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Dr Janina Grabs* reflects on the success or otherwise of certification schemes for sustainable coffee and on how they might evolve in order to better help farmers

Certification schemes such as Fairtrade, Rainforest Alliance/ UTZ, or 4C, and company-internal sourcing schemes such as Starbucks CAFE Practices or Nespresso AAA, continue to be some of the most widely used tools to tackle sustainability issues in the coffee sector. Indeed, out of all agricultural commodities, coffee is the sector with the largest number of such schemes, and the highest on-the-ground certification adoption. By the most recent estimates, more than 50% of global coffee supply is grown according to some sustainability scheme. This makes the coffee sector a test case for this form of private governance, where non-state actors set rules that producers and other value chain members should adhere to.

But can certification schemes actually drive more sustainable production and trading practices? And if so, what makes them more or less likely to succeed in this endeavour?

In a forthcoming book (‘Selling sustainability short? The private governance of labor and the environment in the coffee sector,’ to be published in 2020 by Cambridge University Press), Dr Janina Grabs answers these questions by combining an in-depth analysis of the development of certified value chains with producer-level data from three production origins.

The book offers practitioners a comprehensive overview of the most pressing sustainability issues in the sector – such as price levels and volatility, labour issues, environmental pressures, and climate change – and analyses how certification schemes have tackled these issues in the past, and concrete policy recommendations for the future. This article provides a brief overview of the book’s key insights.

What is a ‘sustainable coffee sector’?

To evaluate whether certification schemes have been effective in their mission to improve the coffee sector’s sustainability, it is first important to define what end goal we have in mind – what is a ‘sustainable coffee sector’? What kinds of practices should producers ideally pursue? And who else should be bound by private rules?

Balancing economic, environmental, and social sustainability

These seemingly straightforward questions turn out to be quite tricky to answer, since various stakeholders have had radically different ideas of the ideal end state. In part, this is by design: as the Specialty Coffee Association of America noted in the late 1990s, “there is an advantage in leaving the definition of ‘sustainability’ imprecise. As soon as something can be defined the discussion stops. You have to keep people in the game.”

This comparative advantage of gathering forces in the pursuit of a vague goal such as ‘sustainability’ brings many voices to the table – however it also makes it more difficult to pursue ambitious collective approaches that reach far beyond the status quo.

One basic notion that most stakeholders can agree on is that sustainability rests on three pillars: economic, environmental, and social sustainability. A comprehensive approach would aim to improve all three components simultaneously and minimize trade-offs between them as much as possible.

Dropping down to the farm level makes clear how difficult this becomes in practice. The recent coffee price crisis has brought to light the low profitability of small and mid-sized coffee producers around the world, given enduringly low and volatile commodity prices. Most smallholders operate at the margin of turning a profit, or even make losses – sometimes, over years at a time. If we expect additional sustainable environmental or social production practices of them, it is important to consider how they would likely affect the economic situation of producers.

Three categories of sustainable farm-level practices

A farmer’s economic situation is determined by three factors: prices, yields, and production costs. We can distinguish three different categories of sustainable practices that affect these levers differently and would require different types of interventions by certification schemes.

The first category refers to practices that relate to sustainable intensification: the production of higher yields with similar or lower levels of external inputs. This includes integrated pest management, the use of organic fertilizer, and the adoption of good agricultural practices such as adequate pruning. These are win-win practices that lower per-unit production costs whilst also leading to a higher overall harvest and lower environmental impacts. Given their immediate economic benefits, the greatest barrier to the adoption of these practices is often a lack of producer knowledge and training.

The second category contains practices that incur short-term costs, but long-term benefits for producers. This includes, for instance, better health and safety practices as well as climate change resilience measures. Many such practices create investment and switching costs, such as building agrochemical storage sheds to avoid storing pesticides in the home, or planting cover crops to avoid soil erosion. Yet, they will ensure the long-term viability of the farm and the health of its owners and workers.

Third, we can identify a number of practices that have long-term costs for the producer while providing no immediate increase in farm income, or even contribute to financial losses. Yet, their wider-level effects make them social or ecosystem services that farmers provide to society. This includes protecting forests, rivers, and other ecosystems; respecting stringent labour regulations; and creating biodiversity corridors by planting and maintaining native, diverse shade trees. Each of these decisions creates higher costs to producers than conventional ways of farming – for example by restricting their production surface, increasing labour costs, or reducing yields in the case of shade production. Yet, they contribute to a state of the world that society values: one with higher rural standards of living and thriving ecosystems in biodiversity hotspots.

Certification standards’ role

Certification schemes may play an important role in incentivizing all of these practices, though their role will be slightly different. For sustainable intensification practices, it should be enough for schemes to provide access to knowledge and training opportunities, as well as clear examples of the win-win outcomes that can be expected.

For practices that require substantial upfront investments, setting clear expectations and providing initial financial support may allow certifications to help producers shift their time horizon backward and make more long-term decisions.

Finally, to incentivize practices that constitute social or ecosystem services, it is necessary to continuously compensate farmers for their increased production costs and income losses, for instance through the provision of substantial price premiums. At the same time, binding rules should create an equal playing field for participating producers.

Muddled roles, unclear incentives, and price competition

In practice, in an effort to reach the widest possible range of stakeholders, most coffee certifications have created a range of requirements – up to 200 criteria per standard – that fall into all three categories. Some of these requirements are binding, others are quite flexible in their implementation structure. This can create confusion at the consumer level, as it is unclear what many standards guarantee.

On the other hand, certification schemes across the board have reduced their emphasis on the provision of price premiums as an incentive mechanism to encourage producer participation. Apart from the Fairtrade standard, no scheme has set minimum prices or mandatory premiums. Instead, they rely on market-based premium setting, which is subject to demand-supply fluctuations as well as market power. The Fairtrade minimum price, in turn, is only infrequently binding, and debates around the appropriate price level that covers the sustainable cost of production tend to coalesce on a level higher than the current one.

Such debates are embedded in a context of intense competition for the sustainable coffee market share. At the 2017 World Coffee Producers’ Forum, UTZ programme director Britta Wyss Bisang noted in response to producer complaints that “[w]e would love to say ‘this is the price you have to pay’ but then we just lose the market. We don’t want to be a niche; we want to provide change at scale. It’s a difficult discussion.”

This competition between certification schemes, and between producers that aim to enter such schemes, has led to the erosion of price premiums and the volumes sold as certified products across the board. To date, between 50 and 75% of certified volumes are not sold under the corresponding label.

The consequences: producer disenchantment and implementation gaps

This leaves certified producers, who were promised differentiated market access and improved sales conditions, in a state of deep disenchantment. At the World Coffee Producers’ Forum, one farmer addressed representatives from Walmart and Starbucks, stating: “We have waited for many years to see the meaning for growers of sustainability seals. The truth is, the prices do not compensate for the investments we have made to comply with social or environmental sustainability practices. Two cents of price premium don’t make a huge difference from the production point of view. […] What you are saying is not changing our reality.”

The lack of financial capacity and unwillingness to incur financial losses can be seen on the farm level. Together with her research team, Grabs surveyed over 1900 smallholder coffee producers in Honduras, Colombia, and Costa Rica. They focused on producers operating under a variety of certification schemes, while other, non-certified producers acted as a control group that allowed the researchers to compare production practices.

The data showed that while there were some promising differences between certified and non-certified producers – particularly with regard to yield levels and a range of health and safety improvements – certified farmers had much more trouble meeting the requirements in the third category, which represented the highest opportunity costs.

This includes both paying higher workers’ wages, as well as implementing shade production at higher rates than non-certified farmers. In consequence, some of the most pressing sustainability issues in the sector, such as the payments of living wages and the preservation of biodiversity corridors, remain unaddressed by private sustainability standards.

Ways forward for certification schemes

As coffee companies aim to make their supply chains more sustainable, certification remains a major avenue toward that goal in the industry – not least because of the decades-long experience that allows private sustainability schemes to adapt and innovate for greater effectiveness.

To avoid selling sustainability short to consumers and buyers, it is essential that such schemes become more transparent about what definition of sustainability they subscribe to – and how they financially support transformation efforts in that direction.

In 2016, the Executive Director of the ISEAL Alliance Karin Kreider stated that “among our members, there is a recognition that at scale, [price] premiums are unlikely, but that the standard systems need to be very focused on delivering value to all users of the supply chain.” Such value may come from technical support toward sustainable intensification, for example. Yet, even such technical assistance needs to be financed.

Going further, to prevent a race to the bottom in sustainability requirements, implementation, and pricing, competition between standards needs to stop. The recent merger of Rainforest Alliance and UTZ is a promising step in this direction; the announcement that their new joint standard will include a mandatory price premium is a second. Pegging this premium at a reasonable level, rather than maintaining a market-driven premium, and enforcing the traceability of this premium down to the farm level, would provide producers with planning certainty and allow them to make an informed decision whether certification is worth their while.

Finally, tackling the sustainability issues in the coffee sector, especially with regard to climate change adaptation, deforestation, and labour rights, requires an even higher level of ambition with regard to labour conditions as well as climate change adaptation practices such as shade production.

Rather than using private governance only to track their supply and manage reputational risk, leading firms should commit to sourcing products from strong standards with a reasonable set of binding rules in these areas, and pay stable and high prices corresponding to the local costs of production of such goods. Otherwise, companies are opening themselves up to several areas of mid- and long-term risk.

Medium and long-term risks

In the medium-term, this may include a ‘PR disaster’, when consumers realize that a gap exists between their image of certified products and the socioeconomic and environmental reality on the ground.

In the long-term – and more fatally – it could lead to a supply shortfall as producers exit sectors that are not profitable or adopt intensified practices that do not account for climatic and other types of risks.

The ‘London Declaration’ issued in September 2019 by the International Coffee Organization provides an ideal platform for companies to make just this kind of strong, time-bound commitment. It’s time to act!

*Dr Janina Grabs is a postdoctoral researcher at ETH Zurich’s Environmental Policy Lab. Her research focuses on sustainability governance in international value chains and the options of states, firms, NGOs and other actors to improve the environmental and social sustainability of commodity production.■ C&CI

This article  first appeared in the November’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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