Introduction governments but also firms which play an

Introduction

The coffee industry, which involves more than 100 million people in 80 countries (Levy et al., 2016), is considered as a pioneer in terms of sustainability standards (Kolk, 2005; Ponte, 2002, cited in Levy et al., 2016, p.). It involves NGOs, association, governments but also firms which play an increasing role in this field, because “the expectations of sustainability that customers have is, every day, more important” (Daneshkhu S., Atkins R., 2017). As a result, some of them have been implementing their own standards following a global strategy that involves high quality products, but also rewards for farmers producing them (Biswas-Tortajada and Biswas, 2015)

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For the purpose of this essay, we will define sustainable business practices. First developed by John Elkington in 1994, it could be expressed as “managing the triple bottom line – a process by which companies manage their financial, social and environmental risks, obligations and opportunities. These three impacts are sometimes referred as profits, people and planet” (Financial Times, 2018). In addition, sustainability standards could be described by “a set of voluntary predefined rules, procedures, and methods to systematically assess, measure, audit and/or communicate the social and environmental behaviour and/or performance of firms” (Gilbert, Rasche and Waddock, 2011, p.24), whereas the private sector is stated as “organisations that engage in profit-seeking activities and have a majority private ownership. … It excludes actors with a non-profit focus, such as private foundations and civil society organisations” (Crishna Morgado et al., forthcoming; Di Bella et al., 2013 cited in OECD, 2016).

When studying the question whether private sector standards are sufficient to ensure sustainable business practices in the coffee industry, we concluded that private sector standards’ efficiency is limited to the firms’ own supply chain, but do not ensure and even limit the development of sustainable business practices industry- and nation-wide.

This paper will first demonstrate, using Nestlé’s case study in Colombia, that according to the objectives of sustainability set by the firm, sustainable business practices are ensured. It will then challenge this first part by demonstrating that the costs of accessing to certification is the pivotal part of unsustainable business practices outside the firms’ supply chains.

 

I)               Sustainable business practices are key component of today’s firm brand image and are therefore have to be ensured within their supply chain

 

Coffee’s production has grown by 47% in the last ten years (Statista 2018) as a result of an increase in daily consumption, and therefore, sustainability has become a key factor of firms’ brand image. Nestlé, first worldwide coffee supplier with 22.3% market share, is a major actor of coffee production in Colombia, third exporter worldwide in 2016 (Statista 2018) and has been implementing sustainable standards for its suppliers.

 

Because of the importance given to the sustainability by the customers, Nestlé is being pushed to set high standards and goals over their whole supply chain, with their program called The AAA Sustainability Quality Program. These goals, such as producing 100% of its coffee sustainably (Nestle.com, 2018) appear to be unreachable. However, analysing using the Triple Bottom line concept as well as the COSA™ methodology implemented by the CRECE (Centro de Estudios Regionales Cafeteros y Empresariales), positive results can be observed (Biswas-Tortajada and Biswas, 2015).

Economically, they already produce more than 80% of their coffee in a sustainable way (Biswas-Tortajada and Biswas, 2015). On the firm’s side, this has been partly a reason of the massive increase of Nestlé’s market shares (+ 71.5% since 2005; Kolk, 2005; Statista, 2018). On the supplier’s side, according to the COSA™ methodology that take into account various indicators into consideration, AAA farmers scored 66 per cent higher than non-AAA farmers in the economic index (Biswas-Tortajada and Biswas, 2015).

Socially, the COSA™ index has shown AAA farmers scoring 26.4 per cent higher than non-AAA farmers. Biswas-Tortajada and Biswas (2015) add in their Nestlé study that, as an example of social improvement, “92 per cent of the staff at the Bugalagrande factory owned their own house” (p.68). This is a direct result of Nestlé’s 0% loan politics, that let AAA farmers borrow money from the firm at a 0% interests rate when commercial loans are at a 4% interest rate in Colombia.

Finally, environmentally, both the firm and suppliers show a massive improvement: while Nestlé has already reduced Nespresso’s carbon footprint by 20%, AAA farmers also outscored non-AAA farmers on the COSA™ index (52.1% higher), based on their global agricultural practices, soil and water conservation measures and agrochemical handling.

 

Besides, creating sustainable business practices also resides in the trust granted to the systems that assess and certify the results (see Gilbert, Rasche and Waddock’s definition in the introduction).

Here, again, Nestlé demonstrates arguments in favour of sustainable business practices because of the reliability of its third-party certifier, the CRECE. This reliability remains essentially in the specific knowledge a local institution like the CRECE can bring about the national market, but also in the methodology they use, the COSA™ methodology that has been developed by “a consortium of non-profit organisations and think thanks studying the implementation of sustainability programs” (Biswas-Tortajada and Biswas, 2015). This second point essentially tends to deconstruct a key argument of Pascal Liu against private sector standards that is that “their development process including the implementation and the results assessments … is seldom participatory, transparent and based on scientific evidence” (2009, p.1), but also corroborate that Nestlé’s business practices do fit in our definition of sustainable standards quoted in the introduction.

 

However, when differently analysing the data provided by Biswas-Tortajada and Biswas (2015), it appears that massive inequalities, especially financially, are being created by those private sustainability standards, between the farmers that are included in the program (i.e. can afford to fit the standards and obtain the certification) and the others.

Being certified and maintaining this certification through time indeed (?) requires a certain level of financial means and therefore “small suppliers may not be able to afford such costs and run the risk of being excluded from high value market segments” (Liu, 2009, p.16).

The bias of the data could therefore reside in the fact that Nestlé actually deal only with the suppliers that have the means to support certification costs, and reject from its supply chain those who can’t. It is the origin of unsustainable business practices within the industry.

 

 

 

 

 

II)             However, exclusion from this supply chain is the start of unsustainable business practices within the coffee industry and national economies

 

The costs of the standards accession and requirements fittings are excluding farmers from major markets.

 

As confirmed by Tencati, Russo and Quaglia, “the monetary and non-monetary costs of complying with international standards may prove to be unsustainable and prohibitive for many enterprises, and especially for small- and medium-sized suppliers” (2008, p.526).

This firstly comes from already existing inequalities inside communities of those supplier-countries, which are mostly developing countries. Indeed, Bray and Neilson (2017) suggest that they are a consequence of previous influences, that suppliers had between each other’s, knowing the past-tribal culture (the families coming from the past chiefs have bigger resources than the others, which are here defined by small- and medium-sized suppliers by Tencati, Russo and Quaglia), but also their patriarchal culture that are at the origin of genders inequalities.

The second problem comes from the lack of information that suppliers have on standards. On one hand, this comes by the fact that “buyers are setting the terms and definition of sustainability standards” (Schipani, 2017). Moreover, in practice, many of those standards and the certification they entitle too are insignificantly different, but this is hidden by the lack of information small buyers. Correlating those two problems that are lack of information and highly concentrated buyers results in the fact that suppliers do not choose the standards they want to achieve because of their potential market and profit opportunities but because of the costs they involve. Suppliers face what Reinecke, Manning and von Hagen (2012) called a Standards market, where firms compete on their standards for brand image purposes. Therefore, suppliers often end to have either a useless certification, or no certification because they do not have the financial assets required to achieve the standards they want to.

 

Hence, these increasing inequalities pushes small-isolated producers to put sustainability aside.

Indeed, this increase in inequalities results also in increase in revenues inequalities. While the suppliers achieving the standards build strong ties with the customers, the suppliers that are excluded from those markets face major loss of revenues. As summed up by Gideon Long (2017) in a special report by the Financial Times, “If a farmer is not economically successful in his business, he is not going to care about water use, about different techniques for washing coffee or protecting the soil”. On the other side, the certified farmers maintaining the standards receive special trainings and techniques included in the “package” granted with the certification, that helps them “improve the management of natural resources on which their … livelihoods depend” (Liu, 2009, p.12).

As a result, this can directly refer to our thesis statement, which was that farmers excluded from major supply chains and market were not able to achieve sustainable practices.

Here,(?) their focus remains on the economic aspect in order to acquire the social aspect of sustainable development.

The problem therefore remains in the fact that the environmental pillar is only achievable by an individual if he believes to already achieve the economic and social pillar that are subjectively more important for its survival.

 

Finally, these standards do not help to build “long term” sustainability. First, environmentally, firms like Nestlé focus on high quality coffee production that is Arabica and do not take care about the specie’s long term issues. Terazono (2017) points out in his Financial Times article that the current climate changes will not allow Arabica to be grown anymore by the end of this century, but also that firms do not support research in hybrid bean’s conception, when the under-developed countries where the coffee is grown do not have the funding for it.

Second(ly?), economically, the monopoly that firms create in those countries like Nestlé in Colombia, by excluding small farmers from major markets’ and creating massive inequalities between those selling locally and their (own) suppliers, do not promote self-development and local initiatives like Tip the Farmer quoted in Andres Schipani’s (2017) Financial Times article. Indeed, a supplier wanting to improve the two pillars that are economic and social would rather choose what Mr. Marciano earns: “a 30 per cent premium over Brazil’s minimum wage of R$937, though with health insurance and such expenses as housing, water and electricity covered by his employer, … which in effect increases his income to about R$2000 a month”, than sell locally and benefit from local initiatives.