UK consumers love their caffeine kick, but are coffee accreditation and certification programmes giving small producers a boost?
The Barrantes family appreciate nature. Living high in the Costa Rican mountains of Lourdes de Cirrí de Naranjo, they enjoy their fair share. And recent years have seen birds and butterflies flocking to their 106-acre farm in growing numbers.
Five years ago, the Barrantes began to reduce their use of artificial fertilisers and insecticides. Among other environmental measures, they also upgraded their micro-mill to save on water use.
Nearly 5,500 miles away, coffee drinkers in some of Starbucks’ 740 UK and Ireland cafés are today enjoying the fruits of the Barrantes’ labours. A secure supply contract with the Seattle-based coffee giant has seen the profitability of the Herbazú coffee farm shoot up. Last year, Starbucks paid them $1.49 for every pound of green (unprocessed) beans. This at a time when the open market price averaged $1.24.
In September, Starbucks announced a huge increase in its purchase of Fairtrade coffee. From now on, all its espresso-based drinks in the UK will be made from beans certified by the Fairtrade Foundation, a UK-based labelling initiative. That’s every cup of cappuccino, americano, macchiato, latte and mocha: more than four-fifths of its product offering.
The decision has sent ripples through the speciality coffee market. The Fairtrade Foundation currently sells just shy of 10,000 tonnes of certified coffee a year. Starbucks’ announcement is expected to increase that figure by 18% or more.
“This represents a significant volume and profile switch for us,” says Richard Anstead, business development manager for coffee at the Fairtrade Foundation.
The shift is not without precedent at Starbucks. The world’s largest coffee store chain has been buying Fairtrade certified coffee for more than 10 years. But this was restricted to its basic filter coffee. Other Fairtrade options were available, but customers had to specifically request them. Now Starbucks has chosen for them.
Neither is the shift without precedent in the wider market. Costa Coffee, a subsidiary of Whitbread and one of Starbucks’ main competitors in the UK, began sourcing certified coffee in October 2008. Today, at least 30% of its leading Mocha brand coffee is sourced from farms that meet the standards of the Rainforest Alliance, a New York-based ethical labelling scheme.
What’s in a logo?
Pret A Manger has gone one step further, buying all its Just Roasted blend, decaf and filter coffees from one of the three main verification organisations: the Fairtrade Foundation, Rainforest Alliance and the Soil Association (which coordinates the organic label). That equates to 350 tonnes of fully certified coffee beans a year.
Another notable name on the ethical buyers list is McDonald’s, Pret’s parent company. In 2007, the UK arm of the US restaurant group struck a deal with Kraft Foods to sell its Rainforest Alliance-certified Kenco brand in all its UK outlets. The decision boosted the demand for certified coffee by a further 810 tonnes.
For the uninitiated, the boom in ethical logos and labels can appear confusing. At the most simple level, all have a similar goal: to offer an assurance to coffee drinkers that what is in their mug has been responsibly produced.
But notable differences exist. To be branded Fairtrade, for example, every bean must come from a certified farm. In the case of Rainforest Alliance, a blend can be approved with a certified content of 30%.
Criteria differ too. Most schemes cover basic social, environmental and human rights concerns. The differences are more of emphasis than substance. The focus of the Fairtrade programme, for example, is primarily social. Farmers must form part of a small farmer association and must meet generic labour standards, such as fair wages and safe working conditions.
Rainforest Alliance, in contrast, grew out of a concern for conservation and biodiversity protection. Its certification requirements range from reducing soil erosion and water pollution to protecting forests and other habitats. Social criteria are not omitted, however, just as the Fairtrade process has environmental requirements too.
Other coffee verification initiatives adopt a narrower focus. The Bird Friendly label is a case in point. Set up by the US-based Smithsonian Migratory Bird Centre, the scheme establishes specific criteria for shade-grown coffee. Likewise, the organic label places special attention to the use of fertilisers and other agricultural chemicals.
There are limitations of scope. The industry-led 4C label – the Common Code for the Coffee Community – provides a baseline for responsible coffee production and trading. It is designed primarily to help small-scale producers begin on the road towards more sustainable practices.
On the supply end, certification generally offers farmers a more attractive, stable pricing formula than they gain on the open market. Fairtrade, for example, defines a minimum price that buyers must pay, as well as an additional premium that is reinvested in local community-based projects.
Retailers tend to elect the certification scheme that fits best with their values, existing supplier relationships and their supply chain priorities.
Brand awareness is also a critical part of the decision. In the UK, about three-quarters of people recognise the Fairtrade mark and are aware that it delivers development benefits to small producers. Recognition is highest among well-off ABC1 category consumers, at 78%. Awareness of the Rainforest Alliance logo currently runs at about 44%.
Trust levels show a similarly positive trend. Most British consumers consider third-party certification the best way to verify a product’s claims, according to recent research commissioned by the Fairtrade Foundation.
“Customer awareness around sustainability is on the increase in the UK and any sensible business would try to be ahead of this and position itself accordingly,” says Nicky Fisher, sustainability manager at Pret.
“Pret always like to lead on ethical issues. Therefore it made sense to secure triple certification before the rest of the high street,” Fisher says.
Similarly, Starbucks’ recent 100% Fairtrade commitment for espresso-based coffees in the UK and Ireland was made in the knowledge that consumer awareness in the UK far outstrips that in North America.
“A lot of the trends that we see coming out in Fairtrade will be led by the UK. The UK consumer values Fairtrade very highly and will reward companies by buying their products when they make that switch,” Anstead says.
Consumer demand for ethically sourced coffee in mainland Europe is catching up. Starbucks intends to expand its commitment to the remainder of the continent in March 2010. In the same vein, Costa’s European outlets will all offer its Mocha coffee with a Rainforest Alliance logo by June next year.
More than froth
Ethical procurement presents multiple benefits for every actor in the supply chain. For starters, coffee retailers should sell more coffee. The logic is clear.
Starbucks is giving its customers “what they’ve been asking for”, says Colman Cuff, managing director of the company’s coffee trading division. “Hopefully that will convince them to buy more, get others involved. Everyone wants to eventually increase sales.”
It is not just at the till where the retailer can accrue benefits. Knowing that the coffee they are serving is ethically produced builds employee morale and loyalty, says Clive Bentley, Costa Coffee’s property manager and board representative for corporate social responsibility.
“Our barristas are aged between 20 and 25. They are in effect the next generation and green issues are very important to them,” he says.
At the other end of the supply chain, producers stand to benefit, too. Aside from the premium they can receive for certified beans, small farmers benefit from greater market security and reach.
“Like any business, if [farmers] have their sales guaranteed, they begin to look at how they can reduce their costs and become more efficient,” Cuff says.
Sabrina Vigilante, Rainforest Alliance’s director of markets and sustainable value chains, says certification helps farmers better manage their land and reduces their use of natural resources. “This leads to better productivity, better prices and quite often better quality,” she says.
Off the boil
Despite recent advances, the market’s supply chain remains a long way from being entirely certified.
The reasons vary. Logistics can be a problem. Distributing and segregating certified beans for specific markets is far from easy for global retail chains. Starbucks, for example, has five separate roasting plants dotted around the world.
Purchasing structures can also create an impediment. Not all coffee houses roast their own coffee beans. Coffee Republic, for example, sources from the Italian roaster Caffe Musetti. This adds another link in the chain, although not an insuperable one. Musetti, for instance, is registered by the Italian speciality coffee organisation Caffè Speciali Certificati, which carries out regular supply chain audits.
At the heart of the problem lies supply shortages. There are simply not enough producers certified to specific marques – especially Fairtrade – to meet demand, retailers complain. The statistics appear to back this up. Fairtrade represents about 3% of all coffee traded, while Rainforest Alliance has a 1.5% to 2% share.
The problem lies not with suppliers but with the buy side, certifiers say. Becoming certified requires an upfront cost for small farmers, both in terms of finance and time. “We therefore need a signal from the buyers and the commitment from them to buy in the future to get the message to producers that there’s a market in this and that they should invest in certification,” Rainforest Alliance’s Vigilante argues.
Another frequent complaint centres on quality. Ethical producers “don’t have the same focus on quality first”, Cuff says. Neither, it could be said, do certification criteria. None reflect buyers’ checklists on aroma, body or acidity, for instance.
Again, this is not an insurmountable barrier. Anstead says certification organisations can work with retailers to bring about improvements in quality. “We’d encourage [retailers] to work with us to find the coffee they need and bring producers on board to become Fairtrade certified,” he says.
With a similar end in mind, Rainforest Alliance holds a tasting competition every year in an attempt to highlight to producers the quality standards that the speciality market demands.
Pricing marks a third hurdle. Someone has to pick up the premium. At present, it is the retailers. They already charge a premium for their speciality brands, enabling them to assume this cost. Starbucks, for example, estimates that the $0.10 premium per pound of coffee it pays to Fairtrade certified producers will cost it a mere £350,000 a year. This is in addition to the extra the company was already paying its suppliers above market price – Starbucks says it pays a total of £2.5m more than it would if it paid suppliers strict market price.
Price will only become an issue if consumers opt not to pay the high cost of speciality coffee. Such a scenario has emerged during the current recession. Coffee Republic was rescued from administrators in the summer. And only Starbucks’ most recent quarterly results suggest a slowing of the falling trend in sales.
Michael Tuffrey, director of consultancy firm Corporate Citizenship, points out a longer-term issue related to price. Ethical premiums could feasibly attract more producers into the fair trade market, he says. This could lead to a supply glut. Such an outcome could have the effect of “driving down the price for everyone” unless consumption keeps pace, Tuffrey warns. For now, though, the threat of over-supply remains theoretical.
Need for a refill
The UK coffee market is doing as much as or more than any other to promote responsible procurement. But is it enough?
Obviously the laggards could do more. Caffè Nero and Caffè Ritazza currently offer no ethically branded products. Incorporating a certified option onto their menu could be possible, as some surplus exists. Despite protests from some retailers about a lack of supply, more than half the harvest on all certified farms is sold in the conventional market for lack of a premium buyer. Quality of the beans is the chief hurdle.
Equally it is difficult to ask the likes of Pret, with a commitment to 100% certified coffee, to do more. The exception could be with certification schemes such as Rainforest Alliance, which permit the use of the label without every bean being certified. Take Costa. The company has just announced that the percentage of Rainforest Alliance certified beans in its Mocha brand will increase from 30% to 100% by June 2010.
“Fairtrade is part of the puzzle, but we have to see a whole series of responses to have a more socially and environmentally [sustainable] supply chain,” says Gareth Thomas, UK minister for international development.
Integrating the lessons from existing certification standards into companies’ internal procurement practices is one such response. This is Starbucks’ strategy. Through its Cafe Practices guidelines, the company applies rigorous social and environmental standards for all its preferred suppliers.
In addition, to assist farmers to meet these guidelines, Starbucks runs training programmes through two specialist agronomy centres in Costa Rica and Rwanda.
Furthermore, the company has invested $12.5m in loan finance to enable farmers to make structural or technological improvements on their farms.
Another popular response might be to provide direct, additional finance to fund social investment programmes in coffee-growing communities. In 2006, Costa established a foundation to do precisely this. It has built 51 classrooms in 11 schools in coffee growing areas, assisting in the education of 4,500 children.
The butterfly theory holds that a small action in one place can trigger any number of possible events elsewhere. Herbazú farm in Costa Rica is one tangible example. A decision by all UK coffee retailers to source 100% certified beans would be a fascinating second example.
Spot the difference: certification schemes compared
- Producer organisations are guaranteed a floor price of $1.25 per pound for Fairtrade certified washed arabica beans and $1.20 for unwashed arabica, or the market price, if higher.
- For Fairtrade certified organic coffee an extra minimum differential of $0.20 per pound is being applied.
- A Fairtrade premium of $0.10 per pound is added to the purchase price and is used by producer organisations for social and economic investments at the community and organisational level.
- Fairtrade coffee certification is currently only open to small farmer organisations.
- Democratic decision making is required. Everybody has equal right to vote.
- Environmental standards restrict the use of agrochemicals and encourage sustainability.
- Pre-export lines of credit are given to the producer organisations.
- Social and environmental management system: must be in place.
- Ecosystem conservation: all existing natural ecosystems, both aquatic and terrestrial, must be identified, protected and restored through a conservation programme.
- Wildlife protection: hunting, capturing, extracting and trafficking wild animals must be prohibited.
- Water conservation: the farm must not discharge or deposit illegal levels of industrial or domestic wastewater into natural water bodies.
- Fair treatment and good working conditions for workers: the farm must not discriminate in its labour and hiring policies and procedures.
- Occupational health and safety: all workers receive training on how to do their work safely, especially regarding the application of agrochemicals.
- Integrated crop management: unregistered or banned chemical or biological substances cannot be used.
- Soil management and conservation: new production areas must only be located on land with suitable climatic, soil and topographic conditions.
- Integrated waste management: a programme must be in place.
- Community relations: the farm must consult local populations and community interest groups regarding farm activities that could have a negative impact on their quality of life.
- Canopy height: greater than 12 metres for the canopy formed by the “backbone” species.
- Foliage cover: more than 40%, ideally measured during the dry season and after whatever pruning is done.
- Diversity of woody species: ten or more required.
- Structural diversity: the “architecture” or profile of the shade should reveal obvious layers or strata of foliage.
- Leaf litter: as for organic standards, it should be present.
- Herbs or forbs on ground layer: should be present.
- Living fences: where appropriate, these should be present.
- Vegetative buffer zones alongside waterways: should exist and be composed of native vegetation.
- Visual characterisation: along the shade gradient, it should at least fall into the category of the more diverse commercial polyculture.
- Organic certification: must exist and be current from a USDA accredited certification agency.