Today, coffee is the world’s second most tradedcommodity in both volume and trade, and has grown to fundamental in the growthof many developing economies through export revenue. These exports “entail thepotential to reduce rural poverty” (Akoyi, 2016), and as Reinecke et al (2012)acknowledge, approximately 25 million globally “depend directly directly oncoffee farming for their livelihoods”. Changing consumer preferences on beingsustainability-conscious have prompted private coffee firms to place a greater importance oncorporate social responsibility and sustainability (Hamann et al, 2014) Along with the emergence of voluntary sustainability standardslike Fairtrade and Utz Certified, Private, profit-seeking MNCs began adoptingthese standards to market their brands, but as many of these standards wererigorous and demanding, started to develop their own private sectorsustainability standards (PSSS). (Giovannucci, 2005).
The two most well-known PSSSare Nestle’s Nespresso AAA Sustainable Quality and Starbucks’ C.A.F.E.Practices. This scope of this essay will analyse theeffectiveness of PSSS on socio-economic sustainability the coffee industry inline with 2 of the socio-economic SDGs set by the UN (2018). The analysis willattempt to provide a justification for why PSSS alone will not be enough tomeet each of these objectives, followed by an exploration of factors which mayrender PSSS ineffective.
2. Sufficient Sustainability In order to address if PSSS sufficient to ensuresustainable business practice, it is imperative to first what can be consideredsufficiently sustainable. Svensson, Wood and Callaghan statethat a corporate model for sustainable business practice needs to contribute tostakeholder value, which include not only their owners and investors, but alsotheir employees, suppliers, customers and societies. (Svensson, Wood andCallaghan, 2009).
In the context of the coffee industry, these would typicallyrefer to the socio-economic impact of the operations of these private firms oncoffee-producing communities. As Sachs (2015) points out the two SDGs set bythe UN with most relevance to the socio-economic sustainability aspects of thecoffee industry are:i) SDG 1: Ending Poverty, calls for the end of extremepoverty by 2030;ii) SDG 8: Decent Work andEconomic Growth, calls for coffee industry to ensure the “entiresupply chain is providing decent work, labor standards and labor rights”;Whether PSSS has brought us any closer to achievingthese goals will be used to assess if they have been sufficient insustainability. 3. Poverty Though these private firms say otherwise in theirmarketing, there is evidence that PSSS are not as effective in alleviatingeconomic sustainability issues like poverty, and “low and unstable prices andincomes”.
(Macdonald,2007) Although Starbucks and Nespresso assure producers anaverage higher price than the international market (Reinecke, 2012), it wasseen in Mexico where Starbucks C.A.F.E.
Practices resulted in a loss of control over the productionprocess by the producers and “ultimately undercutting the price they received”(Renard, 2010). Though Starbucks pays higher than average prices forthe specialty coffee industry, in comparison to NGO sustainability standards likeFairtrade, “producers generally receive lower prices from Starbucks”.(Macdonald, 2007) For improvments to income, studies into Nespresso’s operations inColombia found that Nespresso’s AAA (in collaboration with Fairtrade) had didnot have a “significant impact on upgrading trajectories and incomes”(Garcia-Cordona, 2016). In other regions like Uganda as well,while theses collaborative sustainability standards (both MNCs and NGOs)promise to”poverty reduction and improving incomes for producers” in the coffee sectors,reports have shown that standards set by MNCs NGOs have failed to reducepoverty since their introduction to the region. (Ayoki, 2015). In Nicaragua,findings suggested that “important livelihoods insecurities, including lowincomes” persisted among small-scale producers (Bacon, 2008). Furthermore, the study on Nespresso’sAAA also states that “households, in the face of shocks, counteract by sellingproductive assets like cattle”, which decrease their income diversification andfurther increases their dependence on coffee for income, which make them “moreextremely vulnerable to shocks and unable to mitigate risk” (Garcia-Cordona, 2016) 4. Decent work, labor standards and labor rights While reports from Starbucks’ claim C.
A.F.E. practicespromote “fair treatment of laborers, and advise against zero tolerance indicators”and gender equality (Starbucks, 2017). these private standards fail to includefarmer participation in the development of such standards (Giovannucci, 2005).It is evident Starbucks C.A.F.
E Practices seeks to guarantee the supply chainof its coffee with quality meeting its standards as opposed to thesocio-economic development of the producer communities (Renard, 2010). This can be seen as well in Nespresso’s AAA, whereproducers are “selected based on coffee quality”, and promotes exclusion,stating that “only the top 1 to 2% of theworld’s green coffee crop meet their requirements”. (Reinecke, 2012), asopposed to inclusion and developing these communities. For Nespresso’s AAA, Garcia-Cordona (2016)found that there are no published rigorous impact studies about its effectsrelated to revenues, and whether they improve the living conditions andfarmers’ livelihoods.
Furthermore, there have been cases of these privatefirms being implicated in illegally grown coffee. In 2007, Starbucks wasimplicated in receiving illegally grown coffee in Sumatra, Indonesia. However,this was when only about 50% of Starbucks’ coffee was sourced under C.A.
F.Epractices, compared to 99% today. In Colombia, producers when faced these stricterstandards on quality like Nespresso AAA incurred higher labour costs and higherinput costs like fertilisers. These farmers were prone to reacting by”restructuring labour-sourcing regimes at workers’ expense” (Garcia-Cordona, 2016). In theface of demand shocks, certain producers also resort to increasing child labourto maintain their supply of coffee (Cortés, Santamaría et al.
2014) Nestle has also had allegations of being associatedwith Brazilian plantations using of slave labour due to negligence in theirstandards, where trafficked people had to work on coffee farmers for “little tono pay” with inadequate living conditions. )Hodal, 2016). Though it can be argued that Nestlé’sadmission of their involvement with the alleged plantations is positive,promoting “greater transparency”and “more attention to human rights.
“, such incidents like trafficking could happen on Nestle’ssupply chain, even without condoning it, it calls into question theireffectiveness in being able to promote a sustainability standard. Though there have several reports supporting thatthese programs have been indeed effective. In a report by ConservationalInternational, farms on the program have seen success in providing theirworkers with “substantive wages and otherprovisions including education and health care”. (2012). Nespresso AAA has alsobeen found to improve perceptions on living conditions such as household healthand finances (Garcia-Cordona, 2016), however this is not indicative of whetherthis has actually improved conditions tangibly.
Starbucks has also beenshown failure in improving sustainable rural development. (Macdonald, 2007). Another important finding is thatproducers may not be fully aware of the implications brought by PSSS, with thestudy showing that farmers motivation to participate in Nespresso AAA was tosecure higher prices, rather than to “improve farming and management practices.”(Garcia-Cardona, 2016). This reinstatesthat though PSSS can sometimes improve living conditions in certaincircumstances, this can come at the cost of exclusion, and the compromise of labourrights and standards.
5. Factors affecting effectiveness of PSSS Competition between standards The emergenceof PSSS from MNCs have increased the conflict of interests in the coffeeindustry, with each group intending to maintain their positions in their vestedinterests. These private standards may be in contradiction with other standardsand may not be convenient for their own objectives, and hence why MNCs rather “invest resourcesin the development of alternative standards” (Reinecke,2012). In Mexico, Starbucks CAFÉ was found to be competing with Fairtrade, thelatter which has evidence indicating its greater impact on socio-economicsustainability, resulting in actual benefits to smallholder livelihoods and “inmany cases decreased their vulnerability” (Bacon, 2008). As Renard points out(2010), the different objectives between the private firm standards createconfusion for the coffee consumer.
While the Fairtrade label guarantees aminimum price, as do other certifications, some of these private firm standardsthemselves do not. These mean that private firm standards can actually becounter-productive by interfering with other sustainability standards thatactually make an impact. Convergence of standards has also made it difficult tojudge the contributions of PSSS and NGO activity like Fairtrade in isolation. ScaleFor corporations like Nestle, sustainably-grown coffeeby Nespresso is a small proportion of Nestlé’s total purchases, around 5% ofNestlé’s total volumeFig 1: Volume of coffee produced and sold by voluntarysustainability standards (Minten et al) As seen fromFig 1, PSSSlike Nespresso’s AAA and Starbucks C.
A.F.E. Practices are very small in scalecompared to the other voluntary sustainability standards in terms of volumeproduced and sold, which questions how much of in impact PSSS can have on the entirecoffee industry. A more mainstream certification like Utz Certified had in2005 “63 million pounds of certified green coffee”, this number pales incomparison to the rest of the coffee industry at “14.
7 billion pounds ofcoffee produced worldwide”. (Bitzer, 2008). This shows while sustainability needto cover a greater proportion of the industry in order to sufficient impactsocio-economic sustainability issues.
Business interests / Greenwashing These PSSS typically pursue”more business-related objectives, such as traceability, and product quality” (Reinecke, 2012) than the NGOstandards they collaborate with (e.g. Fairtrade, Organic). They are moreconcerned with the supply chain, and emphasizes this over the interests of theproducers (Renard, 2010).Private firms also have their own business interests in mind, as opposed topromoting socio-economic sustainable business practices, and corporationsundertake ‘greenwashing’ strategies where standards and certifications are usedto make them appear sustainable to consumers. This was seen back in 2009, whereStarbucks only had 6% of its coffee Fairtrade certified by 2009, while theothers were being produced on Starbucks’ own norms, Starbucks receivespublicity and benefits to its image.
(Renard, 2010) Bias These certifying bodies involvedwith the PSSS process themselves are prone to put their own objectives ahead ofsustainability goals, such as the NGO that designed and implemented C.A.F.EPractices, Conservational International, being financed by Starbucks itself. (Renard, 2010). It was also foundthat virtually all of the published information accessible that address the AAAprogramme are published by Nestle-Nespresso themselves, which may not be impartial.(Garcia-Cordona, 2016) Lack of transparency The benefitsof these private standards have not been consistently and accurately documented,as found by Giovanucci (2005), with the primary beneficiaries of theseinitatives not being clearly evident. Though benefits to working conditions andinfrastructure are more easily detectable, for economic issues like incomes,these figures can be hard to track and lost or diluted along the supply chain.
6. Conclusion To conclude, after addressing the impacts of PSSS onimproving poverty, incomes and working conditions (in line with the UN SDGs),it is evident that PSSS alone are not sufficient. However, it is clear that while PSSShave attempted to address issues in economic sustainability, particularlyrelated to poverty and incomes through higher prices, there is not enoughprogress to show sufficient impact to end poverty. The actions of these private firmsare evidently not only ineffective in improving living and working conditions,but potentially worsening these conditions (as in the case of Nestle trafficking,child and slave labour). This reinstates that PSSS is not enough and itrequires more cooperation with NGO initiatives like Fairtrade, which has beenshown to have significant improvements to socio-economic sustainability and aremuch larger in outreach. PSSS has its limitations, but as the private firmsplay an increasingly larger role in shaping the “incomes and working conditions ofmarginalised workers and producers” (Macdonald, 2007), it may be meaningful to encourage PSSSbe shaped more in line with NGO initiatives.