Coffee at a Crossroads: Inside Jeffrey Sachs’ Landmark Sustainability Report

Daily Coffee News photo by Nick Brown

The highly anticipated report on the sustainability of the coffee sector from famed Columbia University economist Jeffrey Sachs finally dropped on Oct. 1, providing a sprawling and thoughtful view of the past, present and potential future realities affecting the global coffee sector.

Offering advanced predictive models related to climate change in the coffeelands, and long-term production, supply and demand estimates, the 155-page report repeatedly condemns a “business as usual” approach, particularly among coffee buyers. It comes at a time when ICE futures contract prices — or the “C prices” — for coffee have been at historic lows for nearly two years, threatening the livelihoods of millions of smallholder coffee producers while fueling an existential threat to the long-term supply of quality arabica coffee.

Sachs and fellow authors from the Columbia Center on Sustainable Investment repeatedly warn that without widespread, collective, multi-stakeholder action — to the tune of $10 billion per year — the coffee sector will ultimately be plagued by extreme poverty among farmers and farmworkers, a sector-destructive lack of available arabica growing land, and dramatically decreased diversity in coffee plant types, growing regions and quality.

Columbia University’s Jeffrey Sachs at the first World Coffee Producers Forum in Medellín, Colombia.

“Will the coffee sector continue following a business-as-usual trajectory of limited and piecemeal sustainability endeavors, which would ultimately result in further concentration of coffee producers and heightened supply risks?” the report asks. “Or will the coffee sector undertake strong concerted efforts to support a more sustainable and resilient future for producers and the sector overall?”

If the latter, Sachs and his team offered three major suggestions for collective action among industry players, governments, NGOs and individuals. We’ll outline each of those below, but first, here’s a quick key to understanding some of the new and existing abbreviations and concepts repeated in the report:

• GCF = Global Coffee Fund
• SDGs = Sustainable Development Goals, a set of 17 global sustainability goals established by the United Nations in 2015, designed in part to provide a shared lexicon for sustainability initiatives
• CCPs = Country Coffee Platforms, platforms for individual countries for governance and planning related to the Global Coffee Fund (GCF)
• NCSPs = National Coffee Sustainability Plans, one of the three primary recommendations of the report (more on these later)

It’s also worth noting here that the report was commissioned by the nonprofit World Coffee Producers forum and some of its most influential members, including the International Coffee Organization, the Colombian Coffee Growers Federation (FNC), the African Fine Coffees Association, the Inter-American Development Bank and Promecafe.

A Global Coffee Fund (GCF)

Arguably the most radical of the report’s proposals is the call for a global coffee fund financed by the coffee industry. This is described as a pre-competitive fund, one that could potentially be operated by one or more existing NGOs already working towards global coffee sustainability.

The report suggests that the fund would be financed by the “main coffee industry actors,” then used to leverage additional public and private sector funding. To be clear, this is not being pitched as a “charity” fund or some sort of price stabilization fund in times of price shocks. Instead, it would be “a key pre-competitive initiative of the coffee sector to fill critical financing gaps for sustainability investments in coffee-producing regions” — one with governance mechanisms to mitigate corruption and fraud.

According to the report, “It is an avenue for downstream and midstream actors such as roasters, retailers, and traders to fulfill their co-responsibility for achieving a sustainable coffee sector and to shoulder more of the risks that currently fall too heavily on producers alone.”

Sachs and the Columbia team argue that such a fund would multiply, “at a far greater scale,” the existing public-private efforts, or sustainability efforts devoted to individual supply chains. The authors argue that it would scale up donor funding, increase financial commitments from national budgets of coffee-growing nations, and increase commercial investments by the private sector.

Here’s the kicker: The report estimates that the amount of money required to make meaningful progress is in the range of USD $10 billion per year.

“We provisionally suggest a goal of raising $2.5 billion per year through pre-competitive private sector contributions to the GCF,” the report states. “Using the 2018 global export number of 7.3 billion kg of green coffee, this would amount to 34 cents per kg of green coffee contributed to the GCF… In other words, the targeted level of funding would require no more than half a U.S. penny per cup sold.”

Repeatedly noting the trends toward consolidation and increased profit among the largest players in traditional consumer markets, such as the United States and Europe, the report states:

We suggest that the largest roasters, retailers, and traders should be both the forerunners in contributing to the fund, as well as the entities that contribute the most. These actors have outsized impacts on the industry, should have particularly strong interests in a sustainable coffee future, and proportionally have the largest responsibilities for ensuring the long-term sustainability of coffee value chains.

National Coffee Sustainability Plans (NCSP)

A second major recommendation within the report is the development of National Coffee Sustainability Plans (NCSPs) on the part of every single coffee-producing country.

The report states that these NCSPs should account for “differentiated needs, challenges, and opportunities within the country’s coffee sector. At their core, NCSPs would offer clear strategic plans for supporting producers, promoting sustainable coffee production, and aligning producing regions with the SDGs.”

Such NCSPs should be created through multi-stakeholder, participatory, inclusive and, perhaps most importantly, transparent processes in order to align with established Sustainable Development Goals (SDGs).

The Global Coffee Fund would then be used to implement these NCSPs.

Increasing Producer Profits

The third and critically important main tenet of the report’s plan is increasing producer profits. Of course, there are no easy answers here, yet the report argues that there are numerous under-utilized strategies for coffee producers to capture more of coffee’s value.

The report often divides the global coffee sector into two primary producing markets: 1) high-volume, mechanized production in Brazil; and 2) everyone else, or, the rest of the world (ROW, as abbreviated in the report). One of the more radical suggestions is for producing countries to band together to implement a minimum price that is linked to the farmgate price in Brazil’s mechanized, high-volume market. This, the report suggests, could give ROW producers in the increasingly consolidated coffee market more stable returns based on volume. From the report:

At the farm gate, the big difference between a competitive buyer and a monopsonistic buyer of coffee is that the monopsonistic buyer has the incentive and the ability to put downward pressure on the price paid to the producers. When a market faces a monopsonistic buyer, it may set a minimum price without endangering the quantity purchased. Since the monopsonist can no longer push the farmgate price lower, it would buy up the entire quantity available; doing so will still earn it a net profit.

Although there is probably little monopsonistic power vis-à-vis Brazil’s high-tech producers given that their supply elasticity is quite high, it may be true that coffee producers in ROW are facing increased monopsonistic pressures. If these pressures exist, creating a minimum price linked to the Brazil high-tech farmgate price might be a workable and beneficial solution for ROW producers.

While the above is a potential response to market forces, the report outlines numerous ways in which producing countries and producer networks themselves can improve market access and command more value for their coffee.

Highlighting existing, though relatively small-scale, successful relationships built by coffee companies such as Pachamama Coffee Cooperative, Moyee Coffee and Thrive Farmers Coffee, the report also delves deep into the potential of e-commerce for producer-direct-to-consumer sales.

“Although currently niche, direct to consumer models have potential to scale with sustained institutional support. This could include aggregating producers for economies of scale, and making the administrative and logistical aspects feasible for many producers,” the report states. “Some of the institutional support needed could potentially be undertaken by producer associations. This could include, for example, identifying and negotiating better rates with existing entities and companies that could provide necessary services, such as transport or distribution.”

Such success would require significant offline investments in marketing, quality control and logistics, according to the report, as producers attempt to break into fiercely competitive markets with existing brand loyalty among consumers. On the other hand, that loyalty may be waning as the price crisis lingers on.

“The starkly contrasting situations of profitable downstream actors and suffering upstream ones may lead an important segment of consumers to strongly question whether the brands they trust support producers’ economic sustainability,” the report states. “This plausibly could shift some brand loyalty towards companies that are better partners for producers; it may also create an opportunity for producers to capture more of the final retail price through marketing directly to consumers.”

There’s much, much more to unpack in the report. The full version is available for free download here.