Who is paying for the coffee of the future?

The World of Coffee Event was held last week in Amsterdam, and highlighted that the coffee sector is in danger. A debate the night before, organized by Solidaridad, the Rainforest Alliance, Rabobank, and Vice Versa, revealed that new models are needed to face today’s challenges.

Less Than 10% for Producing Countries

The sale of coffee globally has a value of 200 billion dollars each year. Most of that stays with coffee retailers such as Starbucks and McDonalds, or with the large coffee brands and roasters such as Nestlé and JAB, the holding that owns Douwe Egberts and many other brands. Less than 10% stays in the producing countries. Of that 10%, some goes in taxes to producer country governments, some to exporters, and some of it to the farmers that produce the green coffee.

While global demand for coffee increased in the past decades, this is not reflected in the price that farmers get. Coffee farmers often operate at a loss and can’t make a living out of coffee. Investments to make the sector more sustainable are limited, as the recently published Coffee Barometer 2018 made clear.

Redistributing Value in the Coffee Chain

The evening before the World of Coffee event in Amsterdam, representatives of coffee brands, coffee traders, banks, civil society and farmer cooperatives gathered to discuss the future of coffee.

Heske Verburg, Managing Director of Solidaridad Europe, opened the evening and outlined that the demand for coffee is expected to double by 2050.

“Due to climate change, if no additional measures are taken, up to 50% of the current coffee producing area will no longer be suitable for coffee production by 2050.”

Heske said that in many countries, the average age of coffee farmers is around 60 years old. Young farmers do not want to grow coffee anymore, because they can’t make a living with it. She asked:

‘How can we redistribute value in the coffee chain? We need more commitments from the coffee industry and the financial sector to invest in the future of coffee. The external costs are borne now by the farmers and that is not sustainable.”

As Heske highlighted:

“350 million dollars are invested worldwide in sustainability efforts, such as training farmers to enable larger yields. That 350 million dollars is close to zero percent (in fact: 0,17%) of the money that is made worldwide in the coffee sector.”

Coffee Barometer 2018

This point was underscored in Coffee Barometer 2018. The report noted that leading roasters, such as Nestlé and Jacobs Douwe Egberts, are investing billions in coffee company acquisitions and mergers while production is concentrated in fewer countries.

“The top five countries now produce 75% of coffee. That concentration means risky business when we look at the impact climate change can have. Where will the coffee of the future be grown?”

Lack of Industry Transparency

Another issue raised is the lack of transparency, especially on the costs that farmers have to make to produce coffee. Lonneke van Genugten, of the Dutch NGO Fairfood, asked for ‘disruptive ideas of bright young people’ to fix this problem. Fairfood sets an example and uses blockchain for 100% traceable coffee. She believes blockchain technology can help to make clear who earns what in the coffee chain.

Participants confirmed that more investment in sustainability is needed. Daniel Martz, Director Global Corporate Affairs from Jacobs Douwe Egberts said:

“It is not always easy to know where to invest and how to direct that investment to the right farmers.”

Lack of cooperation

‘Many farmers are starving’ said Juan Esteban Orduz, member of the Rainforest Alliance Board of Directors and CEO and President of the National Federation of Coffee Growers of Colombia. He noted that since the 1980’s, the price farmers get for coffee is decreasing. On the other hand, costs to buy seedlings and fertiliser are most likely increasing. He said:

“The problem is lack of cooperation in the sector. We have not been seriously sitting down to solve the problem.”

Many agreed that much more cooperation in the sector is needed. Marcelo Burity, Head of Green Coffee Development at Nestlé, one of the largest coffee companies in the world, said that sustainability programmes of companies and NGO’s have a lot of impact, but can’t do enough by themselves.

“Governments of producer countries need to be involved. They should not invest in the sector themselves, but they should create an enabling sector, for example by re-introducing extension services.”

Standards Not The Answer

Roberto Lopez, Sustainability Manager at the farmers’ cooperative COAGRICSAL in Honduras noted that sustainability standards or certificates, such as Fairtrade, UTZ or the Rainforest Alliance, are not always an answer.

“To get a certificate, you have to invest a lot of money, and it is a long term investment. Most farmers don’t do it.”

Schluter, Co-treasurer at the NGO Café Africa and one of the board members of the Global Coffee Platform, argued that a fairer price for farmers should be built into the price that consumers pay for coffee, instead of just focussing on corporate social responsibility projects. Schluter suggested a premium for farmers that all roasters and traders agree on.

New Models Needed to Face Today’s Challenges

Outlining the position of Solidaridad, Heske noted in her speech:

“Certification has brought positive change, but by itself it won’t create the fundamental change that we need. We need new models to face today’s challenges.”

She said that if we are to look forward, then we need to create more transparency about value-distribution and trigger much needed investments in sustainable coffee production.

At Solidaridad we started promoting transparency in the coffee sector in Colombia several years ago with the Sustainable Trade Platform. Today, a total of 80% of the Colombian coffee industry participates in this platform.

“We believe that farmers need to have access to knowledge and capital, we need investments in coffee production to ensure adequate financial perspectives for the next generation of coffee farmers, and we need to adopt climate smart agriculture.”

Learn more about Solidaridad’s coffee programme here.