The research conducted by independent firm BASIC used publicly available data from the German coffee market, along with insights from Brazil, Colombia, Ethiopia and Vietnam, to build objective quantitative estimates of the distribution of value, costs, taxes, and net profit margins along coffee value chains. This was verified through extensive rounds of interviews and consultation with the industry. Though the report begins with the German market, the results are indicative of how value is distributed in other markets.
Current value distribution makes coffee production economically unviable for most farming families and the planet.
Annette Pensel, Director Global Coffee Platform
“Current value distribution makes coffee production economically unviable for most farming families and the planet,” said Annette Pensel, Director Global Coffee Platform. “This challenges the ambition of the coffee industry to become sustainable. We invite the coffee sector to rethink the value system and act collectively to secure its future.”
The grounds for sharing
The research ‘The Grounds for Sharing: A study of value distribution in the coffee industry’ finds that the evidence is clear:
- Value concentrates away from farmers and further down the value chain – from importer to retailer.
- Family labour is undervalued. Labour is the largest share of farm costs for smallholders, but it is often unpaid and unaccounted for – meaning farmers’ “margins” can seem higher than they are which hides the problem.
- There is no quick fix. Alongside important sector efforts to increase farmer profitability, it’s about creating value distribution mechanisms and enabling trading conditions that account for the diversity and complexity of the coffee industry.
Coffee companies are not only exposed to the complexity of doing business in low income countries, but together they also risk contributing to sustained poverty among smallholder coffee farmers.
The long term impact of underpaying smallholder and family farmers ultimately affects the whole industry, and it will take an economic perspective to systemically and sustainably fix the issue.
Andrea Olivar, Strategy Director Solidaridad Latin America
“The study found that the economic model for smaller family farms is not including one of the main costs: family labor. Without a proper valuation of family labor, it is near impossible to fully reward farmers for their coffee,” said Andrea Olivar, Strategy Director Solidaridad Latin America.
“The long term impact of underpaying smallholder and family farmers ultimately affects the whole industry, and it will take an economic perspective to systemically and sustainably fix the issue.”
Industry talks proposed
Farmer prices are disconnected from consumer prices, and there are few mechanisms to distribute value, adequately. It’s hoped these findings will form a starting point to secure commitments from the sector on sourcing principles that enable better value distribution. The three organizations will be seeking agreement from industry leaders to take part in joint discussions with a commitment to these ambitions.
“Two key interventions are needed; sector commitments on sourcing practices that enable value redistribution, and supply chain partnerships that design and implement mechanisms for adding, creating, and transferring value,” said Tessa Meulensteen, Director Agri-Commodities IDH.
“With the right mechanisms, companies can more easily comply with due diligence and reporting requirements, and ensure a sustainable supply of coffee in the long run.”
The precise mechanisms will be discussed with the industry, but could include established value distribution principles that account for the diversity of farmers and origins.