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Responsible Coffee Sourcing: Towards a Living Income for Producers

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Responsible Coffee Sourcing: Towards a Living Income for Producers RESPONSIBLE COFFEE SOURCING: TOWARDS A LIVING INCOME FOR PRODUCERS REPORT JULY 2021 Acknowledgments This report was authored by Kaitlin Y. Cordes and Margaret Sagan, with contributions from Solina Kennedy. The report was commissioned by a long-term investment manager interested in sustainability. Any views expressed are the authors’. The authors are extremely grateful for the excellent research support and assistance we received from Carl Cervone, Kimathi Muiruri, and Ridglea Willard. We also extend deep thanks to the following colleagues who provided peer reviews of all or parts of the report: Christina Archer, Stephanie Daniels, Nora Mardirossian, Daniel Pedersen, and Ric Rhinehart. The report is based on desktop research, as well as interviews and written communications. We appreciate the many people and companies that took time to speak or share information with us. For this research, we conducted 31 interviews with 37 people, representing companies, certifications, civil society organizations, and industry experts. We received interviews and/or written responses from nine of the ten companies featured, as well as from the three third-party certifications featured. For the one company that did not respond, we interviewed individuals who have worked closely with or within the company. The company assessments in Section IV are based on publicly available information, as well as interviews and/or written communications from company representatives, we only cite publicly available information in that section. The report was originally written in English. About the Authors Kaitlin Y. Cordes is a lawyer and researcher who, until August 2021, was Head of Land, Agriculture, and Food Systems at the Columbia Center on Sustainable Investment. Margaret Sagan is a consulting research fellow at the Columbia Center on Sustainable Investment, who specializes in agricultural economics and sustainability strategies. Solina Kennedy was a Program Associate at the Columbia Center on Sustainable Investment through June 2021. Suggested citation: Kaitlin Y. Cordes and Margaret Sagan, with Solina Kennedy, “Responsible Coffee Sourcing: Towards a Living Income for Producers,” Columbia Center on Sustainable Investment (July 2021). Cover image Coffee plantation. © Shutterstock/June Vita Design Onehemisphere AB, Sweden. [email protected] 2 | COLUMBIA CENTER ON SUSTAINABLE INVESTMENT TABLE OF CONTENTS ACKNOWLEDGMENTS AND METHODOLOGY 2 EXECUTIVE SUMMARY 4 INTRODUCTION 7 PART I. COFFEE SECTOR OVERVIEW AND MAIN ISSUES IN RESPONSIBLE SOURCING OF COFFEE 9 Coffee sector overview 9 Responsible sourcing 12 Main substantive issues relevant to responsible sourcing 12 PART II. COFFEE FARMING, LIVING INCOME, AND LIVING WAGES 14 What is a living income? 15 What is a living wage? 15 What are challenges coffee companies face in meeting their responsibility on living income and living wages? 15 Closing the living income gap: analysis for ten major producing countries 16 PART III. RESPONSIBLE SOURCING STANDARDS 27 PART IV. COMPANY SOURCING PRACTICES 33 ANNEX: LIVING INCOME SOURCES AND METHODOLOGIES 56 LIST OF FIGURES & TABLES FIGURE 1 Coffee consumption trends in leading markets 10 FIGURE 2 Prices and value addition at different stages of the coffee value chain 11 FIGURE 3 Coffee production in selected countries 16 FIGURE 4 International coffee prices (futures market) 17 FIGURE 5 Comparison of average coffee income and estimated living income levels by country 18 FIGURE 6 Comparison of coffee income drivers by country 18 FIGURE 7 Volume of certified green coffee sales to roasters 29 FIGURE 8 Profiles of selected coffee companies 36 TABLE 1 Company commitments on responsible sourcing and living income/wages 37 TABLE 2 Summary table - country figures 58 TABLE 3 Average Farm-gate price sources and assumptions for each country 59 COLUMBIA CENTER ON SUSTAINABLE INVESTMENT | 3 EXECUTIVE SUMMARY Robusta coffee plantation. © Shutterstock/June Vita EXECUTIVE SUMMARY Coffee company sourcing practices are a key tool for improving coffee producer and farmworker well-being. Companies are not the only actor responsible for addressing living income and living wages, and sourcing practices are not the only relevant tool. Governments and other stakeholders must use policies, programs, and other levers to address the structural factors that contribute to producers’ and farmworkers’ impoverishment. Yet the role of other actors and interventions should not be an excuse for company practices that contribute to producer and worker poverty. Credible options exist for roasters and retailers to improve producer and farmworker well-being through sourcing practices. 4 | COLUMBIA CENTER ON SUSTAINABLE INVESTMENT RESPONSIBLE COFFEE SOURCING: TOWARDS A LIVING INCOME FOR PRODUCERS This report provides: an overview of the coffee sector and Coffee companies have a responsibility to enable producers in responsible sourcing; a comparison of living income to their supply chains to achieve a living income and to ensure producer income in 10 coffee-producing countries; that farmworkers receive a living wage. They face substantial descriptions of common voluntary sustainability standards challenges meeting this responsibility, including from (VSS) used in coffee; and assessments of the sourcing practices structural factors that contribute to poverty, complications of 10 coffee companies, coupled with recommendations for around paying higher prices, and a lack of traceability that those companies. limits control over farm-gate prices and enforcement of wage requirements. Despite these challenges, company sourcing COFFEE SECTOR OVERVIEW AND RESPONSIBLE practices are a critical part of closing the living income gap for producers and ensuring living wages for farmworkers. SOURCING OF COFFEE Coffee has long been one of the most popular beverages Our research compares net annual income from coffee farming worldwide. Globally, retail value is estimated at over $200 billion. with living income reference values for coffee producers in ten countries that collectively represent 89% of coffee exports and Coffee is produced in more than 30 countries by an estimated 62% of producers worldwide. Key takeaways from our 12.5 million coffee producers. There are two main coffee comparison include: species grown commercially: Arabica and Robusta. Coffee • In 8 of the 10 countries, the average coffee income (not farming and processing are labor-intensive and tend to be the primary source of livelihood in producer communities. household income) is at or below the poverty line. On average, only producers in Vietnam and Brazil earn Agronomic and labor dynamics create barriers for producers enough from coffee to place them above the poverty line. to enter or exit production, and an inelastic supply base that is relatively slow to respond to price signals. • Brazil is the only country profiled where the average “Responsible sourcing” is sourcing (decisions and actions producer earns a net coffee income that is above some living income estimates. related to procurement of coffee beans) that enables economically, socially, and environmentally sustainable • Uganda has the largest gap to living income, with an production, including producer and farmworker well-being. average coffee producer earning $88 per year from Despite the many responsible sourcing efforts in the coffee coffee, relative to living income reference values that industry, trends illustrate the continued disconnect between range from over $2,000 to nearly $6,000. procurement priorities and sustainability commitments within many companies and within the sector at large. RESPONSIBLE SOURCING STANDARDS COFFEE FARMING, LIVING INCOME, AND LIVING WAGES Of all commodities, coffee has the most widespread adoption of products that are certified or verified under a Voluntary The ability of coffee producers to earn a living income or a Sustainability Standard. VSS allow producers and companies prosperous income is a critical component of responsible to show that their product meets particular sustainability sourcing. A living income is the net income necessary to afford criteria. The field of VSS has rapidly expanded, and now a decent standard of living in a specific place; it can be earned includes third-party certifications, second-party verifications, through both farming and non-farming activities. Many and first-party assurances. producer representatives assert that living income sets the bar too low. They want to be able to earn a “prosperous income” Evidence shows mixed impact from VSS. They are best that enables true prosperity. Living income can be viewed as understood as tools that can help in advancing and monitoring an important milestone along the pathway to prosperity. certain sustainability objectives, but with significant limitations. VSS also have been undermined by insufficient Living wages are critical for farmworkers’ ability to live in dignity. demand and purchasing commitments from companies. In Living wages are the wages (paid within an employment general, only around 50% of coffee produced on certified relationship) needed to afford a decent standard of living. They production areas is sold as certified. are generally higher than the minimum wage. In the coffee sector, farmworker living wages are largely ignored; this is a gaping hole in responsible coffee sourcing efforts. COLUMBIA CENTER ON SUSTAINABLE INVESTMENT | 5 When it comes to living income, there is no evidence that the There are multiple sourcing practices that companies use or use
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