sustainable coffee

8/7/2019 sustainable coffee

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Confronting the coffee crisis

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y A sustainable coffee agroecosystem must be viewed as part of a much larger system with many

interacting parts, including environmental, economic, and social components (Gliessman 2001; Flora

2001; Francis et al. 2003).

y Reasons why modern agriculture isnt long-term sustainable;o Dependence of fossil fuels

o Degrading the soil

o Degrading the water and genetic

o Degrading the cultural resources that agriculture has always relied

y Goal conversion to agroecosystems

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y Upstream issues like :what pesticide and fertilizers are used, soil cultivation practices in the surrounding

region , quality of water, legislated policies, market access policies

y Downstream effect: soil erosion, inefficient use of pesticides and -

y Rural farm economy

y Upstream and downstream factors are not in the farmers hand

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y A primary foundation of agroecology is the concept of the ecosystem, defi ned as a functional system ofcomplementary relations between living organisms and their environment, delimited by arbitrarily

chosen boundaries, which in space and time appears to maintain a steady yet dynamic equilibrium

(Gliessman 1998; Odum and Barrett 2005). Such an equilibrium can be considered to be sustainable in a

defi nitive sense. A well-developed, mature natural ecosystem is relatively stable, is self-sustaining,

recovers from disturbance, adapts to change, and is able to maintain productivity using energy inputs of

solar radiation alone. When we expand the ecosystem concept to agriculture, and consider farm systems

as agroecosystems, we have a basis for looking beyond a primary focus on the common measure of

system outputs (yield or economic return). We can instead look at the complex set of biological,

physical, chemical, ecological, and cultural interactions determining the processes that permit us to

achieve and sustain yields. This is especially the case for coffee agroecosystems that have traditionally

retained more of their natural ecosystem structure.

y Still, ecological sustainability is the foundation upon which other elements of sustainability stand.

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y A coffee agroecosystem is created when human manipulation and alteration of the pre-existing

ecosystem takes place for the purpose of establishing coffee production. This introduces several changes

in the structure and function of the natural ecosystem (Gliessman 2004b), and as a result it changes some

upstream Farmers Downstream


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important system level qualities. These qualities are often referred to as the emergent qualities or

properties of systemsaspects that manifest themselves once all of the component parts of the system

are organized. These same qualities can also serve as indicator of agroecosystem sustainability

(Gliessman 2001). Some of the emergent qualitie of ecosystems, and how they are altered as they are

converted to coffee agroecosystems, are as follows

o Energy flow

Solar energy must be maximized

Nonrenewable energy must be replaced by renewable energyy Nutrient cycling

o Nutrients loss must be minimum

y Population regulating mechanisms:

o A focus on sustainability requires the reintroduction of the diverse structures and species

relationships that permit the functioning of natural control and regulation mechanisms

y Dynamic Equilibrium

o System stability is not a steady state, but rather a dynamic and highly fl uctuating one that

permits ecosystem recovery after disturbance

Page 32y Coffee agroecosystems sustainability foundation

o Natural ecosystem

Reference system for understanding the ecological basis for sustainability in a particular

location.

o Traditional coffee agroecosystems

How local culture and environment have co evolved through the processes that balance

the needs of people in terms of socio economic, technological and ecological factors.

y The greater the structural and functional similarity of an agroecosystem to the natural ecosystems in its

biogeographical region, the greater the likelihood that the agroecosystems will be sustainable.

(Gliessman 1998)

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Table 2.1

y Guiding principles for the process of conversion to sustainable coffee agroecosystems design and

management. Modifi ed from Gliessman 2004a.

1. Shift from through-fl ow nutrient management to recycling of nutrients, with increased dependenc on

natural processes such as biological nitrogen fi xation from legume shade tree and mycorrhizal relationships

in the soil.

2. Use renewable sources of energy instead of non-renewable sources, such as fi rewood fro shade tree

pruning for coffee drying.

3. Eliminate the use of non-renewable off-farm human inputs that have the potential to harm the

environment or the health of farmers, farm workers, or consumers.


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4. When materials must be added to the coffee plantings, use naturally occurring materials instead of

synthetic, manufactured inputs.

5. Manage pests, diseases, and weeds in the coffee system instead ofcontrolling them.

6. Reestablish the biological relationships that can occur naturally in the coffee system instead of reducing

and simplifying them.

7. Make more appropriate matches between the ecology of the coffee plant and the productive potential andphysical limitations of the farm landscape.

8. Use a strategy of adapting the biological and genetic potential of the coffee plant to the ecological

conditions of the farm rather than modifying the farm to meet the needs of the coffee crop.

9. Value most highly the overall health of the agroecosystem rather than the outcome of the individual

coffee crop.

10. Emphasize conservation of soil, water, energy, and biological resources.

11. Incorporate the idea of long-term sustainability into overall agroecosystem design and management.

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y The key to moving toward more sustainable coffee farms is building a strong ecological foundation

under the agroecosystem, by using the ecosystem knowledge of agroecology described above. This

foundation then serves as the framework for producing the sustainable harvests needed by farmers, their

families, and their communities. In order to maintain sustainable harvests, though, human management

is a requirement. Agroecosystems are not self-sustaining, but rely on natural processes for maintenance

of their productivity. The coffee agroecosystems resemblance to natural ecosystems can allow the

system to be sustained, in spite of the long-term human removal of biomass, without large subsidies of

non-renewable energy and without detrimental effects on the surrounding environment.

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y In the broader context of sustainability, we must study the environmental background of the

agroecosystem, as well as the complex of processes involved in the maintenance of long-term

productivity. We must fi rst establish the ecological basis of sustainability in terms of resource use and

conservation, including soil, water, genetic resources, and air quality. Then we must examine the

interactions among the many organisms of the coffee agroecosystem, beginning with interactions at theindividual species level, and culminating at the ecosystem level as our understanding of the dynamics of

the entire system is revealed. Our understanding of ecosystem level processes should then integrate the

multiple aspects of the social, economic and political systems within which coffee-production systems

function, making them even more complex systems. Not only will such an integration of ecosystem and

social system knowledge about coffee lead to a reduction in synthetic inputs used for maintaining

productivity; it will also permit the evaluation of such qualities of coffee agroecosystems as the long-

term effects of different input/output strategies, the importance of the environmental services provided


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by coffee landscapes, and the relationship between economic and ecological components of sustainable

coffee management. By properly selecting and understanding the upstream inputs into coffee systems,

we can be ensured that what we send downstream will promote a sustainable future.

Chapter 2

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y Problems for coffee farmerso Shift from managed market to free market

o Lack of access to farm credit(financing)

o Over-dependence of a single source of income

o Inability to access market directly

o Farmer organization weaknesses

o No power to negotiate the price with the trader.

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y

Today coffee farmers receive 2 percent or less of the price of a cup of coffee sold in a coffee bar. Theyreceive roughly 6 percent of the value of a standard pack of ground coffee sold in a grocery store.

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y Most value is added in the consuming countries

o Even though traders squeeze extra margins for themselves out of farmers, the real margins in the

market are made after export by coffee roasting companies and marketers. In sharp contrast with

losses, or at best tiny margins, made by farmers and exporters in developing countries, the

roaster companies in the United States and Europe are making extraordinary profi ts on their

retail coffee business.

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y Nonetheless, a lack of access to capital has limited the potential of the cooperative business model, and

thus its ability to function as a means to increase direct market access and the higher incomes associated

with it.

Sustainability in the Coffee Sector: Exploring Opportunities for

International Cooperationharsh

y Sustainable economic conditions are thus a clear pre-requisite to fulfilling the social and environmental

objectives of sustainable development within the sector. Direct dependence upon the international

coffee market for revenue generation at the household, community and national levels makes the inter-

relationship between the social and economic pillars particularly evident in the case of coffee. Economic

uncertainty and declining terms of trade at the international level translates directly to reduced resources


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for basic needs such as education, medical services, safe living spaces and other environment-related

goods. Sustainable economic conditions are thus a clear pre-requisite to fulfilling the social and

environmental objectives of sustainable development within the sector.

y At the same time, however, the adoption of environmentally-sustainable production practices holds the

promise of improving economic returns to producers over the short and long term. On one hand,

certified socially- and environmentally-responsible coffees typically receive a considerable price

premium over conventional coffees.25 On the other hand, transition to sustainable production practices

on a large scale has the potential to improve the macro-economic sustainability of the coffee sector.Some maintain, for example, that certain environmentallysustainable production practices produce

coffees of a higher quality than their highly-technified counterparts.26 In addition to earning higher

returns over the short term for producers, the transition to environmentally-sustainable production could

have a positive influence on overall rates of coffee consumption (and thus prices across the coffee

market as a whole). There is also evidence suggesting that environmentally-sustainable production

practices produce smaller but more stable crop yields than technified practices.27 To the extent that this

is the case, large-scale transition to sustainable practices could improve stability and price levels on the

international marketkey criteria in determining the overall economic sustainability of the sector.

y Fair Trade Labelling

o The core of the FLO system is built upon a certification scheme designed to ensure that select

social, environmental and economic criteria are maintained throughout the coffee supply chain.

The principal eligibility requirements for FLO coffee certification are:

1. that a minimum price covering basic production and living costs be paid for the coffee;

2. that producer organizations provide opportunities for democratic producer self

representation;

3. that importers offer partial advance payment to producers when requested;

4. that producers commit to environmentally-sustainable production practices;

5. that producer groups commit premiums received from the sale of FLO-certified coffee

to investments in diversification and reinvestment in community projects.y Principles for Sustainable Development in Coffee Trade40

o Principle 1: Producers should be paid a price/wage that covers production, living and

o environmental costs within a competitive framework and which displays a measured degree of

stability.

o Principle 2: Employment relationships should be maintained in accordance with core ILO

o conventions and local law.

o Principle 3: Production practices should be environmentally sustainable.

o Principle 4: Producers should have enhanced access to credit and opportunities for

o diversification.

o Principle 5: Producers should have enhanced access to trade information and trade channels.

y there is a need and an opportunity to improve the sustainability of the coffee sector through the adoption

ofmultilateral, multi-stakeholder, market-basedapproaches that integrate economic sustainability

within social and environmental sustainability. While a wide range of potential instruments for

combining these approaches is possible, themes for consideration include:


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o ! mechanisms for streamlining the administration and efficiency of sustainable practices at the

global level through multi-stakeholder processes (coffee stewardship council; interinitiative

collaboration; coordination with multilateral agreements (ICA));

o ! mechanisms for ensuring higher and/or more stable returns to coffee produced according to

social and environmental criteria (use of hedging tools, price differentials, floor prices, long-term

contracts, etc.);

o ! mechanisms for improving access to credit for those involved in social and environmental

production practices (financing of credit, development of new, more accessible creditinstruments);

o ! mechanisms that build in opportunities for diversification either along the value chain or

through the development of other product areas with the adoption of social and environmental

production practices (financing for diversification linked to sustainable production practices);

and

o ! mechanisms for ensuring enhanced market access to producers involved in social and

environmental production practices (preferential tax treatment; financing for the development of

trade institutions and channels of sustainable coffee).

Black gold documentary

4 biggest coffee buyers

y Kraft

y Nestle

y Proctor and gamble

y Sara lee

Coffee General Supple Chain

MAINSTREAM SUSTAINABLE COFFEEA.Kolk willy

y The four main standards that include independent monitoring and certifi cation are Fairtrade,Organic, Rainforest Alliance and Utz Certifi ed. Foci and requirements have differed considerably, reflecting the divergent origins

and objectives of the organizations involved.

y Sustainable coffee and the characteristics is a wicked problem for more info, refer to the article

Farmer ExporterAbroadBuyer

Roaster Retailer Customer


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y the standards that include independent monitoring and certifi cation are Fairtrade, Organic, Rainforest Alliance (RA) andUtzCertifi ed (Utz). Each has its own distinct background and history (see Table 1). Fairtrade, for example, is the oldest, and

supporting small producers has been its starting point, while forRA and Organic this has been protection of ecosystems and

biodiversity, and forUtz market-based mainstreaming of sustainability (see below; cf. Raynolds et al., 2007)

y


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y The only study that compared Fairtrade,RA, CAF and non-certifi ed openly (Ruben and Zuniga, 2010) concluded that, whileFairtrade coffee farmers obtained a somewhat higher price, the net effect was small because certifi cation according to other

standards helped producers to improve quality and productivity, with better yields and quality performance. The authorssuggest that, while Fairtrade may be useful in an early stage, for farmers to get access to the world market, in the somewhat

longer run other standards work out better for them. In an interview (Koch, 2010), Ruben alludes to a relationship with theguaranteed price, as this may remove incentives for improvement, with farmers also tending to stick to one crop only instead

of diversifying and spreading risks.

y The premium offered by FT, aimed at community development programmes, goes to the collective rather than the individual,and is said to be not always fully utilized due to diffi culties in fi nding or agreeing on the most appropriate spending purpose

(Koch, 2010). RA and Utz coffee have, due to higher quality, generated a 35% premium above the market price for

participating farmers, often paired with greater effi ciencies and cost reduction, from which the individual farmer benefi ts

(Solidaridad, 2010a). Organic coffee farmers also receive a premium, which used to be 20% on average (Giovannucci et al.,

2008), which should compensate for the higher costs of production according to this standard, and reward better quality.


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However, this seems increasingly insuffi cient to justify organic farming on economic grounds (Giovannucci and Villalobos,

2007; Kilian et al., 2006). Fieser (2009) recently reported that many small farmers in Latin America (the continent that

produces three-quarters of the worlds organic coffee), are considering transitioning back to conventional coffee as price

differentials are too low to justify the restrictions and the lower yields due to the ban on the use of chemical fertilizers and

pesticides.

Institutions,the governance of quality and

on-farm value retention for Indonesian

specialty coffeeJeffNeilson

Coffee farmers are increasingly faced with two alternative strategies to simply retain access to global markets: compete as low-cost producers of abulk commodity in a race to the bottom, or somehow differentiate their product in order to access qualityconscious markets. This paper shows thateven those producers satisfying stringent quality requirements (including certification for the environmental and social attributes of production) are

not guaranteed improved returns in the long term.

The Search for Sustainable Markets:

The Promise and Failures of Fair TradeJulia Smith

y fair trade promiseso transform small scale coffee farming by ensuring a fair priceo improving market access for produceso creating closer ties between producer and customer

y fair trade has at times acted as a niche market

y The fair-trade system for coffee is fairly straightforward. Smallholders organised incooperatives or other organisations with a democratic, participative structure (FairtradeLabelling Organizations International [FLO] 2006) can apply to the FLO for certification as fair-trade producing cooperatives. To be certified and to retain certification, cooperative members

must avoid using certain agrochemicals, refrain from farming practices that could damage theenvironment, and work toward sustainable agricultural systems. Once certified, cooperativesmay sell coffee through the fair-trade market. The FLO also certifies buyers of coffee, who aregiven contact information for a variety of certified cooperatives. To retain certification, buyersmust pay at least $1.21 per pound of conventional coffee plus a $0.05 per pound fair-tradeadjustment and an

extra $0.15 per pound for organic coffee. When the price of coffee rises above $1.21 per pound,the buyer must pay the market price plus the adjustments(Transfair USA 2005).

y The intent of these fair-trade organizations was not to focus on the economics of the deal.Instead, the fair-trade movement aimed to create strong links between producers and

consumers, by encouraging both sides to perceive the relationship as a collaborative one.

However, as the fair-trade market has grown from a small social-justice driven movement to a

broad niche market, these relationships have often diminished, and only the economic deal

remains.

y The rate of sales of fair trade coffee in the US has increase by 45 % since its introduction


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y one hectare of coffee can produce thousands of pounds of coffee. Ninety pounds of fair-trade

coffee generates less than $110 of income per producer in a fair-trade certified cooperative. If

this income was distributed evenly, fair trade might slightly improve the lives of hundreds of

thousands of producers. Of course, sales are not evenly distributed. Instead, some

cooperatives have been highly successful, selling the vast majority of their coffee through the

fair-trade market (Murray et al. 2003:16), whereas others have struggled to find any access to

fair-trade markets.

y The unevenness of impact is not intentional but results from the way the fair-trade marketworks. Fair-trade organizations only certify producing cooperatives and purchasing companies,and leave producers and purchasers to contact one another. Not surprisingly, this allows moreexperienced fair-trade producers to continue to dominate the market. They are more aware of,and hence responsive to, the concerns of U.S. and European vendors and have alreadydeveloped effective communication strategies with them.

y Buyers like star bucks prefer to work with large scale cooperatives for certain reasons and this

result in lack of communication between buyer and seller.

y The demand for organically produced, high-quality coffee comes at a time when fair-tradeorganizations and purchasers are providing less technical assistance and support to fair-tradeproducers.

y Much of the literature on fair trade emphasizes the increase in small-farmer income madepossible by cutting out middlemen and brokers within the exporting company, who often leavelittle income for the producers.

Fair trade website fairtrade.net

What is fair trade

y Fairtrade is an alternative approach to conventional trade and is based on a partnershipbetween producers and consumers. Fairtrade offers producers a better deal and improvedterms of trade. This allows them the opportunity to improve their lives and plan for their future.Fairtrade offers consumers a powerful way to reduce poverty through their every dayshopping.

Fair trade standard

y There are two distinct sets of Fairtrade standards, which acknowledge different types ofdisadvantaged producers. One set of standards applies to smallholders that are workingtogether in co-operatives or other organizations with a democratic structure. The other setapplies to workers, whose employers pay decent wages, guarantee the right to join tradeunions, ensure health and safety standards and provide adequate housing where relevant.

Fair trade Prices


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y The minimum price paid to Fairtrade producers is determined by the Fairtrade standards. Itapplies to most Fairtrade certified products. This price aims to ensure that producers can covertheir average costs of sustainable production. It acts as a safety net for farmers at times whenworld markets fall below a sustainable level. Without this, farmers are completely at the mercyof the market.

yWho is behind fair trade

y Form FLC doc.pdfo If an operator is both a producer and a trader he receives two certificates and the two certification

cycles are managed separately however audits are in general combined for efficiency reasons.

Benefits of fairtrade

y For producers Fairtrade isunique in offering four importantbenefits1. Stable PricesFor most products, prices that at least cover the costs of sustainable production even when worldmarket prices fall.

2. A Fairtrade Premium

The Premium helps producers to improve the quality of their lives. It is paid on top of the agreedFairtrade price, and producers decide democratically how to use it. Typically they invest it in education,healthcare, farm improvements or processing facilities to increase income.

y . PartnershipProducers are involved in decisions that affect their future. Fairtrade certified producers jointly own andmanage FLO. Through the FLO's Board, its Committees and consultation processes producers can

influence prices, premiums, standards and overall strategy.

4. Empowerment of farmers and workersThis is a goal of Fairtrade. Small farmer groups must have a democratic structure and transparentadministration in order to be certified. Workers must be allowed to have representatives on a committee

that decides on the use of the Fairtrade Premium. Both groups are supported by FLO to develop their

capacity in this area.

With Fairtrade everyone wins

Consumers

Shoppers can buy products in line with their values and principles. They can choose from an ever growing

range of great products. By buying into Fairtrade consumers support producers who are struggling to improvetheir lives.

Traders/companies

Since its launch in 2002 the FAIRTRADE Markhas become the most widely, recognised social anddevelopment label in the world. Fairtrade offers companies a credible way to ensure that their trade has

a positive impact for the people at the end of the chain.

Environment


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Fairtrade rewards and encourages farming and production practices that are environmentally sustainable.Producers are also encouraged to strive toward organic certification. Producers must:

y Protecttheenvironmentinwhichtheyworkandlive. Thisincludesareasofnaturalwater,virginforestand

otherimportantlandareasanddealingwithproblemsoferosionandwastemanagement.

y Develop,implementandmonitoranoperationsplanontheirfarmingandtechniques. Thisneedstoreflecta

balancebetweenprotectingtheenvironmentandgoodbusinessresults.

y Follownationalandinternationalstandardsforthehandlingofchemicals. Thereisalistofchemicalswhichthey

mustnotuse.y Not,intentionally,useproductswhichincludegeneticallymodifiedorganisms (GMO).

y Workoutandmonitorwhataffecttheiractivitiesarehavingontheenvironment. Thentheymustmakeaplanof

howtheycanlessentheimpactsandkeepcheckingthatthisplaniscarriedout.

Green mountain coffee roasters .com

Whats In a Label?

The real meaning ofthe fair trade label on your gourmet coffee.

y Asglobalcoffeeproductionhasincreased,themarketpriceofcoffeehasfallen. Thislowercosthasbeen

absorbedbycoffeeproducers,manyofwhomaresmall-scalefarmersinpoorcountries.Andyetretailersselling

thesebeansorbrewinthedevelopedworldoftenchargeconsumershigher-than-marketprices. Thefairtrade

movementseekstoconnectproducerstoconsumers,cuttingoutoratleastcontainingthemiddlemensothat

farmersreceiveabetterprice.

y Somearguethatthemovementexcludessmall-scalefarmerswhodonotwishto joincooperatives;others

opposeitonthegroundsthatitsustainsanessentiallyunsustainableactivity.

Farm Identified Program

y Knowing Farmers is the key step in sustainability throughout the supply chainy High quality will remain consistent

y Assist farmers towards sustainabilityy Fair TradeCertifiedcoffeeisonewaytoremedythismarketfailurethroughauditablestandardsandconsumer

pull.

ANiche for Sustainability? FairLabor and Environmentally Sound

Practices in the Specialty Coffee IndustryApril LintonaaUniversity of California, San Diego, CA, USA

y Has the specialty coffee industry truly created a niche for sustainability? My answer is a very qualified

yes.

y What is Sustainable Coffee? The Coffee Research Institute (2005) defines sustainable coffeeas coffee grown in a manner that is kind to the environment and its people (p. 1). Ways thatthis might be done include:

. Reusing coffee husks as heating fuel instead of cutting down trees

. Minimizing water consumption and water pollution


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. Replacing soil nutrients by spreading fertilizers and organic matter such as compostedcoffeepulp under and between the coffee trees. Engaging in practices such as shade growing, biodiversification, and organic farming. Helping smallholder farmers capture most or all of their coffees export price. Providing decent wages and living conditions for workers, including medical care andeducation.


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y The majority of NGOs concerned with sustainable coffee work from a different angle: Having

established certifications, they must increase consumer awareness and thereby create market

demand for the certified products. Their challenge is to get consumers to figure workers and

the environment into their coffee-buying decisions

y In doing so, they emphasize that to be sustainable in the specialty market, coffee must be of thehighest quality. These businesses pay a premium for certified coffees, but they do so only if it reflectsthe flavor characteristics their customers expect.

y Some coffee companies have undertaken private voluntary initiatives (PVIs) to addresssustainability issues. One example of a PVI is Starbucks CAFE (Coffee and Farmer Equity)Practices. Producers who wish to apply to the program must first pass a quality profile andeconomic transparency requirements. Then, third-party verifiers audit farms on manyenvironmental and social indicators.

y Yet another way that specialty coffee businesses have taken up the challenge of sustainabilityis by partnering with NGOs. The primary goals of these relationships fall into three maincategories: promoting quality and fostering direct ties between producers and buyers,improving or sustaining the environment, and commitments to buy Fair Trade Certified coffees(Linton, 2005).

y A recent study of all Fair Trade-certified producer groups that sell at least some of theirproduce under Fair Trade terms shows that 77% of them are directing some or all of their FairTrade premiums toward projects that benefit their entire communities, especially in the areasof education, womens initiatives, environmental initiatives, and infrastructure (Linton &Murphy, 2007).

y Renard (2005) criticizes FLO for not offering farmers incentives for crop diversification and notadjusting the fair price in correspondence to national or regional economies

http://www.coffeeresearch.org/politics/sustainability.htm

Sustainablefarmswillalsoengageinpracticessuchasshadegrowing,biodiversification,organic

farming,andsustainableagriculture. Inadditiontoseekingrenewableenergyresources,theywillpromoteeducationprograms,providemedicalcareforworkers,andprovidedecentwagesandworking

conditionsfortheiremployees

Standards and Sustainability in the Coffee

SectorA Global Value Chain Approach

y The more direct measure of the impact of standards systems on economic sustainability is the level of

premium offered. At current market prices, the highest premium is by far offered in fair tradecertification.

y The balance sheet for fair trade is invariably positive, since farmers do not pay for certification, the premium is very highand the necessary changes in farming systems fairly limited. However, these impacts may be hard to maintain in the futurein the fair trade systemas oversupply continues and pressure for prices to descend increases.


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y A general problem in the realm of certified coffees is that the quantity supplied is often above the marke demand.Therefore, producers may not be sure that the investment made on certification and in changing their agro-ecologicalpractices will pay back

y The key to economic sustainability for organic conversion is to find a reliable minimum size market year after year.

Global Private Regulation and

Value-Chain Restructuring in IndonesianSmallholder Coffee Systems

JEFF NEILSON*

y The global private regulation ofsustainability requires the capacity to trace back the agricultural origins of coffee in developingcountries. This process of enhanced product traceability is a prime driver in a series of changes to value chain structures inproducing countries, of which little has hitherto been documented.

y Corporate self regulation in the coffee sector frequently enrolls NGO actors, as partners in determining and monitoring bestpractice, in an attempt to establish moral legitimacy in the market. These partnerships obfuscate the distinction

y between corporate self regulation and NGO alternative products, creating a new regime of global private regulation.y Traceability-driven CSR initiatives have clearly emerged as an important tool with which lead firms implement value chain

governance.

y Across Indonesia, farm-level marketing of coffee generally involves maintaining relationships with first-stage collectors, who eitherpurchase coffee at the farm-gate or through traditional village markets. Arabica coffee in northern Sumatra and southern Sulawesi issold by farmers as semi-dried parchment coffee for subsequent processing at centralized mills.

y It is not uncommon for coffee to change hands three or four times along traditional trade networks before reaching processing millsor exporters. The role of the first-stage collector in this network is particularly important, frequently offering a line of credit to

farmers in return for the exclusive sale of harvested coffee to them, thereby interlinking product marketing and credit markets

y Based on field observations in 2005 and 2006, it appears that farmer share of the FOB price for Indonesian coffee is slightly lower,ranging from about 65% (North Sumatra) to 70% (Sulawesi) forArabica, and up to 75% forRobusta in Lampung (much higher, itshould be noted, than estimates made by McStocker (1987), during a period of greater market intervention). The slightly lower rates

forArabica reflect the fact that Arabica leaves the farm as a semi-processed product, still with substantial downstream processingcosts. In conclusion, then, it would appear that traditional coffee marketing networks do in fact function relatively efficiently,transferring most of the export price to farmers.

y Effective farmer organization through cooperatives certainly appears to offer numerous potential advantages to growers (collectivemarketing, labor sharing, revolving credit, bulk-buying, and knowledge dissemination). This form of organization, however, is far

from widespread in the coffee regions of Indonesia and it is contentious whether cooperatives are necessarily most effective indelivering services to individual coffee growers (particularly without substantial external support).

y While a direct relationship between farmer cooperatives and a mill would, in theory encourage a greater degree of pricetransparency and traceability, this is only possible within a supporting institutional framework, which does not currently exist in thecoffee regions of Indonesia. As such, there will be serious social ramifications of externally insisting on changes to the local supplychain structure without first addressing the economic functions being performed by particular local-level institutions.

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