CONFÉRENCE DES NATIONS UNIES SUR LE COMMERCE ET LE DÉVELOPPEMENT UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT Summary Report: Sustainability in the Coffee Sector: Exploring Opportunities for International Cooperation Towards an Integrated Approach Feb 17 th and 18 th, 2003 Introduction The brainstorming workshop Sustainability in the Coffee Sector: Exploring Opportunities for International Cooperation Towards and Integrated Approach was organized by the United Nations Conference on Trade and Development (UNCTAD) and the International Institute for Sustainable Development (IISD) with the support of the International Development Research Centre (IDRC) and the Commission for Environmental Cooperation (CEC). The objective of the workshop was to identify specific areas and proposals for action at the international level that deserve further feasibility and impact analysis. The meeting was also designed to be a starting position for eventual action at the international level. The workshop had representation from consumer governments, producer governments as well as producer organizations and major players from both the private sector and civil society. Background to the meeting The rationale for the meeting was based on the call for an integrated approach to sustainable development formally put forth through the Agenda 21 process. A variety of factors were identified as currently threatening the sustainability of the coffee sector including: The persistent volatility and long-term decline in coffee prices on world markets, and especially, the conditions of the current coffee crisis. The growth in use of modern mono-culture practices for coffee production and the corresponding effects of such practices on a number of environmental variables including biodiversity, soil conservation, water contamination. The absence of opportunities for the development of social infrastructure and the enforcement of basic labour rights within the existing coffee supply chain structure. On the basis of previous initiatives to improve and define the requisite inputs for improving sustainability within the coffee sector, the following principles for sustainable development in the coffee sector were proposed in a background paper to the workshop: Workshop supported by the Commission for Environmental Cooperation and the International Development Research Centre
Principle 1: Producers should be paid a price/wage that covers production, living and environmental costs within a competitive framework and which displays a measured degree of stability. Principle 2: Employment relationships should be maintained in accordance with core ILO conventions and local law. Principle 3: Production practices should be environmentally sustainable. Principle 4: Producers should have enhanced access to credit and opportunities for diversification. Principle 5: Producers should have enhanced access to trade information and trade channels. One of the key aims of the workshop was to identify promising instruments, tools or mechanisms for integrating these principles within the mainstream coffee sector on a widespread basis. The fact that the challenges to sustainability as well as the principles for addressing them, invoke large and complex issues intimately connected with the international market for coffee provided a specific rationale for action at an international level. Moreover, the fact that there has been a wide range of initiatives adopted on a project-by-project, stakeholder specific and/or regional basis, suggested the potential and need for further collaboration and cooperation at the international level. Brief Overview of Workshop Discussions The morning session of Feb. 17 th was devoted to short presentations of existing initiatives aimed at addressing problems related to sustainability of the coffee sector at the international level. This session included descriptions of the following institutions/initiatives: International Coffee Organization An intergovernmental body with representation from more than 90% of the coffee producing countries and more than 60% of consuming countries. The ICO implements and administers the International Coffee Agreement which specifies specific terms of international cooperation for member countries related to management of the international coffee market. Through Resolution 407 the ICO has adopted a quality standard which it is hoped will provide incentives which reduce supply and increase consumption thus helping reduce the supply-demand imbalance in the coffee sector. OXFAM: Coffee Rescue Plan 2
OXFAM launched its Make Trade Fair Campaign in 2002. Awareness raising an policy work to address the coffee crisis has formed a key component of that program. OXFAM has called for the following actions to be taken at the international level: Implementation of ICO resolution 407 at all levels of the supply chain, including commitments from roasters to comply Enhanced funding to farmer-led vertical and horizontal diversification Immediate reduction of stocks through stock destruction to reduce oversupply Increased support for sourcing under fair trade conditions by promoting fair trade among consumers and having mainstream companies commit at least a portion of their business to sourcing on the basis of fair trade conditions Broader initiatives at the macro-economic level to help protect producers from large fluctuations in the international prices as well as provide enhance opportunities for value retention along the supply chain International Trade Centre: Introduction to Coffee: An Exporter s Guide The International Trade Centre is a joint WTO/UNCTAD institution with the objective of improving the potential for developing countries to participate in international trade through the provision of technical assistance to developing countries. Pursuant to this mandate, the ITC has recently published a book entitled Coffee: An Exporter s Guide which provides an overview of all aspects of the coffee industry including a special section on the sustainability niche markets. Sustainable Agriculture Initiative The SAI is a platform initiated by Danone, Unilever and Nestle aimed at developing a clear vision of sustainability for the food industry through industry cooperation. The Neumman Coffee Group has since joined the SAI. In the area of coffee the SAI is working on identifying best practices in the coffee sector in order to determine their applicability to other areas and regions. The SAI aims to provide a forum where a range of multi-stakeholder sustainability related issues can be discussed and applied within the context of the food industry. Rainforest Alliance and the Sustainable Agriculture Network The mission of Rainforest Alliance is to protect ecosystems and the people and wildlife that live within them by implementing better business practices for biodiversity conservation and sustainability. Companies, cooperatives, and landowners that participate in RA s programs to meet standards for protecting the environment, wildlife, workers, and local communities. The Rainforest Alliance 3
works with the Sustainable Agriculture Network, a coalition of independent, nonprofit conservation groups in Latin America which has developed guidelines for the responsible management of export agriculture, certifying bananas, coffee, cocoa, citrus, and flowers and foliage according to environmental and social standards. The RA/SAN activities place a high priority on certification which itself is viewed as a valuable tool for promoting sustainability in a variety of ways. World Bank: Taskforce on Commodity Risk Management The Taskforce, which includes participation from the private, public, nongovernmental and academic sectors, was set up by the Bank in 1999 to explore whether or not there might be ways of using market-mechanisms such as futures and hedging contracts or options to help reduce price uncertainty for producers at the local level. To date the Taskforce has focused on the use of instruments for addressing intra-seasonal price uncertainty alone. Despite some specific challenges related to an underdeveloped institutional infra-structure in pilot projects across five countries, providers have continued to show interest and there are plans to expand the efforts through similar projects in India, Vietnam, Cameroon, Cote D Ivoire, Honduras and Peru. Rabobank: Progresso Initiative The Progresso project is a joint project with the Green Development Foundation and the DOEN which places a particular emphasis on improving the livelihoods of small coffee producers by improving access to pre-financing, premium sustainable products markets and technical assistance for institutional strengthening and diversification. At the moment there are 10 participating cooperative organizations located in Central and South America as well as Africa. Utz Kapeh Utz Kapeh is a young organization having opened its first office in Guatemala 3 years ago and its European office 6 months ago with the purpose of establishing a basic decency standard for the coffee sector. The Utz Kapeh system: Is based on certification according to an internationally accepted code of conduct which sets basic standards for working conditions, production practices and quality Is based on market prices with a $.01 US per kilo of green coffee going to Utz Kapeh for monitoring and support efforts Includes the provision of technical assistance for standards compliance At present, Utz Kapeh has certified 500,000 bags. The promise of Utz kapeh rests in its bringing producers in closer contact with roasters, retailers and ultimately consumers. 4
European Fair Trade Association: Fair Trade Labelled Coffee Fair Trade labeled coffee is administered by Fair Trade Labelling Organizations International (FLO) and involves certifying coffee according to compliance with a basic set of sustainability standards. The fair trade system makes an explicit effort to be transparent, accountable and traceable along the entire supply chain. Some of the key criteria of the fair trade system as applied to coffee production include: A guaranteed minimum floor price of $1.26 US per lb of green, washed arabica Long term partnerships Advance payments Gender equity Sustainable farming practices Self governance through democratically organized cooperatives GTZ: Common Code of Conduct GTZ and the German Coffee Association have recently formed a public private partnership aimed at improving sustainability across the mainstream sector. The objective of the partnership is to offer improved opportunities for producers that are in line with the Brundtland Commission s definition of sustainable development through the development of a global code of conduct applicable to a wide variety coffees across the mainstream industry. The purpose is to produce a code with basic standards that all can meet, rather than to compete with some of the high level standards established by some of the other standards systems already in existence. Sustainable Trade and Innovation Centre The STIC is a new global partnership whose purpose is to provide a forum for collaboration and information exchange on international markets and trading channels so that environmental and social requirements can be used best to the advantage of developing countries. The STIC will be market based focussing on mainstreaming best practice and generating innovative solutions. The STIC foresees acting as a catalyst for improved Southern participation in international markets by promoting: a. Information exchange b. Innovation to meet new requirements and access new markets and c. Partnerships to meet new requirements and access new markets The session demonstrated that there is a wealth of work already being done in an effort to improve sustainability within the coffee sector and that a wide variety of different approaches exist for addressing such issues. The remainder of the two days was devoted 5
to trying to identify strategies for building on these approaches at the international level by considering opportunities for addressing sustainability along four different themes. 1. Mechanisms for improving price and/or market demand for sustainable coffees: This working group considered possible tools for improving the sustainability of the pricing mechanism within the coffee sector. This session focused on pricing tools for matching supply and demand on the international coffee market as well as tools for integrating the full range of social and environmental costs within the coffee pricing system. Among the proposals for action at the international level were: a. A marketing campaign designed to increase consumer demand for socially/environmentally friendly coffees. b. Research/campaign on using shareholder rights to promote corporate social and environmental responsibility through pension and mutual fund decision making c. Research/campaign to disseminate information on the health benefits of coffee to consumers d. A quality based labeling system similar to that used by the wine industry e. The development of a schema for sustainable contracting practices, such as long term contracts and more flexible contract provisions (perhaps including the development of a sustainable contract system). f. System whereby farmers receive compensation for provision of environmental services such as carbon credits, a carbon tax or direct sustainability based payments to farmers. g. Pricing system whereby social and environmental costs are calculated as part of a price differential on the open market h. Purchasing system whereby, preferential supply and pricing arrangements are tied to sustainable production practices i. The identification of a clear and balanced definition of sustainability recognized at the international level for stimulating demand for products produced under sustainable production practices. 2. Mechanisms for Improving Credit and Risk Management for Producers of Sustainable Coffees. This working group considered the potential for bringing finance and credit instruments to coffee producers in ways that could most effectively promote sustainable development on a widespread basis. Some of the main challenges to improving access to financial tools identified included the size, information scarcity and instability of individual producers all of which underlined a general need to improve the bank-ability of small producers. Among the ideas suggested for further action and research at the international level were: 6
a. The expansion of the Taskforce on Commbodity Risk Management s work on bringing risk management tools to small producers to a macro scale and to dealing with longer term risk management b. The establishment of a sustainable coffee credit facility to provide reasonable and perhaps guaranteed loans to producers of sustainable coffee c. The establishment of commodity linked financing which would provide financing at interest rates inversely linked to international prices on the world market d. Systemic support system to non-bank organizations, such as loan institutions, coffee cooperatives and producer organizations, as instruments for improving small producer access to credit and finance e. Research on instruments and incentives for augmenting local bank investments in agriculture. 3. Mechanisms for improving access to markets and information. This working group considered possible international action designed to improve producer linkages with, and integration within, international coffee markets in ways that could better enable producers to take advantage of market signals and market trends. Producer isolation amidst the international market was identified as a key rationale for, but also a key constraint to, action at this level. Ideas raised in this session included: a. The development of an information system for all stakeholders of the coffee industry, with emphasis on clear, practical, downloadable information for all, including farmers and extensionists. b. Systemic support for producer organizations based on sustainable production and sustainable markets c. The establishment of direct links with international markets through specialized exporter institutions (based on the QualicafeX model) that provide market information and extension services to producers. 4. Mechanisms for improving value retention and diversification along the supply chain. This working group considered possible ways for improving returns to producers by enabling them to secure a greater portion of the revenues generated by the supply chain. The role of diversification, both along the coffee supply chain and into other product areas, was also considered as a strategy towards this end. Improved market power and market information for producers were regarded as key components to meaningful action at this level. Ideas for action at the international level included: a. Adaptation of an integrated supply chain model (such as that used in certain cases by Nestle) on a broader (international or systemic) scale 7
whereby direct purchases and extension services are tied to existing markets higher up the supply chain. b. The establishment of a sustainable coffee fund drawing from revenues higher up the supply chain (through a tax or other compensation mechanism) and directed towards technical assistance towards the development of sustainable production and trading relationships for producers. c. The use of public/private partnerships at the international level to encourage diversification into (certified) sustainable coffees. Over the course of the working group sessions, there was a rich discussion on the main problems facing coffee producers as well as the constraints facing many of the proposals. Summarizing very briefly, there appeared to be a general consensus that there were three major axes along which sustainability within the coffee sector needed to be addressed: 1. Problems related to the macro-economic structure of the coffee market including those related to oversupply and price volatility 2. Problems related to the uneven distribution of market power (and thus returns) along the supply chain and the need to empower producers within the system 3. Problems related to public goods provision including the provision of environmental services and market information. It was acknowledged that each axis would likely require different corrective strategies but also that there was considerable potential for addressing different problems through combined approaches. As an example, market information was repeatedly underlined as a key to improving the market power of, and thus value retention for, producers. It was also noted repeatedly that quality and sustainability standards could be used as a tool for reducing oversupply and improving consumption on the market overall. Similarly, sustainability based certification systems were identified as holding the potential of providing multiple benefits including improved environmental conditions, financial stability, access to information and market relationships for producers. These observations provided support for continued work under the rubric of an integrated approach to sustainability within the sector. Final Session The final session of the workshop built on the range of initiatives, both existing and proposed, with a view to identifying possible strategies for moving forward at the international level through multi-lateral and multi-stakeholder action. It was noted that the existence of such a wide variety of approaches to sustainability in the coffee sector could easily lead to confusion among industry and consumers and that indeed, such confusion had been documented by recent market research. Disparate approaches to sustainability were also recognized as being limited in their ability to 8
address many of the major public goods and structural challenges to sustainability facing the coffee market as a whole. The need for finding a common definition for sustainability, based on full participation of stakeholders across the sector was emphasized in a proposal by Nestle for the establishment of a Coffee Stewardship Council and the GTZ initiative was suggested as a promising beginning for such an initiative. While the GTZ initiative was recognized as holding promise by a number of participants, a number of concerns were also expressed regarding this approach including: A reticence toward the establishment of yet another institution (based on fears of adding increased bureaucracy and siphoning badly needed resources from producers) A fear that the establishment of a single common standard would lead to watered down definition of sustainability A fear that a single common standard would eliminate or reduce the value added associated with existing sustainable coffee schemes A fear that producers might not be adequately represented in such a scheme and that, as such, the main problems facing producers, such as price received, might go un-addressed A fear that such a process might be used to replace work needed at the structural level to improve sustainability within the market and along the supply chain There appeared to be a general consensus that the International Coffee Organization should be a focal point for action at the international level in this domain over the long term but also that the ICO might not have the resources, capacity or mandate to get such a process up and running hence the viability of looking for a third party to take this role on. There was no consensus on what approach or type of structure might be appropriate (whether it be within the ICO or a Coffee Stewardship Council or some other format) for instigating such work, suggesting that there may be a legitimate role for research on this topic. A majority of the participants believed that some form of government support/market intervention would be necessary at the international level to implement effective measures towards sustainability over the long term, regardless of the institutional home. The multi-functionality of coffee production, as provider of social, economic and environmental services, was proposed as a promising tool for generating such support among consumer countries, but it was agreed that another meeting with a similar breadth of stakeholders would be necessary to come to more concrete decisions on specific strategies at the international level in this regard. A number of participants expressed a interest in considering sustainability in terms of the three major challenges facing the sector (1. supply/demand imbalances 2. market power imbalances 3. public goods provision) at a second meeting in several months time. 9
The workshop was closed by Mr. Rubens Ricupero, Secretary General of UNCTAD who provided inspiration and support for the endeavour to treat the coffee issue through the window of an integrated approach to sustainability on the grounds that this would enable a reflection on the full range of issues facing the viability of the sector and thus offer the best prospect for meaningful solutions over the long term. NEXT STEPS The workshop was designed to generate ideas for action at the international level rather than decisions for such action and, as such, left many of the most important questions unanswered namely, how do we actually move forward on the great variety of issues and proposals raised while maintaining the balance of multistakeholder input represented at the workshop. The proponents of the workshop propose the following format for continuing the discussion and ensuring fully participatory follow-up to the important beginning: 1. a period of consultation with workshop participants via email and telephone aimed at selecting key ideas for further research based on feedback from the workshop. 2. A period of research on the legal, economic and political feasibility of a select number of ideas raised; including further consultation with participant and non-participant stakeholders in the interim. (4 months) 3. A second meeting in about six months time with the same stakeholder group based on the consultations and research with the objective of generating decisions for cooperation at the international level and specific tools for implementing such cooperation. We encourage you to contact us with any comments you might have on this summary including the proposed procedure for continuing work in this field. 10