Charity or just good business? Speciality coffee, sustainability, and business solutions to poverty in East Africa

Natasha Hemmings explores the ties between communally shared values and business in the East African coffee industry. 

We’re all familiar with the saying ‘give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.’ A proverb that has spread across multiple cultures, at the heart of this maxim is the idea of sustainable livelihoods. While there are crisis situations – such as those brought about by natural disasters – where direct financial AID is required, many NGOs (Non-Government Organisations) and even TNCs (Transnational Corporations) are investing more money and time in long-term solutions to alleviate poverty, often with a business focus. An Economist article reviewing Polak and Warwick’s book The Business Solution to Poverty states that, ‘today the idea that business is better able to help lift millions of people out of poverty than international aid or charity borders on conventional wisdom.’ They highlight that ‘less than a decade ago, the priority of policymakers was to get more aid for Africa; now they promote investing in African businesses […] the continent now boasts some of the world’s fastest-growing economies.’ While the growing attention to social responsibility is partly consumer driven, as highlighted by ‘a recent survey by Environics International, [which found that] more than one in five consumers reported having either rewarded or punished companies based on their perceived social performance,’ investing in smallholdings is also essential to TNCs in some industries. The majority of the world’s coffee, cotton and cocoa are produced by smallholder farmers in poor countries so investing in smallholder farming can help TNCs maintain a sustainable supply of goods.

Coffee is a cash crop which at least 5 million smallholder coffee farmers in Africa rely on and is ‘the second most valuable commodity exported from developing countries, the first being petroleum,’ yet ‘more than half [of the 5 million farmers in Africa] live on less than $1 a day.’ Due to the poverty faced by farmers, multiple organisations have targeted the coffee industry as an area for business development, with varying degrees of success. Fairtrade is a brand that has made its way into our supermarkets and consumers who buy Fairtrade products believe that they are making a philanthropic purchase. However, consumers should be aware that Fairtrade is not the perfect solution and that there are alternatives out there.

Coffee is grown in tropical countries, often some of the world’s poorest, yet the majority of production is consumed by the wealthiest. For example, the USA is ‘the world’s single largest consuming country, buying more than 22 percent of world coffee imports.’ Despite the wealth of the industry’s consumers, coffee farmers face problems both in growing and processing beans meaning that many are living below the poverty line. In some cases, smallholders earn a good price for their coffee but production levels are low so they are still left with very little income. Bruce McNamer, former CEO of the international NGO TechnoServe, highlights that ‘it is a cruel irony that the two billion people who live and work on small farms face the greatest struggle to provide enough food for their families.’

Not only do farmers often face difficult growing conditions, including drought and disease but they often struggle to get fair prices for what they are able to produce. In terms of trading the coffee, Haight states that one of the difficulties faced by smallholder coffee farmers is the cyclical nature of the coffee industry as it is ‘subject to boom-bust cycles,’ due to fluctuations in weather conditions which impact production. Haight explains that ‘booms occur when farm output is low, causing price increases due to limited supply; bust cycles occur when there is a bumper crop, causing price declines due to large supply.’ Fairtrade was launched in 1988 when the first Fairtrade coffee from Mexico was sold in Dutch supermarkets, and the organisation aims to address the boom-bust nature of crops such as coffee. They have developed a vision which they see as ‘a world in which all producers can enjoy secure and sustainable livelihoods, fulfil their potential and decide on their future.’ Haight states that Fairtrade has aimed to protect farmers from ‘the kind of crony capitalism where large businesses obtain special privileges from local governments, preventing small businesses from competing and flourishing.’ Indeed, Fairtrade has been instrumental in increasing consumer awareness about the poverty faced by producers in poor countries and many farmers have benefited from selling their coffee through Fairtrade.

Nevertheless, there are problems with the ‘price floor mechanism’ (a limit on how low a price can be charged) which Fairtrade implements, as Haight explains. Fairtrade pays producers an above-market “fair trade” price provided they meet Fairtrade sustainability standards concerning labour, the environment, production, democratic organisation and more. Speciality coffee – that which has a distinct flavour and superior quality – acquires a higher price than commodity coffee which is ranked according to grade. It is thus unsurprising that NGOs and organisations working with farmers aim to help them increase the quality of their beans and produce speciality coffee in order to attain higher prices. However, Fairtrade can be criticised for several reasons. Although Fair Trade is considered part of the speciality coffee market due to its production requirements and pricing structure, Fairtrade faces a quality problem because the certified coffee can in fact come in any grade. Haight demonstrates how this problem is exaggerated by low consumer demand with the following example:

‘A farmer has two bags of coffee to sell and there is a Fair Trade buyer for only one bag. The farmer knows bag A would be worth $1.70 per pound on the open market because the quality is high and bag B would be worth only $1.20 because the quality is lower. Which should he sell as Fair Trade coffee for the guaranteed price of $1.40? If he sells bag A as Fair Trade, he earns $1.40 (the Fairtrade price) and sell bag B for $1.20 (the market price), equalling $2.60. If he sells bag B as Fair Trade coffee he earns $1.40, and sells bag A at the market price for $1.70, he earns a total of $3.10. To maximize his income, therefore, he will choose to sell his lower quality coffee as Fair trade coffee.’

As this example illustrates, the consumer receives a lower grade of coffee because the farmer can get a more competitive price on the open market. Further, Fairtrade doesn’t necessarily help farmers deal with the ‘boom and bust cycles’ because if they have surplus then they aren’t guaranteed a buyer. Haight criticises the Fairtrade Certification because only certain types of growers – small organisations which have democratically run cooperatives and don’t rely on permanent hired labour – can qualify for certification, which means that private estate farmers aren’t certified even if they pay their workers well, create sustainable products and invest in building schools and medical facilities for communities. There have also been calls for more transparency concerning where the premiums paid by consumers are actually going as consumers expect them to be used for social projects. Furthermore, the auditing processes necessary for Fairtrade certification can be onerous, costly and limiting for farmers. Brendan O’Neill in his article for the BBC, “How fair is Fairtrade?” critiques the principle of Fairtrade when he states that ‘Fairtrade can end up being a trap for farmers, tying them into a relationship of dependence with charity-minded shoppers in the West.’ Haight’s statement that ‘among the concerns are that the premiums paid by consumers are not going directly to farmers, the quality of Fairtrade coffee is uneven, and the model is technologically outdated,’ begs the question: is there an alternative?

There are several organisations and NGOs running projects which aim to alleviate poverty through helping coffee farmers build their businesses. TechnoServe is one such NGO, providing ‘business solutions to poverty.’ TechnoServe works with farms, businesses and industries in the developing world to transform lives. They state that ‘by linking people to information, capital and markets, we have helped millions to create lasting prosperity for their families and communities.’ TechnoServe works with multiple industries in 29 countries and the Coffee Initiative, which was originally funded by the Bill and Melinda Gates Foundation, has developed country specific strategies and worked with farmers in East Africa ‘to improve agronomy and business practices, establish new coffee cooperatives and strengthen existing ones, and help cooperatives create business plans and access financing for wet mills.’ The wet mills process the coffee cherries into high-quality coffee beans which can be sold as speciality coffee and thus is far more profitable than the lower quality coffee the farmers previously produced. Farmer training is carried out by people from the local community who are employed as Farmer Trainers, (30% of which are women) leading to the creation of jobs, and this also ensures that the training is delivered in the local language. The success of the project means that farmers can pay for improved housing, medical care and education for their families. Further, the scheme is not solely concerned with the growing of coffee with ex-CEO of TechnoServe, Bruce McNamer highlighting that ‘a successful farm should be an integrated and diversified system, where multiple crops help to ensure food security and manage risk.’ One of the crops which farmers often grow alongside coffee is maize. Geoff Watts from Intelligentsia Coffee, a coffee and tea roasting and retail company based in the US, highlights the impact of Technoserve’s work has had on small-holder farming:

‘Entire coffee regions in East Africa that were largely ignored by speciality buyers prior to interventions by organizations like TechnoServe has now become highly sought-after sources of spectacular quality. The potential has been there all along, but was unrealized because some basic infrastructure was lacking and farmers did not have good access to knowledge or training. The coffees were mediocre at best, without much value, Today, these farmers are producing some of the world’s most exciting and delicious coffees and have successfully connected with the speciality marketplace.’

The business connections established mean that the businesses should be sustainable even when the coffee program has come to an end. Michael E Porter has written about creating “Shared value” which he describes as ‘generating economic value in a way that also produces value for society by addressing its challenges. A shared value approach reconnects company success with social progress.’ The idea of shared value is arguably more sustainable than Fairtrade certification because it involves a mutually beneficial, direct relationship between producer and buyer. Nespresso partnered with TechnoServe in 2013 to ‘improve the livelihoods of smallholder coffee farmers [in East Africa] while creating a more sustainable source of supply for Nespresso.’ Porter even marks Nestlé’s work out for its success stating ‘Nestlé provided advice on farming practices; helped growers secure plant stock, fertilizers, and pesticides; and began directly paying them a premium for better beans. Higher yields and quality increased the growers’ incomes, the environmental impact of farms shrank, and Nestlé’s reliable supply of good coffee grew significantly. Shared value was created.’ Peet’s Coffee and Tea is another organisation which worked with TechnoServe’s clients to bring high quality coffee to the market. Doug Walsh, Vice President of Coffee at Peet’s states that ‘Peet’s is constantly searching for distinctive coffee that meets our rigorous standards of quality. Through our collaboration with TechnoServe, a win-win was created. We were able to secure distinctive coffee from East African smallholder farmers and market it as a new blend, “Uzuri.” Farmers could earn a higher price for their product, and Peet’s customers could discover the distinctive taste of East African coffee, the birthplace of coffee.’ The figures are also encouraging. TechnoServe states that the Coffee Initiative supported 340 cooperative wet mills, which were used by 259,274 farmers and the wet mills received an average price increase of $1.54/kg of coffee exported and the farmers received and average price increase of $0.43/kg. Their results have been verified and for the last 10 years, TechnoServe has also earned a 4-star rating from Charity Navigator, an independent evaluator that places them in the top 1% of rated non-profit organisations.

Through creating shared value, not only do communities benefit from higher incomes, the creation of more jobs and the improvement of social issues, but customers also receive higher quality coffee and are encouraged to take more of an interest in where specific blends originate. As Peet’s and Nespresso’s work with TechnoServe demonstrates, the strong relationship between organisations and smallholders allows TNCs to bring blends to the market which are unique to their organisation as well as benefiting the farmer. Indeed, an examination of the value of Fairtrade seems increasingly relevant due to Cadbury’s recent move away from the certification. Although the BBC article on Cadbury’s move stated that the brand’s abandoning of its Fairtrade certification ‘has caused some concern in the food industry,’ because some ‘fear that shared standards around ethical trade will be lost if more firms drop Fairtrade,’ this may not necessarily result in the mistreatment of smallholders. If companies publicly commit to adhering to standards of ethical trade as well as investing in the communities of its suppliers (and use NGOs to aid them in the process), then shared value relationships could potentially be even more beneficial to producers than Fair Trade. Ultimately, consumers can hold organisations to account for the way they treat their smallholders and it is this consumer power which will play an important role in guaranteeing the fair treatment of farmers. TNCs certainly have a vested interest in improving the lives of smallholders as this will make their supply chain (and therefore their profits) more stable, so this growing relationship could be viewed with optimism.


Bibliography

1 “How to design a company that really helps the poor.” Economist Online. 12 Oct. 2013. Web. 31 Aug. 2016.

“IISD’s Business and Sustainable Development: A Global Guide.” The International Institute for Sustainable Development. BSD Global. 2013. Web. 20 Aug. 2016.

TechnoServe. Web. 31 Aug. 2016.

4 Haight, Collen. “The Problem with Fair Trade Coffee.” Stanford Social Innovation Review. 2011. Web. 3 Sept. 2016.

5 Agriculture for Impact et al. 8 Views for the G8 Business Solutions for African Smallholder Farmers to Address Food Security and Nutrition. Digital Copy.

6 Haight, ibid

7 Agriculture for Impact et al., ibid

8 Haight, ibid

9 Fairtrade. Web. 30 Aug. 2016.

10 Haight, ibid

11 ibid

12 O’Niel, Brendan. “How Fair is Fairtrade?” BBC News Channel. 7 March. 2007. Web. 14 April. 2017.

13 Haight, ibid

14 TechnoServe, ibid

15 TechnoServe, ibid

16 TechnoServe, ibid

17 Agriculture for Impact et al., ibid

18 Geoff Watts, Intelligentsia Coffee. ‘Creating Market Linkages.’ Technoserve, Brewing Prosperity in East Africa: Coffee Initiative, Final Report.’ 26.

19 Porter, Michael. E and Mark R. Kramer. “Creating Shared Value.” Harvard Business Review. 2011. Web. 31 Aug. 2016.

20 TechnoServe, ibid

21 ‘Coffee Initiative.’ TechnoServe. Web. 14 April. 2017.

22 Charity Navigator. Web. 15 April. 2017.

23 Thomas, Daniel. ‘Is Cadbury’s move the end of Fairtrade?’ BBC News. 28 Nov. 2016. Web. 12 Dec. 2016.