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2022 Global Market Report Coffee

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2022 Global Market Report Coffee

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kh.tsengel758
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SUSTAINABLE COMMODITIES

MARKETPLACE SERIES

GLOBAL MARKET REPORT

Coffee prices and sustainability


Steffany Bermudez, Vivek Voora and Cristina Larrea
September 2022

Market Overview

Despite the effects of the Coffee Association, n.d.). Green coffee beans
are then roasted to unlock their flavour,
COVID-19 pandemic, global becoming brown roasted beans, which are
coffee supply and demand ground and brewed to produce the coffee
beverage we commonly enjoy.
have grown.
Arabica and Robusta are the two main
From the Ethiopian forests where—as the coffee species that have come to dominate
legend goes—goat herders first discovered the market, with global production in 2020
it, coffee has become a staple for many consisting of about 58% Arabica and 42%
consumers (Deshmukh, 2021). Coffee is one Robusta (International Coffee Organization,
of the world’s most traded commodities and 2021, p. 9). While many factors affect quality,
consumed beverages (Food and Agriculture Arabica coffee has historically been considered
Organization of the United Nations [FAO], higher quality as it has a smoother, sweeter
2022b). The coffee plant is a shrub or small taste. Robusta has twice the caffeine content,
tree that needs about 3–4 years to start making it more bitter and well suited for
producing red cherries, which are then ready-to-drink applications and espresso
strip- or hand-harvested (National Coffee blends (Petruzzello, 2021). Fine Robusta
Association, n.d.). Strip harvesting, which Standards and Protocols were introduced
can be mechanized, involves removing all in 2019 to improve the quality of coffee
the cherries from the branch at once, while made with Robusta (Impallomeni, 2019).
hand harvesting, a more labour-intensive The Arabica coffee plant is more sensitive
process, consists of selectively harvesting to higher temperatures and must be grown
ripened cherries. Harvested coffee cherries in subtropical climates at altitudes of 600 m
are processed immediately using a dry or wet to 2,000 m. It is well suited for agroforestry
method to facilitate the milling process, which and shaded environments (Petruzzello,
involves hulling to extract the coffee bean 2021). Robusta coffee is more resistant to
(green coffee) and an optional polishing step temperature fluctuations and can be grown
before being graded and sorted by weight, from sea level to 600 m in full sun (Petruzzello,
size, and quality so they can be sold (National 2021). It is also more disease resistant and
Global Market Report

Intelligence, 2021). The coffee value chain


LIVELIHOODS provides direct employment to an estimated
There are 12.5 million coffee farms in the world. 125 million people worldwide (Fairtrade
95% of coffee farms have an area of 5 ha or less.
Foundation, 2022). The U.S. coffee industry
alone employed almost 1.7 million people in
84% have less than 2 ha.
2015. Coffee is grown on 12.5 million farms
around the world, predominantly run by
smallholder farmers cultivating 5 ha or less—
generally produces higher yields. Today, coffee indeed, 95% of coffee farms span 5 ha or less
has become a highly sophisticated product, and 84% span less than 2 ha (Panhuysen &
with producers and roasters developing a Pierrot, 2020, p. 56). Smallholder farmers
wide range of varietals and flavours to meet account for most global coffee production as
different users’ expectations and to respond to they comprise 73%–80% of coffee farmers
consumption trends. globally (Fairtrade Foundation, 2022;
The coffee sector has grown into a lucrative Panhuysen & Pierrot, 2020, p. 56). Larger
business downstream, reaching a retail market estates produce the remainder, with coffee
value of approximately USD 102 billion in estates greater than 50 ha rarely found
2020. It is expected to continue expanding at outside of Central and South America
a compound annual growth rate (CAGR) of (Panhuysen & Pierrot, 2020, p. 56).
at least 4.28% from 2021 to 2026 (Mordor

Figure 1. Global coffee production from 2008 to 2019. Coffee that complies with voluntary
sustainability standards (VSSs) reached 21% to 45.4% of total production in 2019.

10

8
Tonnes (millions)

VSS compliant
6
Potentially
VSS compliant
4
Conventional
2

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Note: Conventional production volumes do not comply with a VSS, while VSS-compliant production volumes
refer to coffee produced in compliance with at least one VSS. Production volumes that are defined as
potentially VSS compliant cannot be definitively identified as conventional or VSS compliant with the data
currently available.
Source: FAO, 2022a; Meier et al., 2021.

2 IISD.org/ssi
Coffee prices and sustainability

Coffee production increased from about challenges, global coffee production in 2020
8.5 million tonnes in 2008 to 10.7 million rose by about 660,000 tonnes from 2019
tonnes in 2020 from cultivating 11 million (FAO, 2022a). Shipping disruptions have
ha, according to the FAO (2022). Production boosted transportation costs and affected
has not slowed over the last decade as its product quality and availability (Hernandez
CAGR of 1.53% from 2008 to 2019 jumped et al., 2020, p. 12; Mera et al., 2021, p.
to 2.73% from 2014 to 2019. About 80% of 43). Furthermore, government public
coffee production was exported in 2021/2022, health measures due to the pandemic have
up from 64% in 2020 and 74% in 2019, limited and prevented out-of-home coffee
providing an important source of foreign consumption (Mera et al., 2021, p. 43;
exchange revenues for exporting countries Mordor Intelligence, 2021). Nevertheless,
(FAO, 2022a; Foreign Agricultural Service, demand remained strong as companies over-
2021; United Nations, 2022). Brazil, Vietnam, purchased coffee to guarantee production
and Colombia have consistently been the and sales and drew on stockpiles to maintain
highest-producing countries and largest product output (Mera et al., 2021, p. 43).
exporters since 2016, exporting some 33 End consumers have also shifted their
million, 29 million, and 14 million 60-kg bags, consumption patterns by moving to online
respectively, in 2021/2022. The European shopping and at-home coffee consumption
Union (EU), United States, and Japan have options (Mordor Intelligence, 2021).
consistently been the largest importers over
this period, importing about 43 million, 26
million, and 7 million 60-kg bags, respectively, Climate change continues
in 2021/2022 (Foreign Agricultural Service,
2021, p. 9). Global coffee supply and demand
to threaten the long-term
have remained fairly stable over the last 5 viability of the coffee sector.
years, with supply exceeding demand by 1%–
4%. Nevertheless, rising demand is expected The disruptions of the pandemic on the
to outstrip supply starting in 2021/2022, while global coffee value chain provide a cautionary
supply is expected to drop, mostly due to tale for current and anticipated climate
unfavourable weather conditions (Foreign change impacts. Changing climatic conditions
Agricultural Service, 2021; International are expected to render some coffee-growing
Coffee Organization, 2022, p. 9). regions no longer suitable (Grüter et al.,
2022). Based on global climate models used
The COVID-19 pandemic has been
to explore three climate scenarios and soil
particularly challenging for the coffee sector
conditions, highly and moderately suitable
as coffee is primarily grown for export
Arabica coffee-growing environments around
(Foreign Agricultural Service, 2021, p. 9).
the world are expected to decrease by 50%
On the production side, COVID-19 has
and 30%, respectively, by 2050 (Grüter et
disrupted the availability of labour, inputs,
al., 2022). The effects of climate change are
and extension services and made it difficult
also expected to lead to the emergence of
to move products to markets (Panhuysen
existing and new coffee pests and diseases
& Pierrot, 2020, p. 56). Despite these
as well as the loss of productive agricultural

IISD.org/ssi 3
Global Market Report

lands, which will invariably affect coffee Robusta coffee plants with fruits such as
farming (Pham et al., 2019). For instance, the avocado and durian and are working to
coffee leaf rust fungus greatly impacted coffee improve their irrigation efficiency to lower
production in various parts of Latin America costs and maintain productivity (Foreign
from 2012 to 2017, causing an estimated Agricultural Service, 2021, p. 9; Hofstetter,
USD 3 billion in losses and negatively 2016; International Union for Conservation
affecting 2 million farmers (McKenna et of Nature, 2020).
al., 2020; Pham et al., 2019). More recently,
Moving coffee production to more suitable
severe and unexpected frost in Brazil’s coffee
areas must be done carefully to prevent
belt in June and July 2021 caused global
ecosystem losses (i.e., deforestation or
coffee prices to spike by 13% (Foreign
degradation), which will exacerbate climate
Agricultural Service, 2021, p. 9; Figueiredo &
change (Panhuysen & Pierrot, 2020, p.
Teixeira, 2021).
56). For instance, coffee cultivation in the
Although coffee farmers are used to Peruvian Amazon was directly responsible
fluctuating weather patterns, they will need to for a quarter of its deforestation in 2012,
adapt to less predictable growing conditions and the upward expansion of coffee farming
and more extreme climatic events. More continues to pose a high risk to forested and
attention to climate resilience is especially protected areas (Panhuysen & Pierrot, 2020,
important in coffee cultivation, as it requires p. 56; Rainforest Alliance, 2021a, p. 14; van
long-term planning to get a return on Dijkhorst et al., 2017, p. 11). Additionally,
investment. The vast majority of today’s consuming countries increasingly put
production comes from smallholder farmers legislative frameworks in place to ensure that
with fewer resources to cope with shocks, industry players understand and mitigate
making them more vulnerable to climate deforestation risks in their supply chains,
change. Numerous adaptation measures exist such as the EU proposal for a regulation on
in the coffee sector. These include moving deforestation-free products. What is clear
production to areas with more suitable is that coffee farmers will have to become
climates and switching to more climate- more resourceful and diversified by varying
resilient species such as Robusta or adopting cropping patterns and livelihood activities to
more sustainable farming practices, like face changing weather patterns that will affect
shade-grown coffee to reduce temperatures different parts of the global coffee value chain
or mulching to maintain soil moisture (Pham in unpredictable ways (Foreign Agricultural
et al., 2019). Some countries have started Service, 2021, p. 9).
climate-proofing their coffee sectors. For
Despite its vulnerability to the effects
instance, an estimated 85% of Colombia’s
of climate change, coffee farming has
coffee now consists of leaf rust-resistant
climate change mitigation and adaptation
varieties, and areas projected to offer suitable
potential. While deforestation-free farming is
coffee-growing conditions are being mapped
essential to slow global climate change and
(Boer et al., 2020; David, 2021; Foreign
biodiversity losses, coffee cultivation offers
Agricultural Service, 2021, p. 9). Vietnamese
tangible opportunities to restore mixed-use
coffee growers commonly intercrop their
forests in coffee-growing regions around the

4 IISD.org/ssi
Coffee prices and sustainability

world. Agroforestry techniques that cultivate Coffee produced in


trees with crops, regenerative agriculture
practices that restore degraded land and compliance with VSSs offers
ecosystems, and intercropping can provide opportunities to improve the
shade and cooler environments suitable for
growing good-quality Arabica coffee while
sustainability and resilience
sequestering carbon and diversifying revenue of the sector.
crops (Ahmed et al., 2021; Pham et al.,
2019). For example, coffee farmers in Peru’s Efforts are ongoing to move the coffee sector
Alto Mayo Protected Forest have been toward sustainability and improve farmer
able to weather the COVID-19 pandemic resilience to face challenges such as climate
by growing more sustainable certified change. The implementation of VSSs, which
coffee through agroforestry practices and began in the sector more than 30 years ago, is
generating revenues by selling carbon credits one of these efforts. Complying with a VSS
via the United Nations REDD+ programme1 allows farmers to differentiate themselves
(Bauza, 2021; Specialty Coffee Association, from conventional coffee producers in the
2021). It is clear that regenerative coffee marketplace (Voora et al., 2019, p. 6). In
farming systems will be required not only to exchange for adopting farming practices that
halt—but also reverse—the degradation of can provide benefits to the environment and
natural environments and rural communities communities, farmers can label and sell their
around the world and to restore them. products as VSS compliant.
This can be done by building healthy and
fertile soils that can retain and filter water, VSSs in the coffee sector typically require
returning shade trees, and enhancing wildlife farmers to adopt more sustainable farming
habitats (Murphy & Lilliston, 2022; Vu practices, such as soil, water, forest, and
Le et al., 2021). energy conservation measures that can make
their operations more resilient to changes,
including extended droughts (Voora et al.,
2022). VSS-compliant farmers may also get
higher prices and premiums for their coffee
and establish stronger links with buyers,
which can help them cope with market
fluctuations (Bianco, 2020; Elder, 2021, p. 9).
While offering numerous potential benefits,
VSSs can be further strengthened to improve
farmer resilience to challenges such as climate

1 “REDD+, which stands for Reduce Emissions from Deforestation and Forest Degradation while fostering forest
conservation, is a framework created by the UNFCCC Conference of the Parties (COP) to guide activities in the
forest sector that reduces emissions from deforestation and forest degradation, as well as the sustainable management
of forests and the conservation and enhancement of forest carbon stocks in developing countries” (United Nations
Framework Convention on Climate Change, 2022).

IISD.org/ssi 5
Global Market Report

change and human health pandemics (Bianco, Alliance (0.67 million tonnes), and Organic
2020; Elder et al., 2021, p. 168). (0.37 million tonnes) (see Figure 2) (Meier
et al., 2021). Since the Rainforest Alliance
In 2019, more than 1.1 million farmers
and UTZ Certified merger in 2018, the
produced 2.09 million–4.55 million tonnes of
UTZ standard and correspondent label are
VSS-compliant coffee, with a total farm gate
gradually being replaced by the Rainforest
value of between USD 4 billion and USD 11
Alliance Certification Program and labelled
billion. This is a drop of 460,000–570,000
with the new Rainforest Alliance seal from
tonnes from the previous year (Meier et al.,
2020. The Global Coffee Platform (GCP)
2021). The farm gate value estimate was
(2022) supports all of these initiatives and has
derived from FAO averaged producer prices
created an Equivalence Mechanism based on
per tonne multiplied by VSS-compliant coffee
the GCP Baseline Coffee Code to establish
volumes produced per country. The most
a baseline of more sustainable practices
prominent VSSs in the coffee sector, ordered
in the industry.
by 2019 production volumes, are 4C (1.61
million tonnes), UTZ (1.08 million tonnes), VSS-compliant coffee, which grew at a CAGR
Fairtrade (0.82 million tonnes), Rainforest of 13% to 19% between 2008 and 2019,
now represents 21% to 45% of total global
production (see Figure 2) (Meier et al., 2021).
How much coffee is Despite this significant growth, there are signs
compliant (by VSS)? that the supply of VSS-compliant coffee may
be declining as its CAGR contracted between
Figure 2. VSS-compliant coffee
1% and 7% from 2014 to 2019. Almost all of
production volumes in 2019
the losses in VSS-compliant production are
due to a drop in 4C coffee, which fell from
4Cs
2.76 million tonnes in 2016 to 1.61 million
1,606,821 tonnes tonnes in 2019. This downward trend can
also be partly explained by coffee buyers
shifting from sourcing coffee that complies
UTZ Certified with third-party-certified or verified VSSs to
1,083,649 tonnes coffee that complies with their own second-
party corporate sustainability programs (i.e.,
Tchibo) or the use of other frameworks to
Fairtrade International report on their sourcing practices (i.e., Global
824,404 tonnes Reporting Initiative, UN Global Compact)
(Panhuysen & Pierrot, 2020). Additionally,
Rainforest Alliance supply outstripping demand may have
discouraged farmers from becoming and
669,698 tonnes
remaining VSS‑compliant (Meier et al., 2021),
Organic especially if markets do not incentivize the
370,006 tonnes consumption of VSS-compliant coffee.

Source: Meier et al., 2021.

6 IISD.org/ssi
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In 2019, almost 60% of VSS-compliant coffee According to our analysis, Brazil, Vietnam,
came from Latin America and the Caribbean Indonesia, Colombia, and Ethiopia offer VSSs
(Brazil, Colombia, and Peru), followed by the greatest potential to expand based on the
Asia (Vietnam, Indonesia, and India) and size of their conventional coffee production.
Africa (Ethiopia, Côte d’Ivoire, and Uganda). Among the least developed countries
Vietnam produced the most VSS-compliant producing coffee, the Democratic Republic
coffee that year, reaching some 506,000 of the Congo, Ethiopia, Guinea, Haiti, and
tonnes (see Figure 3). Yemen offer VSSs the most opportunities
to promote sustainable development by

Figure 3. Coffee Growing Regions of the World: Distribution of coffee production in the
top 10 producing countries in 2019
Climate Risk Index score for 2000–2019
1–10 11–20 21–50 51–100 >100 Harvest area
Prevalent VSS-compliant area
Honduras
Colombia

Vietnam
Ethiopia

Indonesia
Guatemala

India
Uganda
Brazil
Peru

3
VSS compliant
(millions)

2 Potentially VSS compliant


Tonnes

Conventional
1

0
Brazil

Vietnam

Colombia

Indonesia

Ethiopia

Honduras

Peru

India

Uganda

Guatemala

Note: Countries with lower Climate Risk Index scores are those that have been most impacted by extreme
whether events in the reference period.
Sources: Meier et al., 2021; FAO, 2022a; Eckstein, D., et al. 2021; Voora, V. et al. 2019
IISD.org/ssi 7
Global Market Report

which can also result in higher productivity


MARKET VALUE levels (Le Coq, 2016).
More than 1.1 million farmers produced 2.09
million–4.55 million tonnes of VSS-compliant
coffee with a total farm-gate value of USD 4 Demand for VSS-compliant
billion to USD 11 billion.
coffee is increasing, but not
enough to balance supply.
CAGR
Conventional production contracted at a CAGR The availability of VSS-compliant coffee sold
of 3.17% from 2008 to 2019, but grew at 7% as conventional coffee is another challenge
from 2014 to 2019. hindering its long-term viability, as some
VSS-compliant production grew at a CAGR companies source VSS-compliant coffee at
of 13% to 19% between 2008 and 2019 but lower conventional prices to benefit from
contracted to between 1% and 7% from 2014 their risk mitigation benefits. Between
to 2019.
2008 and 2019, only 12% to 65% of VSS-
compliant coffee production was sold as
adopting more sustainable coffee farming such (Meier et al., 2021). In some cases,
practices based on their share of global coffee coffee farmers who cannot sell their product
production, limited presence of VSSs, and as VSS-compliant do not receive premiums
Human Development Index ranking. and consequently struggle to pay the costs
of maintaining their certification (Centre for
Equally important, VSS-compliant coffee
the Promotion of Imports from developing
farming can also result in higher yields
countries, 2021; Mongabay.com, 2021).
compared to conventional production. Our
Falling incomes due to poor prices and
analysis shows that in 2019, VSS-compliant
higher production costs in 2020 because
coffee yields were higher in 21 coffee-
of COVID-19 supply chain disruptions—
producing countries, potentially about the
coupled with farmers’ reliance on coffee as
same in three, and lower in 16. VSS-compliant
the main source of livelihoods—have led
yields tended to be higher in larger coffee-
to higher poverty rates among smallholder
producing countries, such as Brazil, Vietnam,
coffee farmers (Mongabay.com, 2021). This,
Colombia, Indonesia, and Honduras. Ethiopia,
in turn, prevents farmers from investing
Laos, and China are exceptions, as VSS-
further in sustainable production and
compliant coffee yields were lower than
climate resilience (International Coffee
conventional coffee yields in these major
Organization, 2020, p. 14).
coffee-producing countries (FAO, 2022a;
Meier et al., 2021). This may be partially Although the global supply of VSS-
explained by the fact that coffee-producing compliant coffee is decreasing, demand for
regions with well-functioning farming VSS-compliant coffee continues to grow
cooperatives and a supporting environment in traditional markets (Europe and North
may be better able to take full advantage of America). Nevertheless, this growth has
VSS-compliant practices for their members, not yet caught up with supply, leading to an

8 IISD.org/ssi
Coffee prices and sustainability

ongoing oversupply of VSS-compliant coffee. companies to report on environmental,


As mentioned above, this supply–demand social, and governance issues, including
gap may be reducing global VSS-compliant climate change, pollution, water resources,
coffee production. Consumer preference for biodiversity, workers, affected communities,
more sustainable coffee consumption options and business ethics related to three corporate
has strengthened during the pandemic, areas: a company’s strategies and assessments
particularly in traditional markets (Centre for on the potential positive and adverse
the Promotion of Imports from developing impacts of its direct and indirect operations;
countries, 2021). A GlobalData consumer implementing measures such as policies,
survey found that the consumption patterns targets, action plans, and budget allocations;
of 43% of all coffee drinkers are influenced by and performance measurement on a specific
“ethical, environmentally friendly, or socially set of metrics (KPMG, 2022).
responsible coffee options” (GlobalData
Both regulations target environmental and
Consumer, 2020). Many European retailers,
social issues that most VSSs cover in their
including ALDI, Lidl, and Sainsbury’s, have
production requirements and can help
developed their own sustainable product
coffee growers adopt practices that can
lines using VSS-compliant coffee, which has
benefit the environment and communities
boosted sales (Centre for the Promotion of
while reducing harm. Most VSSs operating
Imports from developing countries, 2021).
in the coffee sector also have assurance
Nevertheless, it is still too early to know what and grievance mechanisms in place that
sort of impact the upcoming EU regulations may align with these regulations. Still, all
on corporate sustainability due diligence and VSSs are different in terms of the stage of
corporate sustainability reporting will have the value chain and related requirements
on the production and consumption trends they cover; their effectiveness in supporting
of VSS-compliant coffee, as countries within farmers in adopting VSS-compliant practices
the EU are the main consumers (European and verifying their compliance; and how
Commission, 2022). Furthermore, what they incorporate performance metrics,
happens if coffee buyers do not find VSSs measurement guidelines, and technology to
to be a potential tool to help them comply support this data journey. Going forward,
with these regulations or if VSSs do not a more in-depth review is needed of the
adapt accordingly? potential alignment and gaps between
VSSs operating in the coffee sector and
The former regulation will require targeted
regulations to support the coffee buyers
companies to implement, monitor, and
complying with them.
report on due diligence activities conducted
throughout the entire value chain to identify Beyond traditional markets, VSS-compliant
and prevent potential adverse human rights coffee consumption in producing countries
and environmental impacts, minimize the and emerging economies such as Russia,
effects of actual impacts, and establish China, and Indonesia has historically been
complaint procedures for the benefit of very low. However, these markets offer great
communities. The new regulation—in the potential, as domestic consumption rates
consultation phase—will require targeted have been growing exponentially, primarily

IISD.org/ssi 9
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due to millennials with higher disposable emerging markets (Global Coffee Platform,
incomes. For instance, VSS-compliant coffee 2019, p. 30; Pierides, 2019; Sierra, 2020).
remains niche, but its popularity is growing In Colombia, Toma Café’s promotional
in Colombia as households have more campaigns, barista training programs, and
disposable income (Federación Nacional marketing strategies have reached a broad
de Cafeteros de Colombia, 2020, p. 107). range of consumers, including young adults
In Indonesia, increasing VSS-compliant and students, some with prior interest and
production may be due to a growing knowledge of sustainability (Euromonitor
domestic market with more roasting facilities International, 2015). Building trust and
and coffee shops serving high-quality coffees transparency is key to shaping consumer
with sustainability claims (Food ingredients behaviours, especially when many hope to
Asia, 2022, p. 23). adopt more sustainable lifestyles.

While younger generations are generally more The 10 largest coffee-roasting companies,
willing to pay for VSS-compliant coffee, many which account for 35% of total global coffee
people in emerging economies are still limited sourcing (Panhuysen & Pierrot, 2020),
by price. Offering incentives to consumers bought an estimated 3.5 million tonnes
to buy VSS-compliant coffee can stimulate of coffee in 2020, up from 3.31 million
sustainable consumption (Meier et al., tonnes in 2016. About 1.4 million tonnes,
2020, p. 88). This can include subscription or 39%, of all coffee purchased in 2020 was
services where consumers pay in advance for sustainably sourced and compliant with a
sustainable product baskets with coffee or VSS or a corporate sustainability initiative,
chocolate at discounted prices (Alves, 2021). such as Starbucks’ C.A.F.E. Practices
or Nestlé’s Nespresso AAA. Corporate
Uncertainty about VSS-compliant coffee and
sustainability initiatives refer to sustainable
greenwashing remains challenging. On-the-
coffee production programs created by
go coffees, typical coffee shops, and street
private companies rather than by independent
vendors offer fewer prepared coffee options
third parties. In terms of meeting sourcing
than what is available in supermarkets,
commitments, Nestlé, Starbucks, and
making it harder for their clients to choose
Smuckers almost met their targets by
VSS-compliant coffee. In Colombia, most
2020. Major developments in sustainability
consumers do not know what VSS logos mean
sourcing commitments include JDE’s 40%
or distrust their credibility (Velez, 2020).
and Nestlé’s 100% sustainable sourcing
Indonesian consumers have been subject to
targets to be reached by 2025 and Ueshima
greenwashing and misled by companies so
Coffee Company's goal to reach 100% by
they can charge premiums (Food ingredients
2030 for their own coffee brands. Strauss,
Asia, 2022, p. 23).
Massimo Zanetti, and Lavazza have yet to set
Nevertheless, communication campaigns sustainable sourcing commitments. Based
such as the Global Coffee Platform’s efforts on these commitments and assessing them
to educate consumers and promote local against current coffee sourcing information,
VSS-compliant coffee consumption can an extra 570,000 tonnes of sustainable coffee
encourage sustainable consumption in these could be sourced by 2025.

10 IISD.org/ssi
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Sustainable sourcing commitments are yet to be met.


Figure 4. Major coffee-roasting companies and their sustainable sourcing commitments

100% sustainable sourcing by 2025


Nestle 985,000

40% sustainable sourcing by 2025


Jacobs Douwe Egberts 730,000

10% sustainable sourcing by 2018


Smuckers 360,000

100% sustainable sourcing by 2020


Starbucks 310,000

Strauss* 282,000

Lavazza* 267,000

Ueshima Coffee Co.** 190,000

100% sustainable sourcing by 2025


Tchibo 170,000

Massimo Zanetti* 153,000

100% sustainable sourcing by 2020


Keurig Dr. Pepper 106,881

0 200 400 600 800 1,000


Tonnes (thousands)

Sustainable consumption Conventional consumption Sustainable sourcing commitment

*Note: Data not found for sustainable sourcing commitments.


**Note. Data refers to 2019 as per Coffee Barometer 2020.
Sources: Authors’ estimations based on Panhuysen & Pierrot, 2020. Specific company sources: Keurig Dr
Pepper, 2019; JDE Peet’s, 2020; JDE Peet’s N.V., 2020, p. 260; Lavazza, 2020, 2021; Massimo Zanetti Beverage
USA, 2022; Navratil, 2021; Nestlé, 2020; Starbucks, 2020a, 2020b, p. 23; Strauss, 2021; Tchibo Coffee Service,
n.d., and personal email correspondence with the company; The J.M. Smucker Co., 2020; Ueshima Coffee
Company, 2022a, 2022b.

IISD.org/ssi 11
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Although VSS-compliant production has Consequently, we expect VSS-compliant


declined in recent years, coffee-roasting coffee production to range from 950,000
companies may continue to adopt more tonnes to 3.31 million tonnes by 2025.
ambitious sustainable sourcing commitments,
and sustainable consumption in emerging
economies may continue to rise. This could
maintain and even boost demand for coffee
compliant with a VSS and/or a corporate
sustainability initiative. Still, demand may
grow slowly, while the upcoming corporate
sustainability due diligence and corporate
sustainability reporting regulations in the
EU, and other similar regulations that may
emerge in other jurisdictions, may crimp
the consumption and production of VSS-
compliant coffee. This is why a prediction on
VSS-compliant production can, at best, be
viewed as an educated guess. A pessimistic
outlook weighs a short-term decreasing trend
in VSS-compliant production more heavily.
This translates into a steady decline to about
1 million tonnes by 2025 due to a shift toward
corporate sustainability initiatives, the effects
of due diligence and corporate reporting
regulations, and a continued inability to sell
VSS-compliant products as such. A more
optimistic outlook weighs the increasing long-
term VSS-compliant production trend more
heavily and projects a steady increase to more
than 3 million tonnes by 2025.

VSS-compliant production is likely to


contract in the short term. However, we
predict that it will rebound to almost 2
million tonnes by 2025 as demand for
sustainable coffee continues to grow,
motivating sustainable coffee sourcing
commitments, and VSS-compliant coffee
farmers enjoy more success selling their
harvest as a VSS-compliant product.

12 IISD.org/ssi
Coffee prices and sustainability

A Dive into Coffee Prices

Sustaining the coffee prices intersect with the sustainability of the


sector is critical.
sector will require improving
The behaviour of coffee market prices, which
farm gate prices and the have been highly variable, affects the price
equitable distribution of that VSS-compliant farmers get. Coffee
information and profits. pricing has traditionally fluctuated with large
swings that follow the international market
Pricing is another crucial factor in the price for coffee, or “C-price,” as coffee is also
viability of VSS-compliant coffee, as it can traded in the futures market. The C-price
determine if coffee farmers stand to gain determines the price of coffee as it is bought
financially from implementing VSSs. Efforts and sold along the value chain. It serves as a
to shift the coffee sector toward sustainability, pricing guide, benchmark, or price-discovery
such as implementing VSSs, are partly driven tool to buy and sell coffee, make business
by a need to internalize the external costs decisions, or plan investments.
associated with the industry. Agricultural
external costs are those typically not For instance, the C-price dropped to historic
captured in the market price of agricultural lows in April 1975 (just before a massive frost
products and not borne by farmers, such as in Brazil) and in October 2001, when coffee
the negative effects of agrochemical use on was traded at USD 0.4638/pound, with prices
human health and the environment. recovering and reaching highs in March
1977 of USD 3.08/pound and in April 2011
The external cost of conventional coffee of USD 2.98/pound (Trading Economics,
grown in Mexico in 2017 was found to 2022). More recently, in August 2018, the
be USD 7.80 per kg of parchment coffee international market price for coffee dropped
versus USD 3.50 per kg of parchment coffee below USD 1/pound for the first time in 12
for traditional and organic farming coffee years, a price considered well below the cost
production systems, which tend to have less of production for most coffee farmers in the
detrimental socio-ecological impacts (de world (Specialty Coffee Association, 2019a),
Adelhary Toorop et al., 2017). The external with new lows reached in 2019.
cost of certified versus conventional coffee
grown by smallholder farmers in Vietnam Several factors influence fluctuations of the
was found to be 20% lower and 13% more coffee market price, the most important one
profitable (generating annual profits of being global supply and demand dynamics.
EUR 1,695/ha vs. EUR 1,472/ha) in 2016 Indeed, when the global supply of coffee
(Verkooijen et al., 2016). Internalizing the outpaces demand fuelled by favourable
external costs associated with the production weather, improved yields, production capacity
of conventional coffee would make VSS- via harvesting mechanization, increased
compliant coffee prices much more cultivation land, or public support (i.e.,
competitive. Therefore, examining how coffee subsidies), it pushes prices downward

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(Ballard, 2010). When the global coffee and bargaining power of farmers, input
supply and inventories are disrupted due availability, rural infrastructure, and the
to extreme fluctuations such as rising institutional environment, which plays a
temperatures, droughts, frosts, pests, diseases key role in determining the prices received
(i.e., coffee leaf rust), and government by coffee farmers (Lerner et al., 2021;
policies (i.e., export quotas), it pushes Lordemann et al., 2021). Agricultural policy
coffee prices upward. For instance, fears of and supporting actions of governments (i.e.,
losing up to 40% of the coffee harvest in coffee funds, subsidies) can—and do—make
Brazil due to an unexpected frost pushed a huge difference in producers’ livelihoods
the international coffee price above USD 2 (Grabs, 2018). For instance, the Government
per pound in August 2021 (Perez & Batista, of Honduras passes market price volatility
2021). Other factors influencing the C-price onto producers much more directly, in
include speculation (Hernandez et al., contrast to the situation in Costa Rica or
2020) in the futures markets and exchange Colombia. Furthermore, poor infrastructure
rate movements. (i.e., roads, transport services to ports) in
producing countries may lead to the use
These fluctuations and coffee price drops are
of intermediaries to transport the coffee
mostly felt by small-scale farmers in countries
from farm to port, reducing the price that
that depend highly on coffee exports as a
coffee farmers obtain in the end (Lerner
source of income, such as Burundi, Uganda,
et al., 2021).
and Honduras, where low farm gate prices
coupled with higher production costs have The coffee market is also highly competitive,
resulted in losses or unsustainably low with a few large companies and their value
earnings (Estrella et al., 2019; FAO, 2018; chains dominating it (Mordor Intelligence,
Meier et al. 2020). In addition, many coffee 2021), which allows exporters and roasters
smallholder farmers lack the experience and to determine a favourable price for the coffee
knowledge to use risk management tools to they buy from farmers (Econexus, 2013;
mitigate the price risks and are unable to ETC Group, 2019). They are also better able
protect themselves from market fluctuations. to transfer any price increase upstream and to
Coffee farmers are then in the most end consumers, protecting themselves from
vulnerable position in the value chain. coffee price volatility and exacerbating the
They are the first to be affected by low inequality and power asymmetry of farmers.
prices and price volatility but also the first to
experience the effects of droughts, floods, and
other weather events, intensified by climate
change (Baptista & Jenkins, 2017, p. 32). The pattern in coffee shows that
The C-price, along with certain factors that input costs increased by 8% annually
lead to great variability, influence farm gate between 2015 and 2020, but prices rose
prices in coffee across producing countries. just 1% in the same period. As a result,
These factors include coffee type, origin, some farmers break even while others
quality, differentiation (i.e., specialty or
struggle to cover their costs.
sustainably grown coffee), level of association

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Coffee farmers also tend to receive the (Nordic Approach, n.d.). They often pay
smallest margins in the value chain. The farm premiums to farmers by making second
gate price and production costs determine payments to coffee cooperatives or coffee
coffee farmers’ margins. Despite the washing stations (Nordic Approach, n.d.).
differences in production costs across coffee In many cases, however, they cannot collect
farms, regions, and countries due to different information on how these premiums are
taxes, transportation and input costs, the distributed or invested back into the farming
type of coffee grown, production methods, communities. Profit margin outcomes from
equipment, and technology (Cadena, 2019, an exporter’s perspective are higher when
p. 13; Estrella et al., 2019), the overall selling coffees with high-quality scores. The
pattern in coffee shows that input costs rose lowest margins for all actors in the value
8% annually between 2015 and 2020, while chain involve the production and sale of
prices advanced just 1% in the same period ordinary or low-grade fully washed coffees
(Keen, 2020). As a result, some farmers break (Church, 2018).
even while others struggle to cover their costs
Roasters usually enjoy the highest gross profit
(Estrella et al., 2019).
margins in the coffee chain (44% to 65%).
In contrast, the greatest economic value is A study by the Specialty Coffee Association
generated in the middle of the coffee supply found that when costs are considered, the
chain: exporters and roasters. Exporters can net profit margin can vary from 7% to 12%
get between 50% and 54% of the free on (Bellwether Coffee, 2021; Specialty Coffee
board (FOB) price in some cases (including Association, 2017). However, one of the
cupping, grading, storing, milling, transport, key issues is also the hidden trade margins
taxes, export documentation, and margins) and prices paid by roasters to farmers, or

Table 2. Minimum prices and premiums for coffees negotiated through the Fairtrade
Labelling Organization contract system in USD/lb, Arabica and Robusta. FOB prices paid
for Fairtrade (2020).

Fairtrade minimum prices Fairtrade


Type of coffee Conventional + certified Organic premium

Washed Arabica 1.26 1.41 plus the Organic differential: +20 cents
+30 cents

Non-washed Arabica 1.20 1.35 plus the Organic differential: +20 cents
+30 cents

Washed Robusta 1.05 1.05 plus the Organic differential: +20 cents
+30 cents

Non-washed Robusta 1.0 1.01 plus the Organic differential: +20 cents
+30 cents

Source: Authors, with data extracted from Fairtrade International, n.d.

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indirect payments in the form of community over and above the market price (Rainforest
infrastructure or social programs. Large Alliance, 2021b).
multinationals and coffee roasters such as
In 2020, the coffee market price hovered
Starbucks, Nestlé, and JDE tend not to
around USD 1.20/lb for Arabica and USD
disclose how much they pay for their coffee
1/lb for Robusta, while Fairtrade minimum
or whether they guarantee minimum prices or
prices stood at USD 1.35/lb for the former
offer premiums.
and USD 1.01/lb for the latter. An organic
Coffee buyers who trade directly with differential of USD 30 cents/lb was added
farmers tend to be more transparent about to this minimum price when farmers sold
prices. Some publish and update pricing data their coffee in compliance with the Organic
regularly on their websites and direct trade scheme. The Fairtrade premium stood at
platforms (i.e., Typica, Beyco) and in annual USD 20 cents/lb (see Table 2).
reports. This allows farmers to assess coffee
These floor prices and premiums act as a
market prices and better negotiate the price
baseline for coffee pricing because producers
for their coffee when engaging directly with
and traders can also negotiate higher prices
the roaster (Southey, 2021). Farmers selling
for VSS-compliant coffees based on quality
through direct trade tend to receive higher
and other attributes (Southey, 2021; Specialty
prices for their coffee and have better profit
Coffee Association, 2019b). They enhance the
margins because they save costs such as
transparency of coffee prices. The Fairtrade
registration fees or exporter fees (Oden, 2021).
minimum price also protects farmers
mainly when international market prices
are depressed. Farmers may obtain higher
VSSs can improve farm gate prices if they grow specialty coffee, which
coffee prices, but more must refers to high-quality coffees with cupping
scores exceeding 80 points, according to
be done to increase farmers’
the Specialty Coffee Association Q-grading.
income. For instance, the median price for coffees
ranging between 82 points and 87 points
In this context, VSS settlers are one actor in 2019/2020 was USD 2.60/lb (Specialty
among others who have established a Coffee Association, 2020). However, this
few measures to increase coffee farmer market makes up only about 30% or less of
prices and mitigate the historical price the coffee produced in the world. Specialty
volatility, including minimum prices and coffees that are sold in small quantities of
premiums. The most recognized are Fairtrade micro-lots also tend to be less volatile from
International minimum prices and Fairtrade year to year (Kornman, 2020; Specialty
International and Organic premiums. Other Coffee Association, 2019b).
VSSs, such as Rainforest Alliance, began in
Prices reported for VSS-compliant and
2021 to implement mandatory sustainability
specialty coffees often refer to FOB and not
differentials, which are cash payments that
to farm gate prices, as several transactions
coffee buyers make to compliant farmers
between farm gates and ports do not

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usually stipulate prices in U.S. dollars per To better illustrate the differences between
green pound. This complicates the process conventional, VSS-compliant, and specialty
of calculating what really gets back to the prices, Figure 5 showcases coffee market
farmers. Also, depending on the country prices from 2010 to 2021 (USD/lb); the
and region (i.e., lack of institutional average FOB prices received in East Africa,
support, poor infrastructure) and the use of Latin America, and Asia for conventional
intermediaries who may keep a large part coffee; prices paid by VSSs such as Fairtrade
of the premiums for themselves, specialty and Organic; and specialty coffees in the
and VSS-compliant farmers may end up same regions. (Please note that these are
receiving conventional market prices for average prices and do not reflect the reality of
their coffee (AgriLogic, 2018, p. 94). Some all coffee farmers).
stakeholders in the sector, such as the
According to our analysis and the data shown
Specialty Coffee Association and many
in Figure 5, coffee producers associated
specialty buyers, are trying to understand
with at least one VSS—Organic or Fairtrade,
and compile information on how much of
based on data availability—may have received
the FOB price makes it back to the farm
higher prices than the international market
gate to find out the real price farmers obtain.

Figure 5. Minimum prices and premiums for Fairtrade (FT) coffee, average conventional,
and specialty coffee prices from 2011 to 2021

3.00
Commodity price (Arabica)

2.50
Specialty coffees (average quality): 2.41

2.00
FT minimum price + organic + premium: 1.91
Price (USD/lb)

FT minimum price + organic: 1.71

1.50 FT minimum price conventional: 1.46

Average FOB conventional: 1.16


1.00

0.50

0
2014 2016 2018 2020 2022

Source: Fairtrade International, n.d.; Specialty Coffee Association, 2019b; Trading Economics, 2022.

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price from 2015 onward. Prices tend to Fairtrade and Organic can get an average
increase with double certification of Fairtrade of 20%–30% higher prices than their non-
and Organic. The price that farmers get is certified counterparts over a year (Fairtrade
even higher when selling specialty coffee International, 2021; Specialty Coffee
(average quality) through direct trade, which Association, 2019, p. 71; Trading Economics,
reduces the number of intermediaries 2022). Research on farm revenues also
as farmers establish direct commercial suggests that complying with a VSS across
relationships with roasters or importers. a few commodities, including coffee,
However, we can deduce from the graph translates into markedly higher crop income
that coffee buyers may be more willing to for farmers compared to non-compliant
pay premium differentials for VSS-compliant farms. However, effects on net household
coffee when international coffee prices are income are less explored, with more studies
depressed, while premiums above the market revealing no significant results between VSS-
price are less frequent for VSS-compliant compliant and non-VSS-compliant farmers
coffee when market prices are higher and are (Elder et al., 2019, p. 168; Evidensia, 2020;
more commonly paid for specialty coffee. Panhuysen & Pierrot, 2020).

The price differentials that voluntary However, our analysis shows that VSS prices
sustainability standards pay have sparked (Fairtrade, Organic) do not necessarily make
some concerns. Higher premiums will a difference when farmers are already selling
incentivize farmers to increase VSS-compliant specialty coffee. There are also concerns
production, but when demand for more about the minimum price offered by
sustainably grown coffee does not rise at certification schemes such as Fairtrade, as it
the same pace as production, farmers are is deemed too low to cover production costs
forced to sell their coffee at conventional or to contribute appreciably to the overall
prices and cannot recover the cost of using household income (DeFries et al., 2017). It
VSS-compliant practices. This can discourage is important to recognize that an oversupply
farmers from continuing to comply and of VSS-compliant coffee means farmers
cause them to leave the schemes. As already may have to sell at lower conventional prices
mentioned, the supply of global VSS- and therefore will not benefit from higher
compliant coffee fell between 1% and 7% prices and premiums (Specialty Coffee
CAGR from 2014 to 2019, with research Association, 2019, p. 71; Voora et al., 2019,
suggesting that a lack of demand contributed p. 6). Imbalances in supply and demand
to this decrease (Meier et al., 2020, p. 88; will probably always remain because of time
Meier et al., 2021). frame lags for production and different
consumption trends.
For coffee farmers, the effects of
participation in a VSS have been mixed. Building from these issues, VSSs such
Research indicates that these standards as Fairtrade, Rainforest Alliance, and
have an overall positive impact on Bonsucro—alongside many other
the prices that coffee farmers receive organizations that are part of the Living
(Evidensia, 2020; DeFries et al., 2017). As Income Community of Practice—have
Figure 5 shows, farmers certified under been working to develop the concept of

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living income reference prices in coffee. For may opt to purchase coffee from farmers and
instance, Fairtrade released the first price countries at a lower price (Stencel, 2008).
reference for Colombian coffee farmers
Other actors have also put in place measures
in July 2021. It aims to indicate the price
to increase farm gate prices and mitigate
needed for full-time Fairtrade farmers with
volatility. For instance, the governments
adequate, sustainable productivity levels to
of Rwanda and Brazil have established
earn a living income that gives them and their
minimum prices for green beans considering
families a sustainable livelihood (Fairtrade
average costs of production, minimum profit
International, 2021).
margins for farmers, and international prices
As an example, the recommended (Cashin & McDermott, 2002). They buy
Fairtrade Living Income Reference Price farmers’ coffee at that price when market
for conventional coffee is COP 9,900 prices fall below the minimum guaranteed
(about USD 2.75) per kilogram of dried price. Other governments have also set up
parchment coffee and COP 11,000 (USD coffee funds to alleviate the effects of low
3.06) per kilogram for Organic. These prices prices. For instance, Colombia has created a
factor in the costs for farmers to adopt the fund of up to USD 34 million to help coffee
required agricultural practices to achieve farmers (subsidies based on production/
sustainable yield levels and to pay a living tonnes), and Kenya has implemented a
wage to any workers they may hire (Fairtrade series of legislative actions, including a USD
International, 2021). 15 million subsidy program, to support
coffee farmers affected by low international
Other tools are also available to help coffee
prices (FAO, 2018).
buyers raise the price they pay to farmers,
such as the Living Income Benchmark. This However, some studies have found that in
tool helps users understand the difference a global market economy, commodity price
or gap between the actual household income shocks in the coffee sector are so long-
and a basic, decent standard of living income lasting that they make mechanisms such as
for a farming household for a given sector price stabilization schemes, buffer stocks,
and country. When coffee buyers know the price ceilings and floors, and guaranteed
living income gap, they can define price prices unviable in the long term (Cashin
differentials to help close it (The Living & McDermott, 2002; Lewin et al., 2004).
Income Community of Practice, 2021). For instance, price floors may not reflect
Several coffee buyers are involved in living farmers’ production costs in the end (Gomes
income initiatives, including Nestlé, Tchibo, & Teixeira, 2019). Experts also point
and Keurig (Cordes et al., 2021). It remains out that price guarantees can encourage
to be seen how these measures will be applied the overproduction of coffee and lead to
in practice, how they will be adjusted to debilitating prices in the long run (Gebre,
market dynamics (i.e., inflation and exchange 2020). They can promote inefficiency and
rate fluctuations), and how it will affect coffee low quality, as farmers may be reluctant
farmers if they are not applied across the to implement good practices if they have a
board, as traders in a free-market economy guaranteed buyer. In addition, not all coffee-
growing countries can afford to support

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farmers, creating disadvantages for poorer income reference price benchmarks that
nations (Lewin et al., 2004). require further use and analysis). They also
have had little impact in terms of defining
Large roasters have also established support
and maintaining fair prices for farmers in
programs for farmers—for instance, to access
the long run that reward them for facing
loans and funds, technical assistance, and
risks, sustaining a wealthy value chain, and
training on business planning and price risk
adopting good social and environmental
management (Starbucks Coffee Company,
practices. In other words, there is a need to
2020). Other roasters and retailers are
share financial gains with farmers for the
working to define living income reference
societal value and benefits they create by
prices or trading directly to pay higher prices
implementing sustainable practices.
to coffee farmers. There are examples of
roasters involved in direct trade that have Tackling the recurring cycle of a brief period
bought high-quality coffee for a price that of high coffee prices followed by an extended
is 25% to 30% above the Fair Trade and period of low prices will require coordinated
Organic combined price (Oden, 2021). actions from many actors. What is most
needed is not market intervention but rather
However, these measures do not necessarily
market cooperation among exporters, with
mean a proportional increase in the price the
the involvement of importers (Amrouk, 2018;
individual farmer, farmworkers, and others
Bellweather Coffee, n.d.), and governments
obtain (Rogers, 2019). In practice, the use
in producing and consuming countries
and distribution among farmers of premiums
and VSSs to ensure that the global coffee
or higher prices paid by these specialty buyers
market protects the livelihoods of millions
and direct traders is not usually verified or
of smallholder producers. Actors along the
monitored (Baptista & Jenkins, 2017, p. 32;
chain can put the following measures in place
Nordic Approach, n.d.).
to help farmers get better prices and greater
value for their VSS-compliant coffee.

A way forward: Increasing Promote value addition and more


efficient and resilient production
farm prices and sharing systems. Governments in producing and
value to build sustainable consuming countries, buyers, exporters,
extension service providers, and standard-
and resilient coffee systems
setting bodies can collaborate to help farmers
produce and maintain high-quality coffee
Despite the efforts of VSSs, private sector
beans, as farmers can negotiate better prices
actors, and governments in producing
even if they comply with VSSs. They can
countries to provide farmers better incomes
also support farmers’ groups in investing in
and mitigate their vulnerability in a volatile
roasting facilities when coffee is consumed
market, in the current free-market economy
locally or in neighbouring markets (i.e., urban
we live in and with a highly competitive
centres) as they can obtain higher prices
sector, the effects of these initiatives alone
and margins for roasted coffee. Farmers can
have been temporary (excluding the living
leverage voluntary standards when the market

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demands VSS-compliant coffee, and these and environmental costs of growing coffee
supporting actors can help them in different typically borne by society, which should be
ways to comply and maintain certification reflected in the prices paid to producers and,
(Elder et al., 2021, p. 168). ultimately, the final price the consumer pays.
This can support raising the competitiveness
Jointly, these actors can also support farmers
of VSS-compliant coffee and increase demand.
in adopting more efficient and diversified
production systems that can help them Governments, traders, standard-setting
to remain competitive when coffee prices bodies, and extension services can support
are depressed and generate other revenue farmers and farmer groups in producing
streams—for instance, by maintaining VSS-compliant coffee by establishing direct
records of inputs used, costs, and yields; and personal relationships with roasters
incorporating technology and equipment in importing countries. This could help in
when appropriate and maintaining it well; understanding the value of cultivating coffee
and helping farmers cultivate other crops sustainably and the challenges farmers face
or engage in off-farm employment. They and determine prices that adequately reflect
can also help farmers build resilience to sustainability investments by farmers. This
climate change by maintaining good soil could be done by developing/using “direct
quality, capturing rainwater, and adopting trade” digital platforms and e-commerce
agroforestry. VSSs can use the training and channels. VSSs can encourage compliant
monitoring activities they conduct with farmers to use these channels and to develop
farmers to improve their production efficiency branding and messaging to communicate the
and adaptation capabilities. environmental, economic, and social benefits
of producing coffee that complies with VSSs
Increase demand for VSS-compliant
when engaging with buyers.
coffee in producing countries. Stimulating
demand in producing countries is considered Reward farmers for managing risks (i.e.,
an effective way to increase prices in the production, market, climate), applying
coffee sector. According to the FAO (2018), sustainable production practices
the greatest impact on coffee prices would and environmental stewardship, and
come from actions designed to control coffee achieving positive results. Governments
production and/or stimulate demand. This in producing countries have also started to
is particularly relevant for VSS-compliant reward coffee farmers for their actions and
coffee to balance the existing oversupply and positive results obtained in protecting the
support farmers in obtaining higher prices environment. For instance, the Indonesian
for their coffee that reflect sustainability government, with the support of a large coffee
investments and external benefits. buyer, partnered with the non-governmental
Governments in producing countries can play organization Rikolto to create a payment for
this role by collaborating with roasters, coffee ecosystem services model in Jambi, one of
shops, retailers, and VSSs via education and the most deforested regions of Indonesia. It
awareness-raising campaigns and promotional is seen as a cost-effective way to compensate
activities. Governments can also help define farmers and Indigenous communities for their
accounting methods that internalize the social environmental maintenance and provision of

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ecosystem services. These payments can be verify data related to carbon sequestered
monetary or in-kind through the provision of in farms (Indigo Ag, n.d.; Ioannou, 2019).
training, investments in infrastructure, and Along this line, Rainforest Alliance has
others (Goossens, 2020). defined the concept of sustainability
investments in its new Sustainable
Governments can also reward coffee farmers
Agricultural Standard Certification Program.
for reducing and capturing carbon emissions,
These are mandatory or in-kind investments
as they contribute to achieving nationally
that buyers of compliant goods must give to
determined contributions as part of the
certified producers to help them meet the
Paris Agreement. For instance, the European
farm requirements of the standard. These
Commission plans to reward farmers in
kinds of initiatives can also help private
its jurisdiction for removing carbon by
sector actors comply with reporting and due
implementing sustainable agricultural
diligence requirements such as those the EU
practices, such as forest conservation,
or the Supply Chain Act in Germany defines.
agroforestry, or restoration of peatlands,
These requirements impose obligations on
that are verified with a given methodology
companies that source their products from
(Climate Action, n.d.; Taylor, 2022).
developing and emerging economies to
Governments from other jurisdictions can
comply with human rights and environmental
also adopt these types of measures as a way
standards (Sharma & Kaps, 2021).
to create value for using more sustainable
agricultural practices in coffee production. VSSs would need to align with these
approaches, including by integrating
Private sector actors also have a responsibility
performance metrics in their scheme, which
to reward farmers for adopting sustainable
can help value chain actors comply with the
agricultural practices that yield positive
specifics of these regulations. Furthermore,
results and share the cost of using and
VSSs can also help farmers use technology
maintaining these practices. Some companies
to facilitate the collection and reporting of
(i.e., Indigo Agriculture) are working to offer
related data (i.e., volume of CO2 emissions
farmers financial incentives to implement
reduced, removed; reforested area in a given
regenerative practices to capture atmospheric
period), provide supporting evidence, and
carbon dioxide (CO2) from agricultural
implement more robust verification and
soil and using digital innovations such as
assurance systems of VSS-compliant practices.
software imagery analysis to measure and
Offering financing such as loans and blended
finance linked to sustainability performance
Private sector actors also have a can be a way to reward farmers and promote
access to finance in coffee-producing
responsibility to reward farmers for
communities (Voora et al., 2022, p. 208).
adopting sustainable agricultural Some leading businesses already implement
practices that yield positive results and such mechanisms. For example, BNP Paribas
share the cost of using and maintaining teamed with Neumann Kaffe Gruppe in 2019
these practices. to establish a EUR 25 million loan facility to
support more than 100,000 coffee farmers

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in 10 countries and offer them sustainability is Fairtrade’s pricing table, which shows the
training and resources (BusinessGreen, 2019). minimum prices of conventional, Organic,
Another example is the Mercon Group, which and Fairtrade prices as well as the premium
offers coffee farmers sustainability-linked (Fairtrade International, n.d.). Governments
loans coupled with technical assistance. Loan can also use mechanisms to better map
interest rates are linked to sustainability and analyze production costs. Knowing
results, which are measured using an index these costs will give buyers and roasters an
aligned with Rainforest Alliance criteria objective way to determine the FOB prices,
(Voora et al., 2022). VSSs can collaborate guaranteeing a minimum level of profitability
with governments and financial service for their farmer partners (Cadena, 2019, p.
providers to define these measures and 13) and ensuring long-term viability.
inform the performance indicators used to
Building sustainable and resilient coffee
monitor the progress of farmers in achieving
production systems is critical. It requires
positive environmental results (Voora
industry actors to coordinate to ensure that
et al., 2022).
farmers have the conditions needed to adopt
Promote an enabling institutional more sustainable practices and that they
environment. The better the institutional are rewarded fairly. The measures that VSSs
environment, the fairer the prices paid to implement can help to boost coffee prices
coffee farmers (Lerner et al., 2021). This and farmers’ incomes. However, many others
includes governments of producing countries are needed to ensure that different aspects
investing in infrastructure and better access of farming operations, value chain dynamics,
to ports and roads, as well as electricity and market demand, and an institutional
communications. Countries with organized environment are favourable to support the
coffee associations can better protect farmers continued expansion of sustainable coffee
from volatile prices in the global market. For production and consumption by rewarding
instance, the Coffee Institute of Costa Rica farmers fairly.
(ICAFE) has the authority to reject a coffee
transaction between a buyer and a seller
when, for example, it considers the price
to be too low.

Require price transparency in coffee


transactions. Encouraging transparency
in prices and coffee transactions is vital.
Roasters and buyers can ask for or invest in
mechanisms that can trace the coffee back
to its origin and disclose the prices paid to
the farmer. This will help coffee roasters
understand the destination of the premiums
they pay and act to ensure that farmers
receive those premiums. VSSs can also help to
make coffee prices transparent. One example

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References

AgriLogic. (2018). Value chain analysis for the coffee sector in Rwanda (Report for the CBI). Centre
for the Promotion of Imports from developing countries. https://www.cbi.eu/sites/default/files/
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IISD.org/ssi 33
The Sustainable Commodities Marketplace Series provides a market performance overview
and outlook for key agricultural commodities that comply with a number of voluntary
sustainability standards (VSSs), focusing on global sustainable consumption and production.
Each year, the series focuses on a different overarching theme, with individual reports for
that year devoted to providing a market update for a chosen commodity. These reports
are designed to be accessible and relevant for a range of audiences, including supply chain
decision makers, procurement officers, policy-makers and producers. The series builds on
The State of Sustainable Markets 2021, a joint publication from IISD, the International Trade
Center (ITC), and the Research Institute of Organic Agriculture (FiBL), which examines over a
dozen sustainability standards for various commodities.

The Global Market Report analyzes trends in coffee production, consumption, trade flows,
and other relevant areas. It uses 2019 data for coffee production that is VSS-compliant,
given that this was the most current data available when we conducted the analysis.
The report also examines prices and margins in the coffee sector, looking at how VSSs
contribute to increasing farm prices. It also provides recommendations to VSSs and other
actors to increase the price and income that farmers obtain for their coffee and build
sustainable and resilient coffee systems.

IISD's State of Sustainability Initiatives (SSI) is an international research project that aims to
advance sustainable and inclusive value chains. For over a decade, the SSI has been providing
credible and solution-oriented analysis and dialogue on voluntary sustainability standards
(VSSs) and their potential to contribute to sustainable development outcomes.

Steffany Bermudez and Vivek Voora are both first authors of this report. Steffany Bermudez worked on
coffee prices and examining sustainable consumption preferences in developing countries in the market
overview section. Vivek Voora worked on the market overview section examining supply and demand
dynamics, production trends and forecasting, yields and climate resilience in sustainable coffee production.

Peer reviewers: Judith Ganes, Niels Haak, and Aimee Russillo

Acknowledgements

We would like to acknowledge the contributions of Audrey Wagner, Alix Albright and Jennah Landgraf
in conducting research on sustainable consumption preferences in developing countries and collecting
sustainable sourcing information from coffee buyers.

©2022 The International Institute for Sustainable Development


Published by the International Institute for Sustainable Development. In collaboration with ITC and Fibl

Head Office
111 Lombard Avenue, Suite 325 Tel: +1 (204) 958-7700
Winnipeg, Manitoba Website: www.iisd.org
Canada R3B 0T4 Twitter: @IISD_news
With the support of the Swedish government

iisd.org

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