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July ’19 Editorial Comment: How you consume coffee can affect farmer livelihoods

July ’19 Editorial Comment: How you consume coffee can affect farmer livelihoods

It’s an intriguing thought that the way we consume coffee could have an adverse effect on the livelihoods of farmers in producing countries, but that is just what a French study carried out by Basic, Commerce Equitable France, Max Havelaar France, and an organisation known as the Rethinking Value Chains Network has found.

I think everyone is familiar with the consolidation that has taken place in the coffee industry in the last few years and probably understands some of its important effects, not least that buying power has become concentrated in the hands of a few very large corporations, and that increased buying power invariably allows companies to bear down on their suppliers.

But what if the format that these huge companies specialise in and the way that we now consume coffee is also having an adverse effect on coffee farmers, at a time when they were struggling to survive because the price of green coffee is so low?

The format I’m talking about is single-serve – pods, pads and capsules – and if the research that Basic published at the end of last year is correct, the single-serve market has concentrated value created in the coffee sector among roasters and retailers whilst impoverishing the very people on whom we all depend for consumption of our favourite beverage.

Pods are a tremendous success story. Innovation by companies such as Nestlé has completely changed the way in which coffee is consumed. The company’s single-serve format has been copied by others and there is now a huge range of single-serve products available to consumers. A classic example of ‘disruptive innovation,’ the launch of Nespresso capsules and machines was accompanied by major investment in marketing communications, which led to the emergence of a coffee culture encouraging consumers to embrace higher value-added products.

Consumers love the convenience and quality that pods and capsules provide, but single-serve has also dramatically enhanced roasters’ ability to create and capture value in the coffee supply chain, a phenomenon based primarily on ‘intangible’ aspects of products, such as innovation, brand image and the creation of a consumer environment that transcends coffee as just another product.

Basic found that pods and capsules now represent more than 11% of global coffee sales and that revenues from pods is expected to continue to grow significantly. This has enabled the leaders in the sector to significantly enhance sales: whereas in France a 250g pack of ground coffee costs €2.50/3.00 in a supermarket (that is €10-12/kg), Nespresso-compatible capsules sell for up to €60/kg or more.

In the French market, which Basic focused on, the market is a mature one with strong added value where multinationals are firmly established. It is also dominated by sales of coffee in capsules and pods by major food retailers. In 2017, said Basic, pods and capsules accounted for 58 per cent of turnover from domestic coffee consumption in France, compared to just 48 per cent five years earlier. Total retail sales amounted to €1.2 billion, of which €340 million was for Nespresso-compatible capsules. Nespresso’s online and in-store sales were estimated at €800 million in 2017, making France the world leader in per capital consumption of single-portion coffee, ahead even of Germany and the US.

In a nutshell, Basic’s work (about which you can learn more on page 50) shows that pods have enabled a few companies to capture an even greater share of the value in the market than they already had, and that the share that farmers receive has declined. Coffee farmers receive a higher share of the value from ground coffee sold in traditional packets than they do from coffee sold in pods. In fact, Basic estimates that coffee roasters and distributors in France country capture 85-90 per cent of value from single-serve coffee, even from fair trade products.

Not long ago, consumers browsing supermarket shelves for coffee had an affinity for and connection with coffee from certain origins. Their buying decisions were based on the fact that they liked the Brazilian or Colombian coffee they bought the last time they were in the shop, so they bought more. Coffee was associated in consumers’ minds with countries and with coffee growers, pictures of whom might have been found on packaging. Nowadays, they are far more likely to associate what they like with intangibles such as brand names and make purchasing decisions based on them. Coffee farmers have become divorced from consumers by new modes of consumption, brands and by marketing.

The key issue, said Basic, is that there is a growing need for a redistribution of value generated downstream in the coffee value chain, at roasters and retailers, where profits have never been so high. Farmers have never needed a fairer share of the value in the industry more than they do now, in order to make a decent living and to adapt to the growing impact of climate change.

This Editorial comment  first appeared in the July’19 issue of C&CI. Click on subscribe now if you wish to read more informative articles in the current and future issues of C&CI.

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