as a result of lower cost, that can ultimately be passed along. That holds for coffee, but it holds for other sectors we are working in as well.”
Morgan believes part of the savings will result from less audits for producers and lower cost of implementation. “The idea is to reduce duplication of efforts… to look at what offers the best result on the ground and figure out how do we streamline that into the delivery of one product.” Trust in the label
With ethical trading schemes increasingly à la mode these days, “sustainability” is a more ambiguous term than ever.
It seems everyone from coffee giants to small scale direct trade roasters are establishing their own company-specific sourcing guidelines. But with standards that vary so widely, it’s hard for consumers to know exactly what they’re buying into. While coffee drinkers may have been more likely to rely on a certified label than a private scheme five years ago, these days they are increasingly counting on corporations to keep themselves in check. A recent Cone Communications study revealed 63 per cent of Americans hope the private sector will pick up the torch on social and environmental change in the absence of government regulation. Of respondents, 87 per cent will purchase a product because a company advocated for an issue they cared about, and 76 per cent expected companies to address climate change as a “hot-button issue”. With the US, now infamous for its withdrawal from the Paris climate agreement, the pressure is on. Furthermore, a recent report from public relations firm Edelman found that “57 per cent of consumers are more likely to buy from or boycott a brand because of its stance on a social or political issue”. They are also more likely to make a purchase decision based on a brand’s values than they were three years ago. The consumer behaviour shift is one with which Bambi Semroc is familiar. The Senior Strategic Advisor for Conservation International’s Center for Environmental Leadership in Business believes millennials are increasingly looking for brand affiliations. “They don’t want to have to go in and find necessarily a label on a product,” she tells Global Coffee Report. “They want to know that they’re walking into a place where their values are represented by all the products on the shelf or the products represented by that particular company.”
Conservation International has worked with companies such as Starbucks Corporation to develop sustainable sourcing practices focused on improving the conservation of soil and water, and ensuring that farmers are paid appropriately.  While she believes independent certifiers offer good ethical sourcing solutions, she isn’t sure if consumer trends are driving more companies to say ‘I don’t need a label, I just need to have my ducks in a row when it comes to sustainability’. Rainforest Alliance’s Morgan is a little more sceptical about relying on a sense of corporate responsibility when it comes to private ethical trading programmes without a third party certifier. “Many of these programs end up being like certification but certification lite,” he says. “As a result, the impact is reduced.” While Morgan has also seen his share of companies set out to develop their own programs, he says they often come back. “Programs are popping up here and there… and oftentimes they don’t have the depth to the evaluation framework that’s being used to analyse the impact on the ground. Our hope is that [the new certification] can provide very customised, rigorous and credible solutions for companies of all sizes.” The consumer behaviour shift may also stem from a perception the certification sector is outdated and not delivering on its mission to improve the livelihood of producers.  A June 2017 report by the International Initiative for Impact Evaluation (3ie) found that while prices for certified products increased and producer income from certified products was slightly higher overall, average household incomes or asset ownership did not increase. The 3ei report claimed “on average schemes such as GlobalGAP and UTZ do better in combining effective capacity building with access to remunerative markets. For Fairtrade, higher prices are not always high enough to compensate for low yields”. Soto Abril begs to differ. While household income and profitability in the coffee sector can differ widely between growing regions, he says other research points towards trends of increased savings of Fairtrade producers, enhanced ability to purchase household assets, and diversification of income sources for smallholder farmers. Where applicable, the Fairtrade minimum price has showed to increase household income and stability. He hopes a recently launched Fairtrade International study will help it be more transparent about impact on living wages. “Our research shows that farmers are better off with Fairtrade.” The more, the better
Semroc is optimistic a multi-stakeholder effort to take leadership on environment issues and wellbeing of producers will help the industry get closer to a sustainable agricultural product. She leads Conservation International’s Sustainable Coffee Challenge, a coalition of more than 65 partners in government, NGOs, corporations and research organisations dedicated to make coffee the first sustainable agricultural product in the world. She says that while certification is the gold standard in terms of third-party, independently-governed and verified programmes, it’s not the only way the industry is moving toward sustainability. “Certification is one tool for doing that, and it’s a great tool, but it’s not the only one.” She believes that instead of comparing one initiative to another, it’s important to look at the overall impact of all efforts designed to advance the sector in terms of sustainability. “In looking at the state of sustainability of coffee, it goes broader than the state of certification.” Likewise, Soto Abril believes the end goal should always take priority. “I don’t think we should talk about competition,” he says. “We like to talk about collaboration. At the end of the day if [private sustainability initiatives] are impacting farmers, they are more than welcome.” GCR

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