Today, coffee is the world’s second most traded
commodity in both volume and trade, and has grown to fundamental in the growth
of many developing economies through export revenue. These exports “entail the
potential to reduce rural poverty” (Akoyi, 2016), and as Reinecke et al (2012)
acknowledge, approximately 25 million globally “depend directly directly on
coffee farming for their livelihoods”.

 

Changing consumer preferences on being
sustainability-conscious have prompted private coffee firms to place a greater importance on
corporate social responsibility and sustainability (Hamann et al, 2014)

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Along with the emergence of voluntary sustainability standards
like Fairtrade and Utz Certified, Private, profit-seeking MNCs began adopting
these standards to market their brands, but as many of these standards were
rigorous and demanding, started to develop their own private sector
sustainability standards (PSSS). (Giovannucci, 2005). The two most well-known PSSS
are Nestle’s Nespresso AAA Sustainable Quality and Starbucks’ C.A.F.E.

Practices.

 

This scope of this essay will analyse the
effectiveness of PSSS on socio-economic sustainability the coffee industry in
line with 2 of the socio-economic SDGs set by the UN (2018). The analysis will
attempt to provide a justification for why PSSS alone will not be enough to
meet each of these objectives, followed by an exploration of factors which may
render PSSS ineffective.

 

 

 

2. Sufficient Sustainability

 

In order to address if PSSS sufficient to ensure
sustainable business practice, it is imperative to first what can be considered
sufficiently sustainable.

 

Svensson, Wood and Callaghan state
that a corporate model for sustainable business practice needs to contribute to
stakeholder value, which include not only their owners and investors, but also
their employees, suppliers, customers and societies. (Svensson, Wood and
Callaghan, 2009). In the context of the coffee industry, these would typically
refer to the socio-economic impact of the operations of these private firms on
coffee-producing communities. As Sachs (2015) points out the two SDGs set by
the UN with most relevance to the socio-economic sustainability aspects of the
coffee industry are:

i) SDG 1: Ending Poverty, calls for the end of extreme
poverty by 2030;

ii) SDG 8: Decent Work and
Economic Growth, calls for coffee industry to ensure the “entire
supply chain is providing decent work, labor standards and labor rights”;

Whether PSSS has brought us any closer to achieving
these goals will be used to assess if they have been sufficient in
sustainability.

 

3. Poverty

Though these private firms say otherwise in their
marketing, there is evidence that PSSS are not as effective in alleviating
economic sustainability issues like poverty, and “low and unstable prices and
incomes”. (Macdonald,
2007)

 

Although Starbucks and Nespresso assure producers an
average higher price than the international market (Reinecke, 2012), it was
seen in Mexico where Starbucks C.A.F.E. Practices resulted in a loss of control over the production
process by the producers and “ultimately undercutting the price they received”
(Renard, 2010).

 

Though Starbucks pays higher than average prices for
the specialty coffee industry, in comparison to NGO sustainability standards like
Fairtrade, “producers generally receive lower prices from Starbucks”.

(Macdonald, 2007)

 

For improvments to income, studies into Nespresso’s operations in
Colombia found that Nespresso’s AAA (in collaboration with Fairtrade) had did
not 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 reduce
poverty since their introduction to the region. (Ayoki, 2015). In Nicaragua,
findings suggested that “important livelihoods insecurities, including low
incomes” persisted among small-scale producers (Bacon, 2008).

 

Furthermore, the study on Nespresso’s
AAA also states that “households, in the face of shocks, counteract by selling
productive assets like cattle”, which decrease their income diversification and
further increases their dependence on coffee for income, which make them “more
extremely 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. practices
promote “fair treatment of laborers, and advise against zero tolerance indicators”
and gender equality (Starbucks, 2017). these private standards fail to include
farmer participation in the development of such standards (Giovannucci, 2005).

It is evident Starbucks C.A.F.E Practices seeks to guarantee the supply chain
of its coffee with quality meeting its standards as opposed to the
socio-economic development of the producer communities (Renard, 2010). This can be seen as well in Nespresso’s AAA, where
producers are “selected based on coffee quality”, and promotes exclusion,
stating that “only the top 1 to 2% of the
world’s green coffee crop meet their requirements”. (Reinecke, 2012), as
opposed to inclusion and developing these communities. For Nespresso’s AAA, Garcia-Cordona (2016)
found that there are no published rigorous impact studies about its effects
related to revenues, and whether they improve the living conditions and
farmers’ livelihoods.

 

Furthermore, there have been cases of these private
firms being implicated in illegally grown coffee. In 2007, Starbucks was
implicated in receiving illegally grown coffee in Sumatra, Indonesia. However,
this was when only about 50% of Starbucks’ coffee was sourced under C.A.F.E
practices, compared to 99% today.

 

In Colombia, producers when faced these stricter
standards on quality like Nespresso AAA incurred higher labour costs and higher
input costs like fertilisers. These farmers were prone to reacting by
“restructuring labour-sourcing regimes at workers’ expense” (Garcia-Cordona, 2016). In the
face of demand shocks, certain producers also resort to increasing child labour
to maintain their supply of coffee (Cortés, Santamaría et al. 2014)

 

Nestle has also had allegations of being associated
with Brazilian plantations using of slave labour due to negligence in their
standards, where trafficked people had to work on coffee farmers for “little to
no pay” with inadequate living conditions. )Hodal, 2016). Though it can be argued that Nestlé’s
admission 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’s
supply chain, even without condoning it, it calls into question their
effectiveness in being able to promote a sustainability standard.

 

Though there have several reports supporting that
these programs have been indeed effective. In a report by Conservational
International, farms on the program have seen success in providing their
workers with “substantive wages and other
provisions including education and health care”. (2012). Nespresso AAA has also
been found to improve perceptions on living conditions such as household health
and finances (Garcia-Cordona, 2016), however this is not indicative of whether
this has actually improved conditions tangibly. Starbucks has also been
shown failure in improving sustainable rural development. (Macdonald, 2007). Another important finding is that
producers may not be fully aware of the implications brought by PSSS, with the
study showing that farmers motivation to participate in Nespresso AAA was to
secure higher prices, rather than to “improve farming and management practices.”
(Garcia-Cardona, 2016).

 

This reinstates
that though PSSS can sometimes improve living conditions in certain
circumstances, this can come at the cost of exclusion, and the compromise of labour
rights and standards.

 

5. Factors affecting effectiveness of PSSS

 

Competition between standards

 

The emergence
of PSSS from MNCs have increased the conflict of interests in the coffee
industry, with each group intending to maintain their positions in their vested
interests. These private standards may be in contradiction with other standards
and may not be convenient for their own objectives, and hence why MNCs rather “invest resources
in the development of alternative standards” (Reinecke,
2012).

 

In Mexico, Starbucks CAFÉ was found to be competing with Fairtrade, the
latter which has evidence indicating its greater impact on socio-economic
sustainability, resulting in actual benefits to smallholder livelihoods and “in
many cases decreased their vulnerability” (Bacon, 2008). As Renard points out
(2010), the different objectives between the private firm standards create
confusion for the coffee consumer. While the Fairtrade label guarantees a
minimum price, as do other certifications, some of these private firm standards
themselves do not.

 

 

These mean that private firm standards can actually be
counter-productive by interfering with other sustainability standards that
actually make an impact. Convergence of standards has also made it difficult to
judge the contributions of PSSS and NGO activity like Fairtrade in isolation.

 

Scale

For corporations like Nestle, sustainably-grown coffee
by Nespresso is a small proportion of Nestlé’s total purchases, around 5% of
Nestlé’s total volume

Fig 1: Volume of coffee produced and sold by voluntary
sustainability standards

 

 (Minten et al)

 

As seen from
Fig 1, PSSS
like Nespresso’s AAA and Starbucks C.A.F.E. Practices are very small in scale
compared to the other voluntary sustainability standards in terms of volume
produced and sold, which questions how much of in impact PSSS can have on the entire
coffee industry.

 

A more mainstream certification like Utz Certified had in
2005 “63 million pounds of certified green coffee”, this number pales in
comparison to the rest of the coffee industry at “14.7 billion pounds of
coffee produced worldwide”. (Bitzer, 2008). This shows while sustainability need
to cover a greater proportion of the industry in order to sufficient impact
socio-economic sustainability issues.

 

 

Business interests / Greenwashing

 

These PSSS typically pursue
“more business-related objectives, such as traceability, and product quality” (Reinecke, 2012) than the NGO
standards they collaborate with (e.g. Fairtrade, Organic). They are more
concerned with the supply chain, and emphasizes this over the interests of the
producers (Renard, 2010).

Private firms also have their own business interests in mind, as opposed to
promoting socio-economic sustainable business practices, and corporations
undertake ‘greenwashing’ strategies where standards and certifications are used
to make them appear sustainable to consumers. This was seen back in 2009, where
Starbucks only had 6% of its coffee Fairtrade certified by 2009, while the
others were being produced on Starbucks’ own norms, Starbucks receives
publicity and benefits to its image. (Renard, 2010)

 

Bias

 

These certifying bodies involved
with the PSSS process themselves are prone to put their own objectives ahead of
sustainability goals, such as the NGO that designed and implemented C.A.F.E
Practices, Conservational International, being financed by Starbucks itself. (Renard, 2010). It was also found
that virtually all of the published information accessible that address the AAA
programme are published by Nestle-Nespresso themselves, which may not be impartial.

(Garcia-Cordona, 2016)

 

Lack of transparency

 

The benefits
of these private standards have not been consistently and accurately documented,
as found by Giovanucci (2005), with the primary beneficiaries of these
initatives not being clearly evident. Though benefits to working conditions and
infrastructure 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 on
improving 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 PSSS
have attempted to address issues in economic sustainability, particularly
related to poverty and incomes through higher prices, there is not enough
progress to show sufficient impact to end poverty. The actions of these private firms
are 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 it
requires more cooperation with NGO initiatives like Fairtrade, which has been
shown to have significant improvements to socio-economic sustainability and are
much larger in outreach. PSSS has its limitations, but as the private firms
play an increasingly larger role in shaping the “incomes and working conditions of
marginalised workers and producers” (Macdonald, 2007), it may be meaningful to encourage PSSS
be shaped more in line with NGO initiatives.

 

 

 

 

 

References:

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