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Sustainable coffee - the long story

Published 10.12.2019 | Topic: Ajankohtaista, Coffee, Sustainability, Eettisyys

Eettisen-kahvin-etsintä-tab

A DEEP DIVE INTO COFFEE PURCHASING AND ITS SUSTAINABILITY

Welcome to the wonderful world of sustainable coffee - we promise that after reading this blog post, you'll be surprised! First of all it's important to think about what sustainable coffee actually means.  Direct trading, "three coffee packs with 10€ sale", organic coffee, Fairtrade - how these things affect the coffee farmers and coffee's sustainability? Does it matter what kind of coffee a consumer buys?

ps. you can read this whole post also in Finnish here.

We took a close look at all of these things a couple of years ago, and we started to search for our sustainable coffee, for our unique model. Have a read what we learned and how we came to our conclusions of the whole thing. Relax, pour yourself a nice cup of (hopefully sustainable) coffee and enjoy!

Warrior coffee FTO videov3 - Final - English

 

Our definition of sustainable coffee is that all participants in the coffee value chain (from the coffee farmer to the coffee roaster) has a possibility to do profitable business so that human rights and general good business practices are followed. So, that every person in the coffee value chain can go to sleep happy and wake up to make a good cup of coffee that he/she knows is fair to all the participants.

The problem in this equation is that this is not the situation at the moment, there are major issues in the coffee value chain, and that's why we want to do our part as the coffee roaster.

The issues in the coffee procurement  have been quite well documented, but especially within the people who work in the coffee industry, the problem has been known for a long time - actually as long as the world coffee prices have been declining. The sustainability view is especially important in Finland, because first of all we have the ability to buy sustainable coffee and also because Finnish people drink the most coffee IN THE WORLD per capita (year 2018 an average Finn drank coffee worth 12 kgs of roasted coffee beans).

The coffee farmers face the most serious problems at the moment, and the main reason for that is the world coffee prices that have fallen  around -35% since the end of 2016 - while costs (workforce prices, energy prices, etc.) have risen, so the money amount that the coffee farmer receives from the coffee has reduced significantly (during the decades the purchasing power has decreased even -80% in some regions). The farmers' situation is the weakest in this coffee value chain (as they have the least negotiating power), and they receive the money amount that the market decides and that's it. This applies specifically to the bulk coffee that the biggest coffee roasters use. The coffee berry develops quite slowly and the harvest fluctuates over time but the costs remain the same - it's difficult for the farmer to prepare for what's coming and what kind of price he/she will get from the coffee, especially when the other support from the society / government is not on the level that is, e.g., in Finland.

 

coffee as a traffic building product

Traffic building is a strategy that bigger retailers use to attract customers into their stores. Coffee has been a major traffic building product to attract customers to the supermarkets (as we Finns and other Scandinavians drink so much coffee). However, the problems of the coffee farmers are not addressed as much as they should in the Finnish media. The reason for that may be that from a Western country perspective, actually everyone gets more money.

At least in theory the coffee roasters make more profit, as their most important ingredient's price goes down (as 60-70% of the production cost of a coffee package is the coffee bean), and the consumers "win", because the price of the coffee package remains low in the supermarket and it still can be used as a traffic building product. Please note, that this has nothing to do with the taste or the quality of the coffee.

 

COFFEE AS A TRAFFIC BUILDING PRODUCT?! The RETAILERS sell their coffees with a negative margin that they can get customers to their stores. the retailers can do this, but as the coffee farmers are facing severe problems, we think that this is just plain wrong approach

The retailers "win" as well, because they follow closely the world market prices of the products and they get customers to their stores. They can use the low coffee prices as an argument towards the coffee roasters that they lower the prices, saying that "okay, the coffee market price has now gone down -x%, we want to get this product with -y% discount". At the end of the day, the people who pay this are the coffee farmers, who have the least negotiating power in the coffee value chain. 

The reasons for the world coffee prices collapse are quite well known: some of the price drop has been overproduction and some of it has been financial market speculation. But that doesn't even really matter, because that's something that's out of control for the regular Joe. What matters is that what we do about it. Is it okay to use a sensitive product such as coffee with wide variety of problems as a traffic building product in the supermarkets? As the current conditions prevail (when some of the farmers are starving) our answer is: absolutely not okay.

In addition to the regular consumer, it's our mission to let different kinds of corporations and companies to understand, that it really does matter that what kind of coffee is used at the workplace for the employees or the customers. Many of the Finnish companies have strict guidelines and code of conducts on the sustainability issues, but when it comes to the coffee that is used at the coffee machine, it can be anything from the lowest category of the bulk coffees, which origin is not known and there's no guarantee of the coffee's sustainability (and believe us, there are many kinds of issues).

 

The real challenges of the farmers and why does warrior coffee about these things?

Warrior Coffee has strong ethical values that how we want to do business. One thing's for certain, we cannot exploit anyone in the coffee value chain, especially the ones that are the weakest (meaning the farmers). Our goal is to provide our customers with sustainable coffee -> when our customer drinks a cup of "black gold", he/she can be 100% certain that the coffee cup is not exploiting anyone. We need to be open about these things, because the problems are big: https://dailycoffeenews.com/2018/09/04/coffees-price-collapse-how-did-we-get-here-and-what-can-we-do/. This article has also info on how the coffee price is formulated. This is a quote from the article:

"Producers are paying heavily: Debt is piling up; income is drying up; food insecurity is right around the corner. Farmers are mortgaging their farms, cutting spending on education and health care, and skipping meals. They are subsidizing your coffee with their modest wealth at best, and increasingly, their ability to withstand poverty."

It's been crystal clear to us that although we're still a small roastery, we need to do our share in order to fix the problems. As a coffee roastery, we can do profitable business almost with any world coffee prices, but the farmers can't. The coffee we've purchased has always been more expensive than the bulk coffee, as the only coffee quality we buy and sell is specialty grade coffee (which is always more expensive than the bulk coffee).

Most of the coffee comes from South America, Africa and Asia, where the standards of living are lower than in the Western countries in general. Furthermore, the farmers do not have financial buffers nor do they have safety nets provided by the government, so the compensation they receive from their hard work is immediately shown in their wallets and therefore in their survival.

So, it's evident that something needs to be done. E.g., even European Union is doing something and supporting Ethiopian coffee farming. Our company wants to ensure that when we buy the raw coffee beans we can be sure that the farmers receive fair compensation and their working conditions are good. In this way they have greater probability to do sustainable business and produce the wonderful drink called coffee.

 

analysis and comparison of the most common sustainable coffee sourcing programs

We embarked on a journey to develop our sustainable coffee sourcing program in the summer of 2018, even though we have been buying the most ethical coffee available since the inception of the company - this is influenced by coffee supplier selection and the fact that we are a specialty coffee roaster. Adapting the sourcing program to our needs has been a surprisingly lengthy and complicated process, but we have come a long way to where we are now.

We have reviewed and analyzed:

  1. direct trade -models
  2. developing a social program in the country of origin
  3. different kinds of certificates

All in all, the topic is by no means an easy one to tackle, and it has been challenging to select the best model for our company. There are many ways to approach the issue, and there is no ONE right way. All the methods are needed. But, as with so many other things in life, the key is to start working on the problem quickly and develop the model over time.

We realized pretty quickly that the 1) direct trade model alone would not meet our goals with Warrior Coffee.

The main reason for this is that there is no way we can ensure that the country of origin / cooperative / farmer operates ethically throughout the whole year. Yes, we can visit the farm once or twice a year as a company, but what happens during the other 364 days? How can we make sure that coffee farms operate according to our standards - and what are our standards & specifications even? 

We are certainly not experts in standards and specifications for the ethical supply chain. Our view is that it makes more sense to leave these things to the experts and actively participate in other ways. Direct-trade models are quite popular these days, but this study also found that even global giants like Nespresso & Starbucks, which use millions in their own direct-trade models, do not compare well with well-known NGOs (non-governmental-organisation, such as Fairtrade, UTZ, etc.).

Also, a very recent article in Helsingin Sanomat (August 27, 2019) stated that: "It is not easy to control responsibility when it comes to complex sourcing and supply chains. That's why some of the multinational retail chains have changed Fairtrade -products to their private labels in very few cases only. Even their resources are not sufficient to control all the supply chains".  We've noticed that the coffee sourcing and supply chains are complex, so it is basically impossible for us to control it.

The question is that how we (or some other small-scale artisan coffee roastery) could be confident with the direct trade model?

In addition, these direct trade models focus specifically on the price paid to coffee growers. Sure, it is crucial that farmers are paid a fair amount for their work, but money is only one factor in improving the situation of the farming community. It is also important that coffee plantation workers are paid at least the minimum wage (which is certainly not always the case) and, for example, free child labor is not used (and this not the case always either).

Furthermore, reasonable working hours should be a norm and employees should be able to organize themselves as a union. It's extremely difficult for the roastery to monitor these things when making a direct purchases from the countries without the help of a third party - even if the roastery "supervises" the matter itself. Of course it is important to trust the farmer of the country of origin, but as some wise man has once said, trust is a good thing but certainty is better.

For example, the Finnish Food Agency (formerly Evira) monitors organic production and its implementation in Finland - it is not controlled by the organic companies them themselves. Similarly, the Regional Government Office monitors working conditions in Finland.

We looked also at 2) developing a social program in the country of origin.

There are many ways to support the origin. E.g., our coffee importers have built schools and new coffee processing equipment for the farmers. But for us, these models have the same problems as the direct trade models: how can we ensure that our resources / financial support actually goes to their real destination? How do we ensure that, for example, child labor is not used on coffee grounds and money / resources are not spent on maintaining corruption?

Lastly we focused on 3) different kinds of certificates that are given to coffee and coffee farmers. 

We only roast organic coffee, but the organic coffee certification doesn't really focus so much on the ethical/social points, it focuses on the farming methods and lack of fertilizers itself. The other important certificates for coffee are Rainforest Alliance, UTZ and Fairtrade. Rainforest Alliance and UTZ have merged in the beginning of 2018, but their coffee certificates remain separate as for now.

We had a long discussion with representatives of these organizations and then we researched third party reviews of these certifications. The best reviews we found were Finnwatch's review of certificates in general, "Kaalimaan vartijat" (2016), and Trans Sustains' comparison of coffee certificates (2018).

The results of these studies were very interesting. Finnwatch states that "The most comprehensive and generally the best certification is Fairtrade - it was superior in terms of general specifications and the quality of the criteria it uses." It had the 1st place in the impact of the certificate and also communication, and it had the 2nd place in the quality and independence of the program.

However, Finnwatch also stated that "The most important area where Fairtrade needs to develop is to increase the transparency of the program in general." This has been an important lesson for us as well - there's no single totally superior certification compared to others that solves all the problems. As a coffee roastery we have to do some kind of compromise and select the certification and sustainability program that to the best of our knowledge supports our company values and mission.

In yet another article Finnwatch also states that "Finnwatch recommends that both companies and consumers use the most ambitious certification systems, which in the case of coffee means Fairtrade certification".

finnwatch recommends that both companies and consumers use the most ambitious certifications systems, which in the case of coffee means fair trade certification

The below video explains the Fairtrade method more:

 

The Trans Sustain comparison focuses specifically on coffee. In their analysis, Fairtrade USA came in second place, close to UTZ, which won the comparison. However, Fairtrade International was in seventh place, but Trans Sustain did not really explain the differences in this comparison any further. However, all certifications of non-governmental organisations (NGOs, such as Fairtrade) outperformed those of the coffee industry giants, such as the Nespresso AAA and Starbucks (C.A.F.E. practices).

 

warrior coffee's own sustainable coffee program - fair tradING WITH everybody

From this starting point we selected three goals that our own sustainable coffee program needs to fulfill:

  1. The coffee needs to be grown naturally and in a sustainable way for the nature
  2. The coffee farming needs to be sustainable business for the coffee farmer
  3. We can not want to handle the monitoring via ourselves, but we want to use objective third party to monitor the criterias & standards

Our current organic certification covers part number 1. In addition to this Fairtrade covers parts 2 and 3.

One of the biggest reasons for us to choose Fairtrade is that this certification is the only one that sets the minimum price for the coffee the farmer receives. Therefore, the coffee grower / cooperative knows 100% sure what the minimum price will be for them. This is a great relief for the farmer because even though the Fairtrade minimum price does not make the farmer exceptionally rich, the compensation is still high enough to allow the farmer to make a profit and to grow his/her business.

On the other hand, bulk coffee farmers who have not been in the Fairtrade system for the last couple of years are in a difficult situation and, in general, have even made losses through coffee farming. And that's the biggest problem in this current coffee price crisis.

In a recent article in Helsingin Sanomat, Minna Halme, Professor of Responsible Business at Aalto University, states that "Fairtrade has shown that it is possible to produce coffee, tea and banana in a sustainable way. The farmers, who are in the weakest position in the production chain, get decent working conditions and get fair pay for their work." So, Fairtrade pays the coffee grower a fair amount for the product, which is a huge thing.

This compensation is transparent and can be found on the Fairtrade website. Other certifications like UTZ or Rain Forest Alliance do not have minimum prices for the farmers, though their programs have other good things.

Sure, Warrior Coffee buys specialty coffee beans (Grade 1), which by default are more expensive than the Fairtrade minimum price, but now we are officially Fairtrade certified.

View our open pricing and return to origin information we publish here.

In the below you'll learn more about Fairtrade:

 

In practice, our coffees will continue to be at least organic certified, and as many as possible also Fairtrade certified. We will make the transition to Fairtrade coffee in phases, but currently the main coffees of Warrior Coffee brand are double certified (Organic + Fairtrade).

We also publish updated statistics on the prices we pay and the calculated RTO% (Return to Origin%) to the co-operative (we challenged our coffee partners to publish this info, which wasn't so easy, but we did it!).

View our open pricing and return to origin information we publish here.

 

fair trade - principles of the pricing of coffee - why does the fair trade price work?

The current Fairtrade -prices for coffee are the following: (https://www.fairtrade.net/standards/price-and-premium-info.html):

FT-hinnat

Picture 1. Fairtrade -prices for Arabica coffee

The article goes a bit more deep into the mathematics now, but this is important to understand. When we buy Fairtrade coffee, we pay minimum of 1,9 USD per pound. The minimum price for Fairtrade coffee is 1,4 USD, 30 cents come from the organic certification and 20 cents is Fairtrade premium, of which at least 5 cents goes to quality and production improvements. Thus, this adds up to 1,9 USD per pound and to translate it to euros and kilograms, the minimum price that the co-operative receives is around 3,7€ / kg. 

It's also important to understand that this is only the price that the co-operative receives in the origin country. In addition to this price, the coffee is transported to Europe, it's stored, transported to Warrior Coffee's roastery and every step of the way there are also margins and profits for the participants.

When we buy the coffee to our roastery, we usually pay 5-8 euros per kg. But anyways, with that 3,7€/kg price the farming is profitable and sustainable for the farmer, because the production costs of quality coffee are clearly above 1 dollar per pound, differing a lot country by country (https://www.perfectdailygrind.com/2018/07/this-is-how-much-it-costs-to-produce-coffee-across-latin-america/).

In the following picture is the Arabica -coffee market price with a 5 years time period (https://www.ifcmarkets.com/en/market-data/commodities-prices/coffee):

Picture 2. Arabica -coffee world price.

As the picture 2 shows, coffee prices have fallen by about 50% over a 5 year period. The coffee prices rose in the end of 2016, but they have fallen again around -35%. As you can see, the world coffee prices are very volatile.  At the time of writing, the world market price for coffee is about  1 USD per pound, which means that Fairtrade farmers receive almost 100% more price for their coffee (cf. 1.9 USD per pound).

When the coffee market prices are this low (around $ 1 per pound), most coffee growers are making losses (at least the smallest coffee farmers). And there are a lot of these coffee farmers, about 125 million people are dependent on coffee farming worldwide and 80% of the world's coffee comes from these small farms that exist around 25 million worldwide.

This is one of the most important observations, as this group of farmers is also confronted with other difficulties caused by the climate change. In addition, if these people are prevented from making their livelihoods in their home country, the movement of people from one country to another will also increase. Thus, selecting sustainable coffee is making a big impact on a global scale as well.

The Fairtrade -pricing system works the other way around as well. When market prices for coffee go above the Fairtrade minimum price, farmers get the market price for their product. Fairtrade has also been criticized for being costly for the poorest farmers, but on the other hand, if there is even some coffee-growing land and business is done seriously, in these market situations when the Fairtrade price is almost 100% higher than the market prices, the license costs can be covered.

 

What does the fairtrade certification cost to different parties?

Certifying coffee as Fairtrade will cost both the farmer and us as a roaster. We buy "more expensive" Fairtrade coffee (which we gladly do). When we sell Fairtrade certified coffee to customers it also costs more than non-certified coffee. For us, as a relatively small player, the Fairtrade application fee is € 550 and a three-year license costs € 790.

In addition, we pay 0.15 € per kg for roasted coffee, which we sell as Fairtrade coffee. So this is a clear expense for us and not an insignificant thing business-wise. However, we feel that this is a good way of doing business, and at the same time we are able to communicate these things openly (for example, in the form of this blog post) to our clients, to whom we hope this will also mean a lot.

 

Return to origin% and how we'll develop in the future?

In addition to Organic and Fairtrade certification, we wanted to take transparency a step further. Return to Origin (RTO)% represents the percentage of a coffee’s retail sale that goes back to the coffee supply chain at its origin. Different models have been used in the coffee world, such as: http://www.transparenttradecoffee.org/transparentcoffees

If we sell coffee for example 24,52 € / kg (VAT 0%), then with Fairtrade price (3,7 € / kg), taking into account about 15% of the roasting loss (evaporation of water from the raw bean), the RTO% is about 18%, which is fairly well aligned with the coffees featured on the Transparently Traded Coffee website. This model can be extended even further, for example, how much of a customer's cup of coffee goes to the country of origin? This is, of course, a much lower figure, since a cup of coffee is more than 90% water and when you sell a coffee you will also incur local expenses, e.g., labor and rent. At the time of our first Organic and Fairtrade coffee, we will also be releasing an updated statistics page on our RTO model.

As for the coffee market in general, the RTO% figure is below ten percent, and it should be at least double to end the poverty for the coffee farmers.

Once again - our open pricing and return to origin information we publish can be found here.

 

Conclusions

As we can see, sustainable coffee is a complex thing, but we have opened it up in this blog post. Our model is not perfect, but after a lot of work and studying the subject we have come this far by combining best practices. We continue to develop our sustainable coffee program continuously as we learn more.

We sincerely hope this blog post helped you to understand coffee world a little better. When choosing the next coffee package, you will surely be able to think also the sustainability aspects of that wonderful beverage.

 

With coffee regards,

Mauri Paavola - COO

Riku Uski - CEO

 

Published 10.12.2019
Topic: Ajankohtaista, Coffee, Sustainability, Eettisyys