The rich aroma of large profits
By Tom Wall
Ahmed Ali laughs softly when I tell him that multinational coffee companies are concerned about the plight of coffee farmers. Ahmed works for Oxfam in Ethiopia and has seen at first hand the devastation wreaked by volatile coffee markets. He laughs again when I tell him some coffee companies are planning to launch their own ethical and sustainable products. "It is public relations," he says from his office in Addis Ababa. "These companies are killing people's livelihoods. Poor farmers are being made destitute despite producing the best coffee in Ethiopia. If they were sincere they could make significant changes like introducing a minimum price for coffee."
Sadly, Ahmed Ali's comments cannot be heard in the Nestle headquarters. According to industry speculation - the Swiss food giant won't confirm or deny it - Nestle is planning an ethical coffee brand. The Fairtrade Foundation estimates that its own total UK retail sales were worth £92m in 2003, up by 100 per cent in two years; this trend has continued, with sales more than doubling in the two years to 2004. While coffee consumption overall is falling, Fairtrade coffee sales are rising. And Nestle, like all the big roasters, has been trying to improve its image ever since the price of coffee collapsed in 2001, impoverishing thousands of poor farmers across the world.
Nestle may face an uphill struggle. Three years ago, it emerged that the corporation was demanding millions of dollars in compensation from drought-stricken Ethiopia; only after a public outcry did it accept a much-reduced offer, which it later gave to development charities. Most infamously, it was once boycotted for encouraging mothers in the developing world to use its infant formula instead of breastfeeding. It has also been accused of union-busting in Colombia, illegally extracting groundwater in Brazil and promoting unhealthy food just about everywhere.
But it is not alone in eyeing up the ethical market. Kraft - which owns Kenco, Maxwell House and Carte Noire - has already started producing an ethical brand called Kenco Sustainable for restaurants and cafes. The US-based corporation claims all the beans come from independently certified farms with high social and environmental standards. Outlets are supplied with posters and table cards - presumably bearing images of wholesome peasants relaxing amid lush coffee bushes. Although it is available only to professional caterers, it may soon find its way on to supermarket shelves. Jonathan Horrell, charged with communicating Kraft's new commitment to sustainability, tells me: "We are looking at it because we are a demand-driven business. If there is consumer demand for sustainable coffee, then it would be logical for us to meet it."
The product is certified by the New York-based Rainforest Alliance. Started 17 years ago to prevent destruction of tropical rainforests, the charity now certifies everything from bananas to flowers. But, unlike the better-known Fairtrade Foundation, it does not guarantee a minimum price for coffee beans. Nor does it charge a licensing fee for its logo.
Kraft says it chose the alliance because it matches its mainstream priorities. "Fairtrade," says Horrell, "is fine for customers who can afford to pay a premium, but for those who are price-sensitive, who buy mainstream coffee brands, the Rainforest Alliance programme offers a better match." Crucially, it focuses on sustainable farm management rather than trading systems - although Kraft says it pays farmers a small premium on the market price.
"We believe that by working within existing market forces we can bring more benefits to more farmers," says Chris Willey from the Rainforest Alliance in Costa Rica. "We try to ensure the farmers a sustainable price, but we want them to learn how to compete in the global market, without NGO support, because it is going to become increasingly competitive. We admire and respect what Fairtrade is doing, but we have a different approach."
Perhaps this is why certification by the alliance is proving so popular with corporations desperate to cash in on the ethical market. The alliance certifies products from Lyons Original Coffee - owned by Drie Mollen Holding, one of Europe's biggest coffee roasters - and works with the Italian company Lavazza to certify its ITierra! brand. It also has relationships with AT&T, Procter & Gamble, Pfizer, Ikea and J P Morgan Chase.
The Fairtrade Foundation, while welcoming the corporate interest in higher ethical standards - albeit "ethical-lite" - fears that the proliferation of labels, with different standards, may confuse shoppers. Others are more suspicious. One NGO policy director believes such partnerships can compromise independence: "I have always been very wary of working with multinational companies because they have got a lot more to gain."
So is the alliance being used by corporations to give a false impression of environmental and social responsibility? Willey insists that "the certification system is designed to avoid companies making claims that cannot be substantiated". However, Kraft and the other coffee companies buy only a small proportion of their coffee from certified farms. Most buy on the free market and oppose a return to a more regulated system.
Until 1989, coffee, like most commodities, traded in a managed market. Governments in both producing and consuming countries agreed supply level, and therefore stable prices, by setting export quotas. But disagreements and the withdrawal of the US consigned the International Coffee Agreement to history. In the ensuing chaos, the market was flooded with cheap coffee from Vietnam and Brazil. Prices dropped and stayed low, except for two brief rises when crops failed. Though the market is slightly better now, it could fall again at any moment.
The memory of the price collapse looms large in countries such as Ethiopia. Many farmers were forced off long-cultivated land because they could not cover the cost of production. Others started growing a narcotic called qat. Oromia Province, in the centre of the country, was one of the hardest hit. Tadesse Meskela, general manager of the local coffee farmers' co-operative union, tells me that fami- lies went without food and medical care, and children dropped out of school. He says coffee corporations have done little to help local farming communities since.
Horrell acknowledges that fluctuating prices cause real hardship, but he resists interference in the market. A minimum price for coffee, he argues, would amount to an illegal cartel. He rejects the idea that Kraft could afford to pay shareholders a little less and farmers a little more. "We are a profit-driven business. We have to be competitive, otherwise long-term we haven't got a business."
Yet Kraft made a profit of $31bn in 2003 and its chief executive officer, Roger K Deromedi, enjoys a basic annual salary of $1.1m. Developing countries may well feel that, until coffee corporations sacrifice some of their profits in order to pay all farmers a decent price, their ethical coffee will be just a bad joke.
Ahmed Ali laughs softly when I tell him that multinational coffee companies are concerned about the plight of coffee farmers. Ahmed works for Oxfam in Ethiopia and has seen at first hand the devastation wreaked by volatile coffee markets. He laughs again when I tell him some coffee companies are planning to launch their own ethical and sustainable products. "It is public relations," he says from his office in Addis Ababa. "These companies are killing people's livelihoods. Poor farmers are being made destitute despite producing the best coffee in Ethiopia. If they were sincere they could make significant changes like introducing a minimum price for coffee."
Sadly, Ahmed Ali's comments cannot be heard in the Nestle headquarters. According to industry speculation - the Swiss food giant won't confirm or deny it - Nestle is planning an ethical coffee brand. The Fairtrade Foundation estimates that its own total UK retail sales were worth £92m in 2003, up by 100 per cent in two years; this trend has continued, with sales more than doubling in the two years to 2004. While coffee consumption overall is falling, Fairtrade coffee sales are rising. And Nestle, like all the big roasters, has been trying to improve its image ever since the price of coffee collapsed in 2001, impoverishing thousands of poor farmers across the world.
Nestle may face an uphill struggle. Three years ago, it emerged that the corporation was demanding millions of dollars in compensation from drought-stricken Ethiopia; only after a public outcry did it accept a much-reduced offer, which it later gave to development charities. Most infamously, it was once boycotted for encouraging mothers in the developing world to use its infant formula instead of breastfeeding. It has also been accused of union-busting in Colombia, illegally extracting groundwater in Brazil and promoting unhealthy food just about everywhere.
But it is not alone in eyeing up the ethical market. Kraft - which owns Kenco, Maxwell House and Carte Noire - has already started producing an ethical brand called Kenco Sustainable for restaurants and cafes. The US-based corporation claims all the beans come from independently certified farms with high social and environmental standards. Outlets are supplied with posters and table cards - presumably bearing images of wholesome peasants relaxing amid lush coffee bushes. Although it is available only to professional caterers, it may soon find its way on to supermarket shelves. Jonathan Horrell, charged with communicating Kraft's new commitment to sustainability, tells me: "We are looking at it because we are a demand-driven business. If there is consumer demand for sustainable coffee, then it would be logical for us to meet it."
The product is certified by the New York-based Rainforest Alliance. Started 17 years ago to prevent destruction of tropical rainforests, the charity now certifies everything from bananas to flowers. But, unlike the better-known Fairtrade Foundation, it does not guarantee a minimum price for coffee beans. Nor does it charge a licensing fee for its logo.
Kraft says it chose the alliance because it matches its mainstream priorities. "Fairtrade," says Horrell, "is fine for customers who can afford to pay a premium, but for those who are price-sensitive, who buy mainstream coffee brands, the Rainforest Alliance programme offers a better match." Crucially, it focuses on sustainable farm management rather than trading systems - although Kraft says it pays farmers a small premium on the market price.
"We believe that by working within existing market forces we can bring more benefits to more farmers," says Chris Willey from the Rainforest Alliance in Costa Rica. "We try to ensure the farmers a sustainable price, but we want them to learn how to compete in the global market, without NGO support, because it is going to become increasingly competitive. We admire and respect what Fairtrade is doing, but we have a different approach."
Perhaps this is why certification by the alliance is proving so popular with corporations desperate to cash in on the ethical market. The alliance certifies products from Lyons Original Coffee - owned by Drie Mollen Holding, one of Europe's biggest coffee roasters - and works with the Italian company Lavazza to certify its ITierra! brand. It also has relationships with AT&T, Procter & Gamble, Pfizer, Ikea and J P Morgan Chase.
The Fairtrade Foundation, while welcoming the corporate interest in higher ethical standards - albeit "ethical-lite" - fears that the proliferation of labels, with different standards, may confuse shoppers. Others are more suspicious. One NGO policy director believes such partnerships can compromise independence: "I have always been very wary of working with multinational companies because they have got a lot more to gain."
So is the alliance being used by corporations to give a false impression of environmental and social responsibility? Willey insists that "the certification system is designed to avoid companies making claims that cannot be substantiated". However, Kraft and the other coffee companies buy only a small proportion of their coffee from certified farms. Most buy on the free market and oppose a return to a more regulated system.
Until 1989, coffee, like most commodities, traded in a managed market. Governments in both producing and consuming countries agreed supply level, and therefore stable prices, by setting export quotas. But disagreements and the withdrawal of the US consigned the International Coffee Agreement to history. In the ensuing chaos, the market was flooded with cheap coffee from Vietnam and Brazil. Prices dropped and stayed low, except for two brief rises when crops failed. Though the market is slightly better now, it could fall again at any moment.
The memory of the price collapse looms large in countries such as Ethiopia. Many farmers were forced off long-cultivated land because they could not cover the cost of production. Others started growing a narcotic called qat. Oromia Province, in the centre of the country, was one of the hardest hit. Tadesse Meskela, general manager of the local coffee farmers' co-operative union, tells me that fami- lies went without food and medical care, and children dropped out of school. He says coffee corporations have done little to help local farming communities since.
Horrell acknowledges that fluctuating prices cause real hardship, but he resists interference in the market. A minimum price for coffee, he argues, would amount to an illegal cartel. He rejects the idea that Kraft could afford to pay shareholders a little less and farmers a little more. "We are a profit-driven business. We have to be competitive, otherwise long-term we haven't got a business."
Yet Kraft made a profit of $31bn in 2003 and its chief executive officer, Roger K Deromedi, enjoys a basic annual salary of $1.1m. Developing countries may well feel that, until coffee corporations sacrifice some of their profits in order to pay all farmers a decent price, their ethical coffee will be just a bad joke.