Coff ee Barometer

Co?ee

Barometer

Content

1

Introduction 3

2

Market unrest 5

2.1 Roasters 5

2.2 Traders 8

2.3 Sustainability strategies 9

3

Stress factors 10

3.1 Production and value distribution 10

3.2 Wages and labour 12

3.3 Climate change and deforestation 13

4

Sustainability commitments 16

4.1 Investments in sustainability 16

4.2 Voluntary Sustainability Standards 17

4.3 Market demand 19

4.4 Sustainable Sourcing options 21

5

Coffee sector collaboration 26

5.1 A global vision 26

5.2 Multi-Stakeholder Initiatives 27

6

Conclusion 30

Endnotes 33

Sources 34

Annex: Sustainable Sourcing 35

Colophon 36

1 Introduction

Today¡¯s co?ee trends include

premiumisation, convenience,

customisation, single-origin,

and roast type. Consumers

increasingly appreciate

information about certified

sustainable and ethically

produced co?ee.

It is widely perceived that in the global value chain of coffee profits are made in

industrialised countries, at the expense of environmental and social problems in the

coffee producing countries. Coffee is a buyers-driven supply chain, where roasters,

retailers and traders maintain a high level of opacity enabling them to capture most of

the gains. In sharp contrast with the margins made by farmers in developing countries,

the multinational food giants and investments funds in the USA and EU expect to

capitalise on growing demand in the coming decade. Billions are spent in countless

acquisitions and mergers, positioning famous coffee brands in new markets. As the

global coffee industry consolidates, it cuts costs to optimise profits which causes

additional downward pressure in the value chain, which is increasingly felt by the

producers at the farm level.

Trouble is brewing in the sector. A wide variety of complex and systemic issues

-environmental, social and economic- jeopardises the future of coffee production.

Price volatility, climate change and recurring outbreaks of pests and diseases threaten

a structurally increasing global supply of good quality coffee, while consumption and

therefore demand is expected to increase.

In this new edition of the Coffee Barometer, we pinpoint some gaping holes in our

collective knowledge that urgently need to be tackled. For example, coffee production

has been growing by over 20% (+26 million bags) since 2010, but we do not know how

much forested land has been converted into farm land used for coffee production.1

Furthermore, it is assumed that 20-25 million smallholder farmers produce 70% of the

coffee globally, an estimate that stands unchallenged in the last 15 years.2 The coffee

3

harvest therefore depends on millions of farmworkers; an important but invisible group

of stakeholders. They remain largely voiceless in the discussions about a sustainable

coffee sector.

To cope with such issues, stakeholders supporting a sustainable coffee sector have

been at the forefront of shifting towards the procurement of certified and verified

4

coffee. Linking all stakeholders in the value chain with standards, training, certification,

and seals of approval, the coffee sector is more advanced than any other commodity.

Still, certification and verification systems appear unable to reach smallholder

producers in Africa and Asia, and drive market uptake in consuming countries.

Increasing demand also yields an opportunity for positive change. The growth of the

specialty coffee sector leads to more direct sourcing initiatives. If executed properly,

these can promote traceability and coffee quality, and provide a managed response to

some sustainability challenges.

Moreover, there is growing support for non-competitive sector collaboration, blending

public and private investments to address fundamental sustainability challenges

at an impactful scale. Such initiatives to bring about sector-wide change, like the

Global Coffee Platform (GCP), the Sustainable Coffee Challenge (SCC) and national

sustainability platforms, share many of the sector¡¯s sustainability goals. However,

steering collective investments in the coffee value chain towards the development and

implementation of solutions to sustainability issues, remains a difficult yet pressing

challenge.

In this Coffee Barometer, we examine the recent boom of acquisitions and mergers,

and track the main trends. We investigate the power relations embedded in the global

coffee value chain, and the root cause of the main sustainability stress factors. In view

of these challenges, we will examine the sector¡¯s strategies for change, and individual

and collective efforts to create a truly sustainable coffee sector.

2 Market unrest

The global co?ee industry is

consolidating, with countless

mergers and acquisitions in

the market. This could present

an opportunity to mainstream

sustainability e?orts, but there

is little evidence that this is

happening within the newly

formed conglomerates.

2.1

Roasters

To the casual observer, the coffee market is highly diversified. In the streets thousands

of independent coffee bars exist alongside big retail chains such as Starbucks, Costa

Coffee and Dunkin¡¯ Donuts. In the supermarkets, the shelves are stacked with ample

coffee options. Beyond the traditional roast and ground products, shoppers can choose

from a wide range of single-serve options, next to Italian espresso beans and low profile

instant coffee. Lining the refrigerated shelves of grocery stores are bottled or canned

Ready to Drink Coffees (RTD), the fastest growing market segment.

This wealth of choice veils the underlying structure of the global coffee industry, which

is in the mature stage of its life cycle. As growth stagnates among larger players, they

acquire smaller companies and diversify their portfolio to generate growth. Rapid

consolidation is transforming the global coffee industry from its roast and ground

leaders, like Nestl¨¦ and Jacobs Douwe Egberts, to retailers, such as Starbucks and

McDonald¡¯s. Beyond the traditional first wave roast and ground market, there is fierce

competition at brand level in various market sub sectors, especially in the second and

third-wave coffee (Figure 1).

After years of unrivalled market leadership, Nestl¨¦¡¯s global dominance of the coffee

market is now being challenged by JAB Holding¡ª a German investment firm owned by

the Reimann billionaire family. In the past six years, JAB Coffee (part of JAB Holdings)

has been building a global coffee empire, investing over $50bn to acquire not only

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