...

COFFEE SUPPLY CHAIN CHALLENGES

Around 25 million farmers depend on coffee for their livelihood. Coffee is a joy for many – but the way it is produced and traded can create abuse.

The market price of coffee follows a world index which fluctuates in a speculative economy. When prices fall, farmers may not receive enough money to cover the investment they’ve made during the year to grow their coffee crop

Coffee is grown in developing countries where life expectancy, education levels and incomes are low and have weak law enforcement on labour rights

 The conventional coffee trade has complex supply chains which make it difficult to get a true picture of working conditions at farm level, including seasonal workers

Women comprise half the coffee growing workforce, but they are often excluded from training and decisionmaking at household, farm and organisational levels

Higher-quality coffee can demand a higher price, but even if farmers are aware of this, they may lack the specialist knowledge, equipment and facilities needed to produce it

Young people are less inclined to follow their parents into coffee farming, yet they are more likely to adopt new technology and implement modern farming techniques which are crucial to increasing quality and productivity. This is particularly important with challenges like climate change. The lack of a next generation of young farmers could affect the sustainable supply of high-quality coffee

UNION DIRECT TRADE WAS DEVELOPED TO TACKLE THESE ISSUES

Climate change is coffee’s biggest long-term threat. Rising temperatures, increasing weather volatility, increased prevalence of pests, and disease associated with climate change all contribute to lower yields and lower quality, with a damaging effect on farmers' livelihoods. Prolonged drought, when combined with poverty, forces farmers out of coffee production and contributes to human migration.

Without action the global area suitable for coffee production is predicted to decline by 50 per cent by 2050, and yet demand is expected to double (World Coffee Research 2017).

 

SPECIALITY VS COMMODITY COFFEE
WHAT DOES IT MEAN?

COMMODITY GRADE COFFEE

Coffee, when treated as a commodity, is defined as a uniform product that is interchangeable with another coffee of the same type. This makes up the majority of coffee consumed around the world. Commodity coffee is traded on the New York Coffee Exchange, and the price is set on the world market without regard to intrinsic coffee quality.

Commodity coffee offers neutral or negative flavour attributes without provenance, which means buyers switch to the lowest price offer on the market with no commitment to long-term relationships.

Volatile pricing means farmers cannot plan for their future.

 

SPECIALITY GRADE COFFEE

The Speciality Coffee Association (SCA) defines Speciality Coffees as those with positive flavour attributes, and which are assigned a score of 80+ based on numerous attributes which contribute to the taste. These evaluations are based on fixed criteria which are used through the speciality coffee industry. At Union we only buy and source Speciality Grade, 100 per cent Arabica, and select our coffees through a careful quality evaluation which includes tastings (cuppings) and farm visits.

Speciality grade coffee production needs more investment than commodity coffee, as it is often grown on higher altitudes with steep slopes which are difficult to clamber up. Care and attention to detail is required through the season. Hand-picking is needed to select perfectly ripe cherries. Processing must be carried out with exceptional care. Yield is lower as low quality and defects are removed.

 

Image: Speciality coffee production is meticulous work. Here defects are removed by handsorting the beans.

We focus solely on high-quality Speciality Coffee because we believe it is the route to long-term sustainability for coffee farmers. Farmers can be proud of what they produce and increase their income, and we get to enjoy delicious coffee – everyone wins. This is, in our view, the future of coffee.

STEVEN CUPPING IN MARABA, RWANDA

Cupping (tasting) is the way we evaluate each coffee. At Origin we cup with the local cuppers and quality-control specialists, enabling us to give direct feedback and to select the coffees we will purchase.

In Maraba, Rwanda, we helped teach cupping skills to National Rwandese. In Yayu, Ethiopia, we constructed a cupping lab facility to commence teaching cupping skills there too.

COFFEE SOURCING MODELS

There are different approaches to buying coffee. We describe some of the more common ones here.

CONVENTIONAL TRADE

Most of the world’s coffee is traded by speculators. Commodity prices are set according to a formula known as the New York 'C' Contract market and the price fluctuates as contracts change ownership many times. In this conventional trade the coffee passes through many hands: farmers sell to middlemen, who sell to exporters, who then sell to brokers and traders. Finally the coffee is sold to importers in the consuming country. In this long supply chain traceability is lost and the farmer receives a very small share of the final price.

Trading untraceable coffee poses a risk to human and labour rights. To undertake due diligence in those areas it is necessary to know where the coffee was grown.

CERTIFICATION

There are many certification schemes for coffee. Some may appear similar but each may place a particular emphasis on environmental, social or economic factors. The best known is Fairtrade which sets standards and trading conditions for smallholder coffee cooperatives to provide access to export commodity markets. The key aspect of Fairtrade is setting a minimum baseline price of USD &1.40/lb for green coffee, or the world market price if this is higher. In addition, a USD $0.20/lb social premium is paid. Standards are set to ensure that the conditions of production are socially, economically, and environmentally responsible.

Fairtrade Labelling Organisation is the certifying agency providing guidance, but not implementation on the standards. Fairtrade coffee can be bought from a broker or importer, and the roaster might not have a relationship with the cooperative. Estate farms and individual smallholder farmers are not eligible for this model.

DIRECT TRADE COFFEE

During the last decade, as a response to periods of low world market prices, specialty coffee roasters wanted to demonstrate ethical practises represented by showing provenance and traceability of their coffee. Importers and traders supplying these roasters responded by coordinating communication between farmer and roaster and creating alternative trading initiatives frequently referred to as “Direct Trade” coffee buying. These initiatives are important because many roasters do not have the resources to create and manage their own direct supply chain. There is no commonly agreed definition of Direct Trade coffee, and the term is used to cover many different practises with varying degrees of price transparency and of participation by farmers in direct price negotiation.

Direct Trade can imply a long-term trading relationship, but often this can be just a one-time purchase. Standards to ensure that conditions of production are socially, economically and environmentally responsible may or may not be part of this relationship. Despite the inherent implications of ethics related to Direct Trade models, this is not always the case. To take up an authentic programme of direct trade takes a significant commitment from the buyer, and costs can be prohibitive.

UNION DIRECT TRADE

Several elements create the entity we define as Union Direct Trade. Firstly, we have created a Code of Conduct, which is a set of standards designed to ensure that conditions of production are socially, economically and environmentally responsible. Our Sustainability Sourcing Manager undertakes regular Social Audits on the farms, reviewing labour and environment conditions and identifying any weaknesses in procedures or processes where we can help with specific support.

Secondly, contractual terms of purchase are agreed directly with farmers ensuring 100% transparency and traceability with a minimum price safety-net, always above the Fairtrade minimum price. We work with many types of farm structures; from family-owned estates who employ workers, to formally-organised smallholder cooperatives, and also farm associations, who may be a group of farmers working together. We create longterm relationships which give financial security and allow farmers to plan for the future and invest in coffee quality. Quality of coffee is at the heart of our initiative.

OUR CODE OF CONDUCT

Our Union Code of Conduct defines a set of standards of behaviour and working practices that guarantee safe and healthy working conditions for farmers and their workers. It provides the framework for monitoring and evaluating the working lives of farmers and their workers. This also extends to sustainable agronomy practices on the farms. We undertake our own social audits to ensure the Code of Conduct is adhered to, and we track progress from year to year.

Code of Conduct Compliance is directly linked to our procurement practices: price premiums, purchase guarantees, access to pre-finance or a combination of these as a positive incentive and reward for Code of Conduct Compliance. If issues around compliance with our Code of Conduct are identified, we will seek to address them with a Corrective Action Plan but also understand the root causes, and assist in making the changes. Should farmers fail to collaborate to implement changes, we may end the trading relationship.

More than paying a fair price, Union Direct Trade means we work in partnership with farmers to improve the long-term quality of coffee and livelihoods.

Ethical Trade Inititative          Queen's Award