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Global Sustainability Regulation and Coffee Supply Chains in Lampung Province, Indonesia

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Global Sustainability Regulation and Coffee Supply Chains in Lampung Province, Indonesia Asian Journal of Agriculture and Development, Vol. 7, No. 2 67 Global Sustainability Regulation and Coffee Supply Chains in Lampung Province, Indonesia Bustanul Arifin University of Lampung, Indonesia E-mail: [email protected] ABSTRACT This paper examines the global sustainability regulation in agricultural trade by conducting an in- depth assessment of the economics of coffee-producing regions in Lampung Province, Indonesia. A negative campaign blaming illegal coffee producers for the loss of tigers in the Bukit Barisan Selatan (BBS) National Park in the province further complicates the issue, as the current coffee supply chain could not guarantee the workability of price transparency and asymmetric structures of coffee markets, to name a few. In this region, community initiatives have been developed to foster forest conservation by adopting coffee multi-strata practices under the agroforestry system and community-based forestry management in the buffer zone outside the BBS National Park. Based on research findings, buyer-driven regulation of environmental practices in the coffee industry, which characterize most global initiatives, have somehow restructured the supply chain in producing regions. Recent global sustainability standards require adequate organizational capacity of coffee- farmer groups and rural cooperatives involved in the supply chain. The paper recommends policy integration between bottom-up initiatives at farm level or institutional changes at supply-chain organizations, and top-down sustainability standards set by the private sector and non-government organizations. INTRODUCTION or non-government organizations (NGOs). The emergence of sustainability standards and The rise of environmental governance in non-state regulations could not be separated the coffee sector in particular and the global from the growing significance of the global food sector in general has evolved since the value chain (GVC) system, which generally early 1990s and developed more rapidly in disaggregates the structure of production, trade, this century. Sustainability perspectives and and consumption of commodities by the level long-term consequences of coffee practices or network of activities controlled by firms. on natural ecosystems and social-economic In the coffee sector, global sustainability dimensions of the livelihood sector have standards have been developed for the most part been discussed more widely by academics, within voluntary initiatives, involving collective government and private sectors, and civil society formulation by some stakeholders, outside the 68 Bustanul Arifin framework of government bureaucracy. These the economics of coffee-producing regions groups share common interests in specific in Lampung Province, Indonesia. Emphasis agenda, such as consumer awareness of public is given on the implications of buyer-driven health, fertilizer and pesticide contamination, regulation, focusing on four main aspects: (1) organic perspectives, and other interests to position of coffee smallholders in the GVC, (2) protect endangered species, biodiversity, and market structures and price transparency in the other functions of the natural environment. In supply chain, (3) environmental service markets the last decade or so, buyer-driven regulation as entry points, (4) roles of the domestic market of environmental practices, which characterize and increasing effective demand, and (5) quality most global initiatives, have somehow issues in postharvest and coffee processing. restructured the supply chain in coffee- Desk literature review and extensive field producing countries. The governance issues observations of coffee-producing regions emerge when the key notions of entry barriers were conducted for about a decade over three and chain coordination have influenced not different studies, development activities, and only the flow of goods and services in the global empowerment programs of local stakeholders in trade, but also the degree of complexity in the the Sumberjaya sub-district of West Lampung, expectation of income streams by the economic Indonesia. actors. This paper is organized into five sections. Certification and labeling systems are also After this introduction, the rise of global expanding rapidly in the global food sector, sustainability regulation in the coffee sector, including the coffee sector. Environmental where the role of the voluntary regulatory and social standards in the coffee economy system has evolved somehow into a process have serious and long-term implications on of restructuring the coffee supply chain to the the sustainability of natural ecosystems in the farm-level organizations, is discussed. This is tropics and the livelihood of coffee producers, followed by an overview of coffee production who are mostly smallholder farmers. In the in Indonesia, with special references to the business community, recent trends also support dynamics of coffee-producing regions in strongly the shift toward a more ethical business Sumberjaya watersheds in Lampung Province, image through corporate social responsibility Sumatra-Indonesia. The analysis of the (CSR) in the GVC in general. On the other implication of the growing tendencies of hand, the emergence of third-party NGOs global sustainability regulation in the coffee on sustainable coffee initiatives has created supply chain is then discussed. The last section certification networks that might be comparable summarizes the findings and suggests the to the multinational corporate structures and bridge between bottom-up initiatives at farm possibly bypass the existing state regulations. level or institutional changes at supply chain Also, such NGOs somehow have their own organizations and top-down sustainability belief system in administrative bureaucracy. standards set by the private sector and NGOs to In short, these large multinational NGOs are achieve better environmental governance in the central in establishing and maintaining the coffee sector. legitimacy and effectiveness of international coffee certifications (Reynolds et al. 2007). GLOBAL SUSTAINABILITY REGULATION This paper examines the links between global sustainability regulation in agricultural Global sustainability regulation is generally trade and coffee supply chains by reviewing seen as an emerging paradigm and alternative Asian Journal of Agriculture and Development, Vol. 7, No. 2 69 mechanism to reduce the distortion effects of operating in the coffee sector around the globe: direct state intervention in the commodity supply Utz Kapeh, Organic, Fair Trade, and Shade- chain. In one extreme, non-state regulatory grown (monitored by Smithsonian Migratory efforts are argued to democratize markets by Bird Center [SMBC] and the Rainforest increasing the role of civil society in regulating Alliance). These third-party certifications have production and trade-related activities. On similar missions and objectives to improve the other extreme, standard and certification socio-economic and environmental conditions institutions could serve simply as new of coffee production and trade. vehicles of corporate control over global food Utz Kapeh originated as an initiative of production, trade, and consumption (Reynolds Guatemalan coffee producers and the Dutch et al. 2007). In the literature, work have been coffee company Ahold, which later became done in synthesizing major global initiatives in an independent Guatemalan-Dutch NGO. the coffee sectors dealing with sustainability Utz Kapeh has developed a set of standards standards and environmental governance (Ponte for third-party coffee certification, formally 2004, Giovannucci and Ponte 2005; Muradian equivalent to the EurepGAP, a certification and Pelupessy 2005; Reynolds et al. 2007). system for the sourcing of fruits and vegetables Based on the context of governance, there led by European retailers (Giovannucci and are at least four general categories of regulatory Ponte 2005). systems: (1) first party, (2) second party, (3) Organic certifications generally set the third party, and (4) fourth party “voluntary” following standards: (1) coffee is grown regulatory systems. without the use of synthetic agro-chemicals First party generally refers to “Coffee- for three years prior to certification, (2) Sourcing Guidelines of Starbucks,” which set farmers and processors keep detailed records standards for good social and environmental of methods and materials used in coffee performance. Later, the guidelines evolved into production and management plans, and (3) Coffee and Farmer Equity (CAFE) Practices, a third-party certifier annually inspects all which are part of Starbucks’ preferred supplier methods and materials (Ponte 2004). Issues program. Nevertheless, the monitoring process emerge in organic certification as there is a of CAFE Practices is conducted by third parties, deficit in the international harmonization of and the costs to comply with this standard have organic standards, which could create non- to be paid by farmers. In return, farmers are fair market differentiations at the global level. supposed to obtain reasonable price premiums. Organic certification is viewed as one of the An example of second-party regulatory main challenges facing voluntary regulatory systems is the Sustainable Agriculture schemes in the coffee industry, as this could Information (SAI) Platform, which are alter traditional governance practices in rural composed of specific commodity guidelines for communities by imposing paper burdens and sustainable
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