4C Essentials 4Cdoc_001_4C_Essentials_v2.3_en

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1 4C Essentials 4Cdoc_001_4C_Essentials_v2.3_en Confirmed Version November C Association. All rights reserved. No part of this work covered by the copyright may be reproduced or copied in any form or by any means (graphic, electronic or mechanical, including photocopying, recording, recording taping, or information retrieval systems) without the written permission of the copyright owner. The 4C Essentials document is subject to regular evaluation and revision according to needs. Only the latest version can be considered as the valid document. Legally valid documents are available through the 4C Secretariat of the 4C Association. The 4C Association accepts no responsibility or liability whatsoever without prior consent. The 4C Association reserves the right to undertake relevant steps to protect its copyright in case of breach, misuse, inappropriate use or infringement of this copyright. For documents translated into languages other than English, the English language version remains the definitive version and 4C Association accepts no liability for any discrepancies between translated versions.

2 Index Preamble The 4C Association Context of the 4C Code of Conduct The 4C Association Elements of the 4C Association Elements of the 4C Association The 4C Code of Conduct and its verification system Rules of Participation (see also Chapter 10) Democratic participation Mediation procedure General Guidelines To implement the improvement process and to build capacity: C Code of Conduct: Unacceptable Practices C Code of Conduct: The 4C Code Matrix Assessing performance in terms of sustainability The traffic light system Structure of 4C Units Verification of compliance with the 4C Code of Conduct C Rules of Participation Support continuous improvement Institutional structure to support the improvement process Communication Reasons to join the 4C Association and apply the 4C Code of Conduct How to join the 4C Association C ASSOCIATION 4CDoc_001_4C Essentials_v2.3_en November / 27

3 Preamble Within the 4C Association producers, trade and industry and civil society from around the world work together for more sustainability in the entire coffee sector. This global community has joined forces to continuously improve the social, environmental and economic conditions for the people making their living from coffee. The main pillars of 4C are a code of conduct, rules of participation for trade and industry, a verification system and the participatory governance structure. The 4C Code of Conduct, being the Unacceptable Practices and the Code Matrix, aims at establishing a new understanding of quality through sustainable production methods for green coffee. Thus besides the intrinsic sensory quality of coffee, 4C considers quality in terms of sustainable ways of production, postharvest processing and trading. The mission of the 4C Association: The 4C Association is the leading multi-stakeholder sustainable coffee platform, guiding the mainstream sector toward more sustainable production in a pre-competitive arena where all relevant stakeholders are enabled to participate. The vision of the 4C Association: The 4C Association aims to unite all relevant coffee stakeholders in working towards the improvement of the economic, social and environmental conditions of coffee production and processing to build a thriving, sustainable sector for generations to come. The Code of Conduct of the 4C Association shall foster sustainability in the mainstream green coffee chain and increase the quantities of coffee meeting basic sustainability criteria on all three dimensions. Encouraging sustainability is a productive, competitive and efficient way to enhance the economic conditions of people involved in growing, processing and trading green coffee. The mechanisms of the 4C Association provide conditions to restructure the transfer of added value towards the producers, to optimise cooperation and to raise awareness of responsibilities along the coffee chain. The mechanisms of the 4C Association aim to provide consumers and civil society with a credible system informing them about basic sustainability criteria in mainstream coffee. The 4C Association and the application of the 4C Code of Conduct are open to voluntary participation by all stakeholders in the coffee chain who comply with its principles. Each stakeholder, at its own level of operations and activities, promotes and supports the production, post-harvest processing and trading of coffee on its way to sustainability. This also applies to the promotion of coffee products using or containing such coffee, taking into account market conditions and practicability. 1. The 4C Association 1.1 Context of the 4C Code of Conduct Coffee is the second largest traded commodity after petroleum and is produced in more than 60 countries, many of which are heavily dependent on coffee export earnings. It generates income for more than 100 million people in coffee growing areas worldwide. In the last few decades, new agrotechnological methods, cyclical changes in production, volatile markets, structural imbalances in the world economy and political developments have put high pressure on coffee producers. The consequences of these changes vary, but in many countries fluctuating prices can become lower than production cost, e. g. in case of over-production. Consequently, unsustainable production, processing and trading sometimes cause destructive competition and consequently social and environmental losses. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.3_en November / 27

4 Motivated by this, the German Coffee Association (DKV) and GTZ, on behalf of the German Ministry for Economic Cooperation and Development (BMZ), started a multi-stakeholder project in 2003 and 2004, in which it was joined by the European Coffee Federation (ECF) and the Swiss State Secretariat of Economic Affairs (SECO) during a second project phase in 2005 and Ultimately, the project was institutionalised in the 4C Association in The 4C Association The 4C Association is a market-based and open association to promote and encourage sustainability in the green coffee chain. Membership in the 4C Association is voluntary, participatory and open to any actor in the coffee sector [4CDoc_004_Statutes]. Members are categorised in three chambers: Producers, trade and industry, and civil society. Other interested parties are registered as associate members. Members of the Association cooperate to promote sustainability in the long-term production, post-harvest processing and trading of mainstream green coffee. Commitment to continuous improvement by stakeholders along the chain, including corporate environmental and social responsibility, is needed to achieve this ambition. 1.3 Elements of the 4C Association The 4C Association builds on three main elements: 1. A Code of Conduct for eliminating unacceptable practices and for striving towards sustainability in the production, post-harvest processing and trading of green coffee and its verification system; 2. Rules of Participation which define the necessary commitment and responsibility of 4C Members with special reference to the buyers of 4C Compliant Coffee 1 ; 3. Open, transparent and participatory Governance. The 4C Association aims at increasing the supply of and demand for coffee on its way to sustainability based on market mechanisms. The coffee offered in the major consumer channels under mainstream brands has to meet criteria under all three dimensions of sustainability. All 4C Association members commit to promoting the concept of coffee on its way to sustainability, conveying the information needed, implementing the 4C Code of Conduct where applicable and supporting training and skills development. The 4C Association encourages information exchange and interaction between stakeholders in the coffee industry. 1 Green coffee produced, processed and traded according to 4C Standard 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.3_en November / 27

5 2. Elements of the 4C Association 2.1 The 4C Code of Conduct and its verification system The 4C Code of Conduct and its verification system are two important pillars supporting the baseline criteria that stimulate continuous improvement towards sustainable coffee production practices. They are key in pursuing the path towards higher efficiency, productivity and quality in order to secure adequate social standards, protect natural resources in the coffee growing regions, and enhance organisational structures. To help 4C Units monitor and improve their compliance with the 4C Code of Conduct, 4C has developed a verification system. To be completely free of any undue influence and to ensure the long-term credibility of the application of the 4C Code of Conduct, the 4C Verification System depends on external inspection by independent third-party verifiers. 4C Units or actors along the supply chain pay for the verification costs [4CDoc_031_VerificationScheme]. 2.2 Rules of Participation (see also Chapter 10) 4C imposes clear responsibilities on trade and industry members. By signing 4C Rules of Participation, 4C Final Buyer members commit to buying increasing amounts of 4C Compliant Coffee over time, and to reporting on these amounts. 2.3 Democratic participation 4C is a membership-based organisation constituted in three chambers representing civil society, producers and trade and industry interests. The tripartite structure is the guiding principle in all organs. 4C Producer Members reflect the different production systems (small producers, cooperatives and estates), coffee types (Arabica and Robusta) and interests. 4C Trade and Industry Members include small, medium and large trade houses, roasters, soluble manufacturers and private label companies, representing a majority of mainstream coffee consumption. 4C Civil Society Members are NGOs and unions engaged in the improvement of the social and environmental conditions of the coffee sector worldwide. The highest decision-making body is the 4C General Assembly, which meets every three years to set up the strategic development of the Association and elect 17 Council members. Council members meet twice per year to discuss 4C s development. Also refer to the following documents: 4CDoc_004_Statutes 4CDoc_007_Bylaws_4C General Assembly 4CDoc_008_Bylaws_Council 4CDoc_009_Bylaws_Board 2.4 Mediation procedure In case of a conflict or dispute within or against members of the 4C Association, the Association offers a mediation procedure guided by a Mediation Board. Based on the rules of participation of the 4C Association, all members engage to seek amicable settlement in case of dispute. This process will be managed by a Mediation Board whose members are elected by the 4C Council. The chairperson of the Mediation Board has the role of an ombudsperson in aiming for this amicable settlement. Where the chairperson deems that such settlement is not possible, 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.3_en November / 27

6 they will appoint a panel of three members from the list of 12, reflecting the tripartite structure of the Association. The chairperson will not be part of this panel. The panel will be assisted by a professional attorney. The procedures have been developed for the proper conduct of dispute settlement and are further described in 4CDoc_010_Bylaws_MediationBoard The panel will give a binding opinion for a corrective plan. The verdict will be deposited at the proper law court. There is no appeal. Sanctions for non-compliance are blacklisting on the web page and ultimately expulsion from membership. 2.5 General Guidelines The general guidelines indicate different roles and responsibilities during the implementation of the 4C Code of Conduct. The implementation of the 4C Code of Conduct starts by communicating its concept and intentions to stakeholders along the chain and ends by the actual supply and sales of 4C Compliant Coffee. In between, many other tasks have to be performed. The guidelines specify the roles and responsibilities of different stakeholders in the main activities. Realizing that supply chains are organized differently all over the world, the precise institutional configurations handling all these tasks depend on the specific situations. The general guidelines outline the landscape of joint efforts and activities at different levels that will make the 4C Code of Conduct work. 2.6 To implement the improvement process and to build capacity: The production level needs to Intensify cooperation with actors along the chain needed for successful improvement processes Conduct improvement processes by implementing an improvement plan Constantly provide information for monitoring of improvement processes based on regular assessment of performance against the 4C Code of Conduct Constantly monitor and report results of improvement processes The processing level needs to Intensify cooperation with actors along the chain needed for successful improvement processes Conduct improvement processes by implementing an improvement plan Constantly provide information for monitoring of improvement processes based on regular assessment of performance against the 4C Code of Conduct Constantly monitor and report results of improvement processes Producer associations need to Intensify cooperation with actors along the chain needed for successful improvement processes Conduct improvement processes by implementing an improvement plan Constantly provide information for monitoring of improvement processes based on regular assessment of performance against the 4C Code of Conduct Constantly monitor and report results of improvement processes Build capacity by providing training, skill development and technical assistance 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.3_en November / 27

7 Provide services and financial tools to their members Facilitate joint action for improvement of business relationships and provide a secure environment for investment Unions need to Intensify cooperation with actors along the chain needed for successful improvement processes Provide best practices to actors along the chain based on project experience Build capacity by providing training, skill development and technical assistance to workers and members The Secretariat of the 4C Association and Sustainability Forums need to Intensify cooperation with actors along the chain needed for successful improvement processes Provide best practices to suppliers based on project experience, different Sustainability Forums and other verified units Provide training methods needed for improvement processes on a regional and/or national basis, based on experience of verifiers and existing management plans Contact relevant institutions/companies/ngos/organisations to support improvement processes Identify the need for support referring to results of self-assessment and verifications Provide contact to supporting institutions Channel resources to support improvement processes Identify and stimulate the support of research institutes to accompany implementation of the 4C Code of Conduct Intermediaries need to Intensify cooperation with actors along the chain needed for successful improvement processes Constantly provide information for monitoring of improvement processes based on regular assessment of performance against the 4C Code of Conduct Exporters/traders need to Intensify cooperation with actors along the chain needed for successful improvement processes Constantly provide information for monitoring of improvement processes based on regular assessment of performance against the 4C Code of Conduct Support improvement processes of the 4C Unit by providing knowledge, experience and identified resources Make available market information and demands of coffee buyers to business partners along the chain Support direct business partners to improve quality aspects of the coffee produced and processed 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.3_en November / 27

8 Facilitate joint action for improvement of business relationships and provide a secure environment for investment Roasters, soluble coffee manufacturers and private label companies need to Provide best practices to suppliers based on project experience Provide incentives to preferred suppliers Intensify business with suppliers of 4C Compliant Coffee Commit themselves to improvement processes by communicating their demands for quality coffee Support improvement processes of the 4C Unit by providing knowledge, experience and identified resources Intensify business relationships with producers of good quality performance Facilitate joint action for improvement of business relationships and provide a secure environment for investment Provide mechanisms and/or resources to internalise costs for social and environmental improvement during the transition period Strengthen coordination of engagement in the coffee sector (projects) with the Sustainability Forum and partners of international cooperation Provide a price differential for high quality coffee in the understanding of 4C Quality Civil society needs to Provide best practices to suppliers based on project experience Support improvement processes of the 4C Unit by providing knowledge, experience and identified resources Strengthen coordination of engagement in the coffee sector (projects) with the Sustainability Forum and partners of international cooperation Provide mechanisms and/or resources to internalise costs for social and environmental improvement during the transition period The public sector needs to Provide best practices to suppliers based on project experience Support improvement processes of the 4C Unit by providing knowledge, experience and identified resources Strengthen coordination of engagement in the coffee sector (projects) with the Sustainability Forum and partners of international cooperation. Provide mechanisms and/or resources to internalise costs for social and environmental improvement during the transition period All of these actors can become members of the 4C Association by submitting their registration forms to the 4C Secretariat. For details on terms and conditions please refer to 4CDoc_026_Membership categories and fees. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.3_en November / 27

9 3. 4C Code of Conduct: Unacceptable Practices The 4C Code of Conduct excludes the worst forms of social, environmental and economic practices in the production, post-harvest processing and trading of green coffee. Those practices are called unacceptables. Definitions are primarily based on the UN Human Rights Declaration as well as existing UN and ILO conventions and standards and, usually, national legislation. The exclusion of unacceptable practices must be documented in the self-assessment report. Worst forms of child labour (referring to ILO Convention 182) Bonded and forced labour (referring to ILO Conventions 29 and 105) Trafficking of persons (UN Convention against Transnational Organized Crime, Protocols on Trafficking and Smuggling, adopted 2000, effective December 2003) Prohibiting membership of or representation by a trade union (referring to ILO Convention 87 and 98) Forced eviction without adequate compensation (International Covenant on Economic, Social and Cultural Rights, Art. 11; General Comment no.7 on the rights to adequate housing (E/C.12/1997/4); Commission on Human Rights Resolution 1993/77 on Forced Eviction; Sub- Commission on the Protection and Promotion of Human Rights Resolution 1998/9 on Forced Evictions) Failure to provide adequate housing where required by workers (referring to ILO Convention 110 on Plantations) Failure to provide potable water to all workers (referring to the United Nations Report of the World Summit on Sustainable Development, Johannesburg 2002) Cutting of primary forest or destruction of other forms of natural resources that are designated as protected areas by national and/or international legislation Use of pesticides banned under the Stockholm Convention on Persistent Organic Pollutants (POPs) and listed in the Rotterdam Convention on Prior Informed Consent (PIC) Immoral transactions in business relations according to international covenants, national law and practices (referring to OECD Guidelines for Multinational Enterprises and the UN Convention on Contracts for the International Sale of Goods) For details refer to 4CDoc_036_Indicators_Unacceptable Practices. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.3_en November / 27

10 4. 4C Code of Conduct: The 4C Code Matrix The scope of the 4C Code of Conduct covers the three dimensions of sustainability, based on the United Nations Millennium Development Goals: Society: Decent working and living conditions for farmers and their families as well as employees. Environment: Protection of primary forest and conservation of natural resources such as water, soil, biodiversity and energy. Economy: Economic viability is the basis for social welfare and sustainability. This includes reasonable earnings for all actors in the coffee chain, free market access and sustainable livelihoods. The 4C Code Matrix, presented below for the three dimensions of sustainability, consists of 28 principles and, for each, three criteria: green, yellow and red. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.3_en November / 27

11 Social Dimension Criteria Category No. Principle Green Yellow Red Level of Monitoring Freedom of association 1 Workers and producers have the right to found, to belong to and to be represented by an independent organisation of their choice. Resources, information and institutional structures are available to improve representation of workers and farmers by their organisation Right to found, belong to and to be represented by an independent organisation of free choice is accepted and easy access to it exists Organisations exist but are not accepted as valid counterparts / interlocutors. Freedom of bargaining 2 Workers have the right to bargain collectively Collective bargaining results are applied to all workers. Trade Unions and / or worker s organisations can bargain collectively. Bargaining results are applied to some workers. The right to and the outcomes of collective bargaining are ignored. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.1 April / 27 Discrimination 3 Equal rights with respect to gender, maternity, religion, ethnicity, physical conditions and political views are secured. Positive action programmes to secure equal rights are implemented. Awareness to secure equal rights is raised and concrete steps to develop positive action programmes are evident. No positive action to either raise awareness of or secure equal rights is evident. Right to childhood and education 4 Children have the right to childhood and education. Children s rights to childhood and education are implemented. Deliberate efforts to remove children from work and get them into education are evident. There are no measures to encourage the education of children. Working Conditions 5a Workers receive a labour contract. All workers receive written labour contracts. Contractual agreements are adhered to. Informal but transparent contractual agreements are used and implemented. Contractual agreements with workers are not implemented or adhered to. 5b Working hours comply with national laws / international Working hours comply with national laws / international Working hours comply with national laws/international Working hours do not comply with national laws / 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

12 Social Dimension Criteria Category No. Principle Green Yellow Red Level of Monitoring conventions and/or collective bargaining and overtime work is remunerated. conventions and/or collective bargaining and overtime is fully remunerated. conventions and working hours are recorded individually. international conventions and overtime is not remunerated. 5c Wages comply with national laws or sector agreements. Wages are above existing national minimum wages or sector agreements, whichever is higher. Wages comply with existing national minimum wages or sector agreements. Wages are below existing national minimum wages or sector agreements. 5d Employer assures proper occupational health and safety conditions for workers. A health and safety programme is fully implemented and a monitoring system is in place. A health and safety programme exists, but monitoring and implementation are not fully evident. No health and safety programme exists. Unhealthy and dangerous working conditions are evident. 5e Seasonal and piece rate workers are equitably treated. Seasonal and piece rate workers are equitably treated. Seasonal and piece rate workers receive minimum wage but get no other benefit. Seasonal and piece rate workers do not get the equivalent of minimum wages in normal working hours and have no access to other benefits. Capacity and skill development 6 and workers within the 4C Unit receive trainings to improve their skills and capacities. All and workers within the 4C Unit are given access to relevant training and skill development in order to apply good agricultural and and workers within the 4C Unit have access to training in relevant technical skills. and workers within the 4C Unit do not have access to any training to improve their skills. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

13 Social Dimension Criteria Category No. Principle Green Yellow Red Level of Monitoring management practices. Living Conditions and education 7 4C Units work towards improving living conditions and support the basic education of and workers. Improvement of defined living conditions and basic education for all and workers are supported. Improvement of defined living conditions and basic education for and workers are partially supported. Improvement of defined living conditions and basic education for and workers are not supported. Environmental Dimension Criteria Category No. Principle Green Yellow Red Level of Monitoring Conservation of Biodiversity 1 Conservation of biodiversity, including protected or endangered native flora and fauna is supported. A program of conserving and enhancing wildlife and native flora is developed and implemented. No exploitation of endangered and protected species and native flora is practised. A programme to protect and enhance biodiversity is being developed. Exploitation of native flora and fauna is partly practised. Use and handling of chemicals 2a Use of pesticides is minimizised. Biological, cultural and physical control methods are integrated with decision on pesticide use based on systematic monitoring of pests, diseases and weeds. Only pesticides with the lowest Steps are taken to monitor pest, disease and weed levels, and at least one method to reduce use of pesticides is implemented. Less hazardous pesticides There is no system in place to minimise the use of pesticides. Use of most hazardous pesticides according to WHO Ia + Ib and 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

14 Environmental Dimension Criteria Category No. Principle Green Yellow Red Level of Monitoring hazard ranking are used. according to WHO II and 4C Yellow List are used. 4C Red List is practised. 2b Harmful effects of pesticides and other chemicals used on human health and the environment are minimizised. Pesticides and other chemicals are stored, applied and disposed of in the least hazardous manner for human health and the environment. A plan for handling pesticides and other chemicals referring to application, storage and disposal is formulated. Steps are taken to avoid the most hazardous application, storage and disposal practices. Pesticides and other chemicals are stored, applied and disposed of in a hazardous manner for human health and the environment. Soil Conservation 3 Soil conservation practices are in place. Soil is protected from erosion and overuse by adequate soil conservation measures. Soil conservation measures have been started. Results of soil conservation are not yet visible. Observable, continuous, severe degradation of soil resources by erosion due to a lack of soil conservation measures and protected soil surface. Soil Fertility and nutrient management 4a Fertilisers are used appropriately. Application of fertilisers is in accordance with the needs of the crop based on soil/ plant analyses. A monitoring system for soil / plant is in development although application of fertilisers is not yet based on actual needs of soil / plant. Excessive use of mineral fertilisers is evident. 4b Organic matter management is in place. Organic matter is reused and recycled and partially replacing mineral fertiliser. Organic matter is reused and recycled. Wasteful and improper disposal of organic matter. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

15 Environmental Dimension Criteria Category No. Principle Green Yellow Red Level of Monitoring Water 5a Water resources are conserved. All necessary steps are taken to conserve water resources. Water conservation practices are implemented. Wasteful use, overuse and pollution of water sources. 5b Wastewater management is in place. Wastewater is treated and discharged load of contaminants is minimised. Wastewater is treated. Untreated wastewater is discharged to the nature. Waste 6 Safe waste management is in place. Waste generation is minimised, reuse and recycling is maximised. Safe disposal of waste is ensured. Safe disposal of hazardous waste is practised. Hazardous waste is disposed of unsafely. Energy 7a Preferential use of renewable energy. The use of renewable energy sources is maximised and evident. Options for use of renewable energy are assessed, and implementation is planned. Energy is used regardless to its renewability. Entity, mills 7b Saving Energy Energy use is monitored and evaluated regularly. Minimisation of energy use is evident. Use of energy is regularly evaluated and first steps towards energy efficiency and alternative options are implemented. Wasteful use of energy as input for coffee production or processing is evident 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

16 Economic Dimension Criteria Category No. Principle Green Yellow Red Level of Monitoring Market information 1 Market information is accessible within the 4C Unit. Coffee quality requirements and market prices are up-to-date, passed on and accessible within the 4C Unit. Coffee quality requirements and market prices are accessible within the 4C Unit. Market information is not passed along the chain. Coffee quality requirements and market prices are not accessible within the 4C Unit. Market access 2 4C Unit improves the ability of producers to gain adequate market access, including market information, financial credit, supply of inputs, etc. Producers are offered adequate market access within the 4C Unit. Producers can gain market access on demand within the 4C Unit. Producers do not have adequate market access within the 4C Unit. Quality 3 Coffee quality is monitored within the 4C Unit. Systematic monitoring of quality enables meeting market requirements or national/international export standards. A plan to monitor coffee quality is in place. First steps are taken to monitor coffee quality against market requirements or national/international export standards. Coffee quality is not monitored against any standards or requirement within the 4C Unit. Record keeping 4 Record keeping used to monitor production efficiency leads to improved farm performance. Systematised record keeping of production activities by all producers, according to their respective level of education, is evident. The farm s performance is being improved. First steps are taken to keep records of some production activities, according to the producer s level of education. No records of any production activities are evident. producers within the 4C Unit 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

17 Economic Dimension Criteria Category No. Principle Green Yellow Red Level of Monitoring Commerce 5 Transparent pricing mechanisms are available to reflect coffee quality and sustainable production practices. Transparent pricing mechanisms reflecting quality of coffee and sustainable production practices are established and operational. Transparent pricing mechanisms reflecting coffee quality is evident and being improved. No pricing mechanism with regard to quality is evident. Traceability 6 Mechanisms for internal (within the 4C Unit) traceability are in place. Within the 4C Unit coffee is clearly identified, segregated, stored and protected from being mixed with other sources. Written documents are available and operational. Coffee is traceable within the 4C Unit. Coffee is not traceable within the 4C Unit. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

18 5. Assessing performance in terms of sustainability It is understood that actors of the coffee chain cannot participate in the 4C System if they practise any of the unacceptable practices. This preliminary condition of participation is already a strong indication of commitment to sustainability. Referring to a comprehensive concept of sustainability, the 4C Association builds on social, environmental and economic dimensions, as set out in the 4C Code Matrix. The concept of sustainability is specified in the following 4C Code of Conduct which consists of categories, principles and criteria. Categories refer to the main aspects of the production, post-harvest processing and trading of green coffee. Principles are positive statements indicating the desired performance for each of the practices listed. To assess the performance of a 4C Unit, criteria specify the compliance with the requirements of these Principles. The traffic light system This is shown in a traffic light system, illustrating the concept of continuous improvement: Red Yellow Green indicates that the current practice must be discontinued indicates a practice that needs to be further improved within a transitional period reflects a desirable practice The process of continuous improvement provides the basis both for strengthened cooperation along the supply chain and for competition based on the new understanding of quality. In this inclusive system of the 4C Association, unsustainable practices as formulated in the red criteria are acceptable if there is at least the same number of green criteria in the same dimension. This situation indicates the status of average yellow, which allows the 4C Members to market their coffee as 4C Compliant Coffee. 6. Structure of 4C Units Identity preservation ( traceability ) and transparency in transactions are important conditions for the implementation of the 4C Code of Conduct. In mainstream coffee production and trading, coffee is sold in containers and the smallest unit to trace the product back in a cost-effective manner is the level where the aggregated volume of coffee composes at least one container. Therefore, an identifiable 4C Unit can be a producer, a farm, an estate, a producer association or cooperative, a buying station, a mill, an exporter or any other entity that meets this requirement. These 4C Units must be recognisably organised units. The principles and criteria of the 4C Code of Conduct address practices in the entire green coffee value chain. This implies that the 4C Unit must comply with the 4C Code of Conduct in its regular business transactions in the chain of custody. The 4C Unit is responsible for communicating the requirements and procedures of the 4C Code Implementation to its business partners [4CDoc_045_4C Code Implementation Guidance]. Likewise, the business partners of the 4C Unit will accept random verifications by the registered verification body. The 4C Unit enters the operational system of the 4C Association by submitting the self-assessment and receives a licence to supply 4C Compliant Coffee after a successful initial verification confirming that it has achieved the status of average yellow and the exclusion of all unacceptable practices. The verification also provides a report on the current status of production as a basis for developing a management plan to start the process of continuous improvement. On the basis of this report, the 4C Secretariat will facilitate access to the support and resources needed for improving practices in use. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

19 7. Verification of compliance with the 4C Code of Conduct The level of compliance with the requirements of the 4C Code of Conduct has to be verified on the level of a 4C Unit with random field checks of business partners listed by the 4C Unit [4CDoc_033_ Partner Mapping]. A self-assessment is a 4C Unit s first statement of interest to commercialise 4C Compliant Coffee [4CDoc_021_SelfAssessment-4CUnits]. It is a declaration of having received, read, understood and accepted the relevant documents as well as having excluded all unacceptable practices. With the self-assessment being the entry ticket of a 4C Unit to commercialising 4C Compliant Coffee, 4C Members provide basic information on their current practices and communicate a request for an external third-party verification. Sustainability Forums shall assist implementation of the 4C Code of Conduct on a national level, representing the coffee sector stakeholders in the tripartite structure of a round table. Building on the self-assessment report, an independent third-party verification of the self- assessment checks for compliance with the requirements of the 4C Code of Conduct, rates the current performance of the 4C Unit (e.g. average yellow ) referring to the principles and criteria of the 4C Code of Conduct and feeds its results back to the 4C Secretariat as well as to the 4C Unit. These checks must be conducted by independent third-party verifiers that are approved and registered by the 4C Secretariat or the Sustainability Forum concerned (if existing). The system recommends building on the experience and structures of existing initiatives. The 4C Secretariat together with the Sustainability Forums (if existing) support the establishment of a credible independent third-party verification scheme at national level by training local institutions as 4C Verification Bodies. This includes training and workshops for potential independent third-party verifiers. Regular updates of the Self Assessment and Partner Mapping on a yearly basis allow for high transparency of the production and processing methods used on the level of the 4C Unit. On the basis of a successful verification, the 4C Unit develops an improvement plan to remove all remaining reds within an individually defined period of time, but within a maximum of two years. A reverification after three years checks the level of compliance with the 4C Code of Conduct monitors the continuous improvement process and allows for the constant development of improvement plans. If verification fails, the 4C Unit loses its licence to supply 4C Compliant Coffee until it regains verification. Independent third-party verifiers, who must be registered and approved by the 4C Council, verify the whole system of verification. They conduct audits of the 4C Verification Scheme in place at national levels, including selected verifiers. Unannounced random verifications at all levels (4C Unit, and even the Sustainability Forum) will be conducted to verify their performance. 8. 4C Rules of Participation 2 Members of the 4C Association acknowledge that the application of sustainability practices according to the 4C Code of Conduct may have an impact on the costs of production of coffee on its way towards sustainability. Buyers agree that suppliers of 4C Compliant Coffee need to be adequately rewarded for their efforts to comply with 4C requirements in comparison with similar coffee that is not 4C Compliant, including the appropriate costs of verification. The process of negotiating between buyers and sellers of this coffee shall build on transparent market information and will incorporate the good faith of the individual buyer and seller. 2 See also 4CDoc_002_Rules of Participation 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

20 8.1. Introduction The 4C Association is expected to benefit producers and other stakeholders in the green coffee chain by enhancing competitiveness, improving quality and providing valuable and reliable information about the conditions under which coffee products are manufactured. This information shall inform the commercial decisions of producers and buyers who support the social and environmental objectives of the association. The 4C Association will also develop mechanisms and parameters to evaluate compliance by members The 4C Association has been conceived and shall be conducted in a manner that is entirely consistent with all relevant national and international laws and conventions, including the applicable ILO Conventions and the OECD Guidelines for Multinationals, and in particular with the antitrust laws of the United States and the European Union, as well as the antitrust laws of other jurisdictions These Rules apply to all aspects of 4C Membership and shall be strictly adhered to by all members Participation in the 4C verification system is open to all stakeholders in the green coffee chain. However, for practical reasons, the minimum output quantity for a 4C Unit to qualify for verification is one full container load 3. Each stakeholder s decision to become a member of the 4C Association is completely voluntary, as is any individual stakeholder s decision to continue or terminate this participation at any time Subject to the conditions of 4C Membership, the following entities qualify as participants in the 4C Supply Chain: Producers and groups/ organizations of producers supplying green coffee in excess of one full container load; Post-harvest processing facilities (such as mills e.g.); Intermediate Buyers including traders, exporters, importers and processors; Final Buyers including roasters, soluble manufacturers, private label companies and retail companies with private labels and coffee bar chains,; Coffee Agents and Brokers General commitments C Members shall respect and support the letter, the concept and spirit of the 4C Association as described in the Statutes and the 4C Code of Conduct and shall abide by these Rules C Members commit themselves to the principle of continuous improvement of coffee quality as understood under the 4C Code of Conduct which shall include the quality of the product and the quality of production and processing methods on the way towards sustainability The 4C Code of Conduct establishes standards that members agree to adopt. All members are free to adopt internal business practices that exceed these standards C Members will exclude unacceptable practices as contained in the Unacceptable Practices of the 4C Code of Conduct. With regard to the 4C Supply Chain, members will 3 4CDoc_031_VerificationScheme 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

21 adhere to applicable national and international law and relevant international conventions, including the ILO conventions, the OECD Guidelines for Multinational Companies and applicable antitrust legislation C Members acknowledge that prices of 4C Compliant Coffee reflect the verified quality of 4C Compliant Coffee. This includes the physical product quality, the quality of the production process and the verification process which confirms a certain value arising from compliance with the criteria laid down in the 4C Code of Conduct When negotiating contracts individually between 4C Buyers and Sellers the net results of economic costs and benefits can only be determined by them on a case by case basis. This shall build on access to transparent market information provided by the members involved C Members must not use any 4C Activity for the purpose of boycotting. 4C Members shall not in any way use the 4C Code of Conduct to benefit directly the company they represent or to disadvantage other stakeholders The 4C General Assembly, Council, Secretariat and other permanent and temporary organs of the 4C Association are responsible to comply with all relevant legal requirements, including antitrust rulings. At the start of all meetings of 4C Organs where commercial competitors are present, all participants shall reaffirm this obligation Every 4C Member will refrain from damaging the reputation of the 4C Association. Members are expected to use standardized language in conformity with guidance on 4C Communications issued by the 4C Secretariat with respect to describing 4C Compliant Coffee in corporate communications (for instance websites, brochures, CSR reports e.g.) C Members shall adopt a self-assessment system and internal monitoring practices that are consistent with the principles of monitoring compliance with 4C Standards and agree to employ a qualified external third-party auditor that will conduct audits to confirm compliance C Compliant Coffee is grown without the use of genetically modified organisms. Within the 4C Supply Chain, participants will neither cultivate genetically modified coffee plants nor market genetically modified coffee. The Council will review the latter agreement every five years, commencing from the date of first acceptance of this document C Members in the coffee supply chain will contribute to the costs of organization and management of the 4C Association Specific business commitment Final Buyer member shall purchase increasing volumes of 4C Compliant Coffee over time. However, Final Buyer members are not bound to sell or purchase only 4C Compliant Coffee Buyers will develop long-term relationships with sellers and will strive to improve the efficiency of the supply chain. In this respect they will assist sellers by providing feedback on quality and other key market requirements such as just in time delivery, OTA requirements, food and traceability legislation in consuming markets. 4 Validity of this GMO agreement has been extended until 2014 by Executive Board decision from 25 October The revision of the GMO agreement will be linked to the next regular Code revision. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27

22 The 4C Association shall not be used by members to seek agreement on product pricing and/ or marketing or promotion of products. Under no circumstances are prices to be discussed or agreed upon either explicitly or implicitly among individual 4C Buyers or Sellers Designated representatives of individual companies participating in the 4C Association shall not have direct involvement in consumer product marketing and pricing decisions of the final product Any public statement with respect to the 4C Association shall be reliable and verifiable. The 4C Logo will not be used in on-package communications. On pack communication should refer consumers to further relevant information on the 4C Association, e.g. websites, consumer s free phone numbers, contact details etc. When referring to a specific coffee as 4C Compliant Coffee, it has to be 100% 4C Compliant Coffee. Claims to this effect can only be made with the prior approval of the 4C Secretariat and must be supported by verifiable internal traceability mechanisms Marketers will refrain from making claims or insinuating that their company s membership will impact prices received by farmers Monitoring and reporting Each member within the 4C Supply Chain will register with the 4C Secretariat All Final Buyer members are to report past volumes (in 60 kilo bags or in metric tons) per country of origin and per coffee year via the 4C Online Platform that guarantees the confidentiality of all commercially sensitive information. The details of the reporting mechanism and parameters may be modified from time to time with the agreement of the Council The 4C Council recommends individual members communication about the 4C Association and reporting on purchases and sales of 4C Compliant Coffee to consumers and the public at large. Members may also report individually their purchases of 4C Compliant Coffee as total volumes and values and/ or as a percentage of total volumes and values Aggregate volume data shall be distributed through annual reports of the 4C Secretariat. Participation in aggregate volume reporting programs shall be extended to all 4C Members With respect to established certification schemes, members will avoid double reporting of coffee purchased or sold under various initiatives. Specifically, they will report separately any purchases of coffee sold or bought under specific certification systems C Members will take effective measures to assure that the identity of 4C Compliant Coffee is preserved from the producers through the supply chain to the final buyer and to provide transparency in the supply chain C Members who buy 4C Compliant Coffee shall incorporate the reporting procedures laid down in these Rules of Participation, as mandated by the 4C Council and informed by the 4C Secretariat, into their regular audit trail Independent Auditors will confirm the compliance with these requirements in the respective Final Buyer members sustainability reports (or any other corporate reports), and report to the 4C Secretariat. 4C Final Buyer members will comply at all times with the reporting requirements of this document. 4C ASSOCIATION 4CDoc_001_4C Essentials_v2.2_en April / 27