The Contribution of Alternative Trade Initiatives to Sustainable Development in the Coffee Producing Sector

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The Contribution of Alternative Trade Initiatives to

Sustainable Development in the Coffee Producing Sector

A comparative analysis of the existing alternative trade initiatives

Author: Suzan de Vries Supervisor: Bert Scholtens Co-assessor: Bart-Jan Pennink Rijks Universiteit Groningen Faculty of Economics and Business Landleven 5

9747 AD Groningen The Netherlands Tel: +31 50 363 7098

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The Contribution of Alternative Trade Initiatives to

Sustainable Development in the Coffee Producing Sector

A comparative analysis of the existing alternative trade initiatives

ABSTRACT

This paper analyses the extent to which the policy as well as the conduct of 13 different alternative trade initiatives, contribute to sustainable development of developing countries in the coffee producing industry. The results of this research show that Organic Coffee has the highest contribution to the environmental criteria of sustainable development; Starbucks has the highest contribution to the economic criteria of sustainable development; Fair Trade has the highest contribution to the social criteria of sustainable development; and Fair Trade and Utz Certified have the highest contribution to the monitoring criteria of sustainable development.

KEYWORDS

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LIST OF ABBREVIATIONS

4C The Common Code of the Coffee Community Association

(C)CL (Conduct) Child Labour

(C)DIC (Conduct) Democracy in the Community

(C)EG (Conduct) Equity of Gender

(C)FL (Conduct) Forced Labour

(C)GB (Conduct) Growth in Biodiversity

(C)HPF (Conduct) Use of Herbicides, Pesticides and Fertilizers

(C)HSC (Conduct) Healthy and Safe Working and Living Conditions

(C)LEX (Conduct) Level of External Monitoring

(C)LIM (Conduct) Level of Internal Monitoring

(C)LTC (Conduct) Long Term Contracts

(C)MW (Conduct) Minimum Wage

(C)PD (Conduct) Price Differential

(C)PP (Conduct) Price Premium

(C)SM (Conduct) Soil Management

(C)TE (Conduct) Training and Education

(C)TT (Conduct) Transparency and Traceability

(C)UOS (Conduct) Use of Shade

(P)CL (Policy) Child Labour

(P)DIC (Policy) Democracy in the Community

(P)EG (Policy) Equity of Gender

(P)FL (Policy) Forced Labour

(P)GB (Policy) Growth in Biodiversity

(P)HPF (Policy) Use of Herbicides, Pesticides and Fertilizers

(P)HSC (Policy) Healthy and Safe Working and Living Conditions

(P)LEX (Policy) Level of External Monitoring

(P)LIM (Policy) Level of Internal Monitoring

(P)LTC (Policy) Long Term Contracts

(P)MW (Policy) Minimum Wage

(P)PD (Policy) Price Differential

(P)PP (Policy) Price Premium

(P)SM (Policy) Soil Management

(P)TE (Policy) Training and Education

(P)TT (Policy) Transparency and Traceability

(P)UOS (Policy) Use of Shade

BAFTS British Association for Fair-trade Shops

BF Bird Friendly

CAFE Coffee And Farmer Equity

CE Cup of Excellence

CFCS Chlorofluorocarbon

CFTAS Centre for Fair and Alternative Trade Studies

CK Coffee Kids

CPT Coffee Producers' Trust

CQI the Coffee Quality Institute

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FLO Fair Trade Labelling Organizations

FT Fair Trade

GAP Good Agricultural Practice

GTZ Gesellschaft für Technische Zusammenarbeit

HVE Higher Vocational Education

ICO International Coffee Organization

IFAT International Federation for Alternative Trade

ILO International Labour Organization

INT Intelligentsia Direct Trade

IOFAM International Federation of Agricultural Movements

IVE Intermediate Vocational Education

LB Pounds of Coffee

NGO Non Governmental Organization

OC Organic Coffee

OLS Ordinary Least Square

PPP Public Private Partnerships

PRO Progreso

RA Rainforest Alliance

SA SA8000

SAI Social Accountability International

SAN Sustainable Agriculture Network

SB Starbucks

SMBC Smithsonian Migratory Bird Centre

SMIC Sustainable Market Intelligence Centre

UC Utz Certified

UE University Education

UNCTAD United Nations Conference on Trade and Development

USAID United States Agency International Development

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1. INTRODUCTION

Over the past years, a sudden increase can be observed in the labelling and certification initiatives, also known as alternative trade initiatives (Raynolds et. al., 2007).Alternative trade initiatives can be described as organizations that contribute to poverty alleviation, regarding people living in developing countries. In order to do so, a trading system is established aiming to make the developed markets accessible to marginalized producers in developing countries. Furthermore, alternative trade aims at the creation of an equal partnership and at the conception of a production chain, which should be as short as possible In this way, the consumers’ awareness regarding the living conditions, identity and culture of the producers can be created (Fair Trade, 1998).

Thus, alternative trade initiatives aim at addressing economic, social and environmental standards in certain commodity areas (Raynolds et. al., 2007). These standards can be perceived as the three pillars of sustainable development. Although the concept of sustainable development has been defined in several ways over the past decades, the most enduring and widely accepted definition worldwide is formulated by the Brundtland Report (May et. al., 2004). According to the Brundtland Report (1987), “Sustainable development is

development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains within it two concepts:

• The concept of 'needs,’ in particular the essential need of the world's poor, to which

overriding priority should be given; and

• The idea of limitations imposed by the state of technology and social organization on

the environment's ability to meet present and future needs (May et. al., 2004)."

According to Chatterjee and Finger (1994) the definition of sustainable development formulated by the Brundtland Report has been done so predominantly in terms of resources, not in terms of people, culture and society. Peattie (1992) outlined suggestions for the achievement of sustainable development, based on the definition of the Brundland Report (1987):

1. “The recognition of people’s rights to a healthy environment and to protection from transboundary degradation.

2. The preservation of environmental resources, ecosystems, ecological processes and biological diversity for the benefit of future generations.

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4. Information provision on the environmental effects of economic activity and on transboundary resource usage.

5. Co-operation over using transboundary resources, in implementing environmental protection and in monitoring and researching the environment.

6. Planning the setting and implementation of environmental standards and how to deal with environmental catastrophes.

7. Limiting domestic and transboundary environmental damage and risk (Peattie, 1992).”

“These principles form the core of the concept of environmental responsibility and include the ‘people’ aspect of Fair Trade. The preservation, assessment and co-operation principles can be directly linked to Fair Trade, with its underlying principles of good working standards and conditions (Peattie, 1992).”

According to Wiley (1997), the human side cannot be separated from the ecological side of sustainable development . Therefore, Wiley (1997) states that the ‘human dimension’ of sustainable development is underexposed. According to him, the focus of sustainable development is on the planet as well as on the people (Wiley, 1997). The agenda of sustainable development does not address issues regarding responsibility nor the solutions of these social problems (Wiley, 1997). The aforementioned can be characterised as the core issue of the role that Fair Trade plays concerning sustainable development. As stated by Wiley (1997), “Fair Trade is a mechanism to help achieve sustainable development.” The products of Fair Trade strive towards patterns of production and consumption that meet human needs, by ensuring healthy and safe working and living conditions. Furthermore, Fair Trade limits stress on the environment. Therefore it complies with the definition of the Brundland Report (1987) of sustainable development (Wiley, 1997). However, a Fair Trade certificate does not contain an Eko-label, which means that Fair Trade lags behind the environmental sustainability (FLO, 2007). Nevertheless, Wiley (1997) argues the importance that sustainable development is, besides being pro-planet and pro-people as well.

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that influence the product supply chain (Blowfield, 2004). As stated by Raynolds et. al. (2007) the certification and labelling systems are providing the production of commodities with certain symbols that refer to the fact that these products comply to pre-determined criteria of sustainable development.

The most rapidly growing sector worldwide with regard to labelling and certification is the coffee sector (Raynolds et. al., 2007). Raynolds et. al. (2007) indicated the importance of the coffee sector, as they stated: “coffee has emerged at the forefront of the private

regulatory boom and the environmental and social standards in this commodity have implications for the sustainability of vital tropical eco-systems and the well-being of peasant producers and farm labourers in developing countries (Raynolds et. al., 2007).” Potts (2007)

argues that since the 1980s, a growing tendency regarding the development and implementation of marketing initiatives could be identified. These initiatives focus on a unique set of sustainable and fair criteria, concerning the production and consumption of coffee. Currently, several well established alternative trade initiatives can be distinguished within this sector. Some of these initiatives are still led by NGOs, business associations and trade unions; others are developed by commercial businesses (Slob & Oldenziel, 2003). A few examples of these initiatives are Fair Trade, Rainforest Alliance and Organic, which claim to promote sustainable development in the coffee industry (Potts, 2007).

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consumer analysis, a sample of 377 consumers has to grade the 17 criteria of sustainable development in order to provide a classification of the criteria’s importance. This classification of importance is compared to the analysis of the policies and the conducts of the alternative trade initiatives. By this way, it is possible to observe which alternative trade initiatives comply with criteria that are acknowledged to be important for consumers.

Given the rise of different alternative trade initiatives (Raynolds et. al., 2007), it is interesting to observe the extent to which these initiatives contribute to the economic, social and environmental features of sustainable development, in the worldwide coffee industry of coffee producers from developing countries.

The above reasoning leads to the main research question: “To what extent do the

alternative trade initiatives in the coffee sector contribute to sustainable development regarding the economy, society and the environment with respect to coffee producers in developing countries?”

Alternative trade initiatives are organizations that claim to contribute to poverty alleviation of people living in developing countries aiming at making the developed markets accessible, creating equal partnership and making the product chain as short as possible. As the coffee sector includes all actors who participate in the production, the processing of raw materials until the consumption, this research will focus on sustainable development on the production side of the coffee sector, including all human activity (labour) used for the production of coffee. The resources that are used to produce sustainable coffee have to meet human needs, by preserving the natural ecosystems, in order to meet these needs in the indefinite future (WHO, 2007; Allen, 2007; Hasna, 2007; Raynolds et.al., 2007).

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different alternative trade initiatives. By this way, the focus will be on the pro’s and cons of the alternative trade initiatives` policies and conducts. Furthermore, the congruence between the policies and the conducts of the alternative trade initiatives are analysed with the assistance of a paired samples test. Data has been obtained from secondary studies on alternative trade initiatives in the coffee sector, predominantly from the Fair Trade research group. This group is part of the Centre for Fair and Alternative Trade Studies (CFTAS) from the Colorado State University. The CFTAS analyzes a range of local, national and global initiatives which seek to enhance social justice and environmental sustainability through fair and alternative production, distribution and consumption practices (CFATS, 2008). Data has also been obtained from the International Institute for Sustainable Development website, which conducted several researches about Fair Trade, sustainable development and the role of different contracts with respect to the coffee sector. In addition to the aforementioned, some alternative trade initiatives were contacted for information regarding their policy and their websites were consulted as well. Thus, this research contains a description of the different alternative trade initiatives as well as an analysis, supported by a framework of judgement. Based on an online inquiry, in which consumers have to divide 85 points over the 17 different criteria of sustainable development, the importance of each criteria has been pointed out. The outcome of the inquiry will be compared to the analysis of the policy and the conduct of the alternative trade initiatives I will conclude by answering the main research question in chapter five. The research strives towards giving a contribution to the existing literature by conducting a comparative analysis in which an overview of all existing alternative trade initiatives in the coffee industry is provided. Besides that, the research focuses on the analysis of policies and conducts, supported by 17 criteria of sustainable development of alternative trade initiatives. Furthermore, this research will include a consumer analysis, on the classification of the perceived importance of 17 criteria of sustainable development, which finally will be compared to the outcomes of the policies and conducts` analysis of alternative trade initiatives.

2. BACKGROUND

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reviewed. This chapter will end with an discussion of the different sub questions that are relevant to answer the main research question.

2.1 The Coffee Industry

Pendergast (1999) and Berndt (2007) argue that, after petroleum, coffee is the “most traded

commodity (Berndt, 2007).” Figure 1 shows the product chain of coffee. It starts with the

production of coffee. Coffee is produced by small scale farmers as well as on large scale plantations. The latter is predominant and characterised by the fact that the production and the processing of coffee is carried out by the plantations itself. Coffee produced by small scale farmers is part of an organized coffee cooperation, which collects and processes the coffee from the small scale farmers. After production and processing, the coffee is exported to the coffee roaster. Coffee roasters transform the green coffee beans into instant coffee products. The roasted coffee is distributed to retail shops, were it is sold to consumers (Gresser and Tickell, 2002; Slob and Oldenziel, 2003).

Figure 1: Production Chain of Coffee, from production to consumption

Source: Slob & Oldenziel (2003)

Large coffee plantations Small and medium

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Coffee plays an important role in the development of more than 50 developing countries. Firstly, because the revenues of the coffee production contribute to the infrastructure development. Furthermore, the coffee production creates many employment opportunities (May et. al. 2004). Moreover, 25 million small farmers worldwide depend on coffee production as a direct source of income and 125 million people are partly dependent on coffee production (Fritsch, 2002).

The coffee producing countries are predominantly located in Africa, Asia and Latin America (Murray, 2003). In figure 2 an overview of coffee exporting countries is given as a proportion of total foreign exchange sources (May et. al., 2004). It shows the dependence of these countries on the coffee production (Berndt, 2007). For instance, Ethiopia has a 75 percent dependence rate on the coffee exportation (May, 2004).

Figure 2: The exports of coffee as a proportion of total exports

Figure 2 exhibits the average coffee exports as a % of total export for Brazil, Burundi, Cameroon, Colombia, Costa Rica, El Salvador, Ethiopia, Guatemala, Haiti, Honduras, Kenya, Madagascar, Nicaragua, Papua New

Guinea, Rwanda, Sierra Leona, Tanzania, Uganda and Vietnam, for the period 2006-2007 Coffee Export as % of Total Export

0% 10% 20% 30% 40% 50% 60% 70% 80% Braz il Buru ndi Came roon Col omb ia Cos ta R ica El S alva dor Ethi opia Guat em ala _Haiti Hon dura s Keny a Ma dagas car Nica ragu a Papu a N ew Gu inea Rw and a Sier ra L eone Tan zan ia Ugand a Viet nam Coffee Export as % of Total Export

Sources: EVD (2006/2007); CIA World Fact book (2006/2007)

Within the coffee production, a distinction can be made between ‘arabica’ and ‘robusta.’ The former is considered to be a specialty coffee, with a higher quality and a better flavour. The latter is considered to be a conventional coffee species. Trading prices of specialty coffees are higher compared to conventional coffee, this becomes clear in figure 3 (Berndt, 2007). The prices that are paid to coffee producers dropped by approximately 70 percent in 2002 compared to 1980, from a level of $2.00/lb to a level of $0.50/lb (lb is one bag of coffee of approximately 60 kg.) (ICO, 2002). Figure 3 shows the real coffee prices over the period 1965-Apr. 2008, expressed in $ cents/lb (Gresser and Tickell, 2002).

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Figure 3: Yearly average coffee prices

Figure 3 exhibits the yearly average coffee prices for Arabica-coffee and Robusta-coffee in US$ cents/lb, for the period 1965 – April 2008

Yearly Average Coffee Prices for Arabica and Robusta: from 1965 - april 2008

0 50 100 150 200 250 300 350 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Year U S cen ts /l b

Yearly Average Arabica Yearly Average Robusta

Source: ICO (2008)

Figure 4: Fluctuations in coffee prices

Figure 4 exhibits the fluctuations in yearly average coffee prices for Arabica-coffee and Robusta-coffee in US$ cents/lb, for the period 1965 – April 2008

-100,00 -50,00 0,00 50,00 100,00 150,00 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Year P er cen ta g e

Yearly Average Arabica Yearly Average Robusta

Source: ICO (2008)

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intergovernmental coffee organization, argues that the cold war was of influence for the price fluctuations during the period of the 1970s and 1980s (ICO, 2008). Others argue that since the 1970s-1980s price volatility in the coffee sector increased mainly due to deregulation in national markets (Ponte, 2001); due to the decline in international cooperation regarding the elimination of economic features of the International Coffee Agreements in 1989 (Bates, 1997); and due to the trend that large funds increased their speculative activities with respect to commodity markets (UNCTAD, 2006).

According to the International Coffee Organization, the coffee demand is quite constant (ICO, 2008). The growth of demand of about 1.5 percent yearly lags behind the annual growth rate of supply of approximately 3.6 percent. This situation resulted in a trend towards oversupply. May (2004) gives three explanations for this situation:

1. The global growth rates regarding coffee consumption are low

2. Production on coffee plantations and coffee farms increased due to technological innovation

3. A rise in coffee plantations

Gresser and Tickel (2002) argue that the effects of oversupply resulted in a decrease in coffee prices to the lowest levels in over 70 years. The impacts of this drop in coffee prices were significant. Production methods changed from sustainable systems to production systems that make intensive use of pesticides and irrigation (Rice, 1996). Living conditions of rural workers and small farmers worsened (May, 2004). Furthermore, the coffee production requires long term commitments regarding capital and significant investments, which means high fixed costs (Berndt, 2007).

2.2 Fair Trade

According to the International Federation for Alternative Trade (IFAT), “Fair Trade is a

trading partnership, based on dialogue, transparency and respect that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers, especially in developing countries (IFAT, 2008).” Becchetti and Costantino (2008) conducted an impact

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statistical approach concerning a coffee cooperation in Costa Rica. The outcomes of this study show that price variability declined when the coffee producers sell their commodity in the Fair Trade market. Bacon (2005) conducted a statistical research on a sample of coffee producers from Guatemala in order to measure the sales’ impact on the livelihoods of farmers, when these sales are realised in the Fair Trade market. His results suggested that certified coffee producers who have access to the Fair Trade market, have a reduced livelihood vulnerability (Bacon, 2005).’

A considerable amount of qualitative impact analyses were conducted on a sample of coffee farmers with respect to Fair Trade. Most of the studies were conducted in Latin America. Berndt (2007) observed the effects of Fair Trade and to what extend it helped in poverty alleviation on coffee cooperations in Guatemala and Costa Rica. She concluded that Fair Trade can be useful as an institutional surrogate for market prices. Other qualitative studies on the impact of Fair Trade on coffee producers were conducted by Hopkins (2000), Castro (2001) and, Nelson and Galvez (2002). The most important findings of these researches are the fact that they acknowledge capacity building as the main activity provided by Fair Trade. Furthermore, they argue that Fair Trade builds relationships with producer cooperations only; it does not focus so much on individual producers.

Many of the qualitative studies on the impact of Fair Trade make suggestions for further research with respect to evaluating the impact of Fair Trade over a certain period of time, such as the study of Ronchi (2002). She studied the direct and indirect impact of Fair Trade on producers and cooperatives over a period of 10 years. She found that Fair Trade has a positive influence on the development of the cooperations and the coffee producers.

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purchase decision of consumers and the role of ethics (Carrigan and Atalla, 2001; Boulstridge and Carrigan, 2000; Tallontire et. al., 2001), found that brand familiarity, convenience, quality and price are the most important factors in the decision making process to purchase a product. Besides impact analyses on Fair Trade, regarding the coffee production and sales some researchers analysed the certified coffee market itself. According to Lindsey (2003), a serious oversupply exists in the coffee market; therefore she suggests cutting back supply by stimulating coffee producers to diversify. Giovannucci and Koekoek (2003) conducted a study that encompasses twelve major coffee markets. These are: the United Kingdom, Switzerland, Sweden, Norway, The Netherlands, Japan, Italy, Germany, France, Finland, Denmark and Belgium. They outline six challenges regarding the coffee market, where overproduction is the most important. They conclude that there is no short term solution for this problem, but that it indeed does harm coffee producers and that it has the possibility to ultimately damage the coffee industry as a whole (Giovannucci and Koekoek, 2003).

Raynolds et. al. (2007) conducted a comparative analysis regarding third party certification initiatives with respect to society and environment. In this study, five alternative trade initiatives were compared: Bird Friendly, Utz Kapeh (now: Utz Certified), Rainforest Alliance, Fair Trade and Organic. They argue that: “certifications that seek to raise

ecological and social expectations are likely to be increasingly challenged by those that seek to simply uphold current standards.”

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compared to the policy and the conduct of the alternative trade initiatives analysis. By this way, it is possible to observe which alternative trade initiatives comply with criteria that are acknowledged to be important for consumers.

The existing literature regarding alternative trade does not compound a complete overview, description or analysis of the existing alternative trade initiatives. Nor does it involve the consumers’ opinion. Outcomes that significantly deviate from average are discussed and analysed. The added value of this research compared to existing literature will be elaborated below.

Firstly, the study of Slob and Oldenziel (2003) summarizes different alternative trade initiatives in the coffee sector (these are: Utz Certified, Common Code for the Coffee Community, Rainforest Alliance, SA8000, Starbucks and Fair Trade), however, Slob and Oldenziel (2003) only give a description of these initiatives based on certain characteristics such as the goal of the initiative and requirements to participate. The study of Raynolds et. al. (2006) is more in depth. Raynolds et. al. (2006) give a description of five different alternative trade initiatives (these are; Fair Trade, Organic Coffee, Bird Friendly, Rainforest Alliance and Utz Certified) based on certain characteristics such as the production areas of the initiatives, the key conditions of the initiatives and their governance. Furthermore, they analyse the initiatives on their social and environmental standards. The added value of my research compared to the studies of Slob and Oldenziel (2003) and Raynolds et. al. (2006) is that all existing alternative trade initiatives are included. Not only the major initiatives that were used in the study of Raynolds et. al. (2006). Besides a description, I also conducted an analysis. In contrast to Raynolds et. al. (2006), who analysed environmental and social product specifications of the alternative trade initiatives, this analysis is based on aspects of all three pillars of sustainable development (environment, economy and society) and monitoring. Moreover, this research adds value to existing literature as it involves the consumers’ opinion regarding the importance of the different sustainable development criteria. The extent to which different sustainable development criteria are considered to be important by consumers, is reflected in the alternative trade initiatives and the extent to which the initiatives include these aspects of sustainable development in their policy and/or conduct. In order to do this, the following question must be answered: “To what extent do the alternative trade initiatives

in the coffee sector contribute to sustainable development regarding the economy, society and the environment with respect to marginalized coffee producers in developing countries?”

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supported by a framework of judgement. As I will conduct a consumer inquiry, in which a sample of consumers ranks the criteria presented in the framework of judgement according to importance, I will put my own interpretation against the consumers’ interpretation. The answers to the sub questions, outlined in paragraph 2.3, will lead to an answer for this main research question.

2.3 Sub Questions

According to the Deutsche ‘Gesellschaft für Technische Zusammenarbeit’ (GTZ), which is an international organ for sustainable development, the principle of sustainable development is threefold: social and ecological demands and economic standards (GTZ, 2004). May (2004) agrees and according to him these three standards can be identified as the three pillars of sustainable development. Therefore the sub questions are divided into: economy, environment, society and monitoring. These standards can be specified into 17 criteria, that will be elaborated below. APPENDIX A gives a systematic overview of principles regarding the 17 criteria used in the framework of judgement. The first sub question in this manner is as follows:

Sub Question 1. To what extent do the claims of the alternative trade initiatives contribute to environmental sustainability of coffee producers in developing countries?

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a) Growth in bio diversity.

Traditionally all coffee was shade grown (Coffee Research, 2008). Shade grown coffee is coffee that grows below a canopy of fully to partial shaded forest The canopy of shade attracts wild species. These species control pests, which reduces the need of pesticides. Furthermore, the leaves from the trees have a fertilizing function. Therefore the soil preserves its ‘natural moisture’ (Organic, 2008). So the advantages of shade grown coffee are significant: it stimulates the bio diversification; the need for herbicides, pesticides and fertilizers are reduced; it is beneficial regarding birds, as they use the coffee berry provides birds with a natural habitat (Coffee Research, 2008). Furthermore, shade grown coffee increases the coffee quality and taste, as it is protected from direct sun. Moreover, fallen coffee plant leaves mulch the soil, which helps preserving soil moisture (Earth Easy, 2008).

Since the traditional coffee production methods went through a transition in terms of “technification,”the production of shade grown coffee declined by approximately 66 percent. Many producers of shade grown coffee stripped their lands, which resulted in dangers as erosion (Earth Easy, 2008). As the production of non-shade grown coffee maximises profits, there are no incentives to produce shade grown coffee. Thus, until shade grown coffee productions become economically feasible, the trend towards “technification” will continue (Coffee Research, 2008). The above reasoning leads to the following criteria:

b) Use of shade

c) Use of pesticides and fertilizers.

Soil moisture was shortly mentioned above as an important issue. Mitchell et. al. (2000) indicated the importance of soil management. They argued that next to the fact that soil is the main medium for the coffee plants growth, it also sustains the productivity of the plant as well as the environmental quality. Furthermore, a well functioning soil provides better animal-, plant- and human health. Therefore, optimal soil management is an important feature with respect to sustainable development. This leads to the fourth criterion:

d) Soil management

The second sub question focuses on the economic aspects of sustainable development in the coffee sector:

Sub Question 2. To what extent do the claims of the alternative trade initiatives contribute to economic stability of the coffee producers in developing countries?

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could create commitment which takes at least a full harvest cycle. Consequently, the producers could ensure that the coffee supply fits the market demand . Therefore, long term contracts are able to function as the basis of trade relationships continuity (May, 2004). This reasoning leads to the fifth criterion:

e) Long term contracts

In order to measure the coffee production sustainability, one needs to make a distinction between protection of the downstream use of natural resources which could damage the environment, and the use of technologies that are beneficial regarding the environment. With respect to the latter, extra costs decrease the attractiveness. Thus, producers that are more sustainable are penalized by the market, since the prices the producers ask do not internalize the socio environmental costs that are associated with these practices (Karp, 1994). According to May (2004), one has to find means to internalize these costs of conversion. A proper way do this is to, contractually, define price differentials. The importance of using price differentials is the fact that they could serve as a way to motivate producers to improve the production system. Therefore the sixth criterion is:

f) Price differential

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g) Minimum wage h) Price premium

May (2004) argues that both transparency and traceability are important issues in arranging a sustainable contract. These indicators deal with visibility regarding the costs- and prices’ structure as well as visibility in the process of industrialization and the production process (May et. al., 2004). Transparency is important with respect to marketing margins and information of the relevant prices. Traceability is important concerning the origin of the production process. Berndt (2007) agrees and argues that a transparent administration ensures producers, more specifically, members from a coffee cooperation, to have sufficient information which advances the decision-making process. Therefore it is important as an organization to have a high level of transparency. A high level of traceability is important when products must be traced through the coffee value chains (May, 2004). In this manner insights are provided in the origin and the process of the coffee. The argumentations outlined above lead to the following criterion:

i) Transparency and traceability

The third sub question focuses on the social aspects of sustainable development in the coffee sector:

Sub Question 3. To what extent do the claims of the alternative trade initiatives contribute to social stability of the coffee producers in developing countries?

Whereas the focus of Fair Trade is on terms of trade, ethical trade focuses on labour practices (Smith and Barrientos, 2005). Ethical trade aims to ensure that working conditions are in line with the global minimum standards (Jenkins et. al., 2002). These include safe and healthy living and working conditions, prohibition of forced labour and child labour, provisions on collective bargaining, freedom of association and discrimination (Smith and Barrientos, 2005). The social criteria of sustainable development are based on the principles of ethical trade.

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provision of training and education by members of the alternative trade initiative could improve the producers’ understanding of the Northern consumers’ expectations regarding high quality coffee taste(Murray, 2003). These argumentation results in the tenth criterion:

j) Training and education

The existence of safe and healthy living and working conditions is an important issue, especially the presence of a policy among the producers regarding safety and health. With respect to healthy living conditions, hygiene and access to potable water are important issues. (COSA, 2008). Therefore the eleventh criterion is:

k) Safe and healthy living and working conditions

Child labour is a social issue and forbidden in many countries. The International Labour Organization (ILO) stands for a world without any form of forced labour regarding children at the expense of their own development and prospects for a decent job in the future. Furthermore, the ILO restricts child or forced labour at the expense of health. Children should be protected from activities that are dangerous (ILO, 2008). Nevertheless, children are needed by their parents during the harvest season in order to help the family to survive. However, advocates of children’s welfare argue that they need to have the possibility of education access, as children should be at school (James, 2002; COSA, 2008). The reasoning emphasizes the importance of the prohibition of child and forced labour. Therefore the following criteria are:

l) Child labour m) Forced labour

May (2004) indicates the issue of gender. He points out the situation of women who have a double or even a triple workday and are being paid unequal. Ronchi (2002) argues that it could be beneficial to incorporate gender oriented projects. These could involve women in the decision making process as well as it could bring them closer to the production-participation processes. Nevertheless, in some cultures, women generate certain activities in accordance to the expected role model and they are relegated to a certain amount of income. However, this profile is changing and a challenge in fostering new opportunities for women remains (Murray, 2003). Therefore equity of gender is an important issue. This leads to the fourteenth criterion:

n) Equity of gender

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democratic community in determining the leader of the coffee cooperation. In this manner the fifteenth criterion is:

o) Democracy

The fourth sub question addresses the aspect of monitoring, which helps to check the extent to which the alternative trade initiatives comply with the criteria outlined above.

Sub Question 4. How do the alternative trade initiatives monitor the claims they publish?

Raynolds et. al. (2007) indicates the importance of monitoring. According to them, monitoring is a key factor in shaping the legitimacy of alternative trade factors. However, the process of monitoring differs per alternative. For instance, Bird Friendly, Organic and Utz Certified use independent private companies that have procedures that are profit-motivated. Fair Trade on the other hand uses a monitoring group which is independent and non-profit (Raynolds et. al., 2007). Nevertheless, the use of an external, independent monitoring group that supervises the practices of this organization would increase the credibility of the organization that initiated the alternative trade initiative. Therefore the sixteenth criterion is:

p) External monitoring

The European Commission and the United States Department of Labour (2008) agreed upon the importance of external monitoring preferably by an independent and external party. Furthermore they indicate the importance of internal monitoring. They stress the need for parallel communication channels. Via these channels it would be possible to signal violations of labour standards. Moreover, the danger of bringing the conditions of poor producers at risk could be minimized by internal monitoring. This reasoning leads to the importance of internal monitoring. Therefore, the seventeenth criterion is:

r) Internal monitoring

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3. ALTERNATIVE TRADE INITIATIVES

Alternative trade initiatives were created in order to improve environmental and social conditions regarding the coffee production. The alternative trade initiatives were partly developed in cooperation with stakeholders, such as trade unions, Non Governmental Organizations (NGOs) and business associations. Others were led and raised by commercial organizations. The alternative trade initiatives developed codes of conduct, used to lobby and campaign towards companies and governments (Slob and Oldenziel, 2003).

In the remainder of this section an overview will be given of all the different alternative trade initiatives, complemented with a description. For each alternative trade initiative the following characteristics will be elaborated: objective of the initiative, certification criteria, year of establishment, country of origin, regions of production, type of organization, type of produced coffee, target group of the initiative, the use of a price floor and visibility at the point of sale. APPENDIX B shows a systematic summary of the main characteristics of each alternative trade initiative.

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3.1 Alternative Trade Initiative 1: Fair Trade

The origin of Fair Trade can be found in the 1960s. It started as a response regarding the unequal terms of trade with respect to developing countries in the Southern regions of the globe. In the developed countries the Fair Trade movement resulted in a social movement which aimed to improve the position of disadvantaged and poor producers (Slob & Oldenziel, 2003. In order to do so, small producers were provided with a number of guarantees, such as a social premium for the development of projects within their community, access to credit, a stable relationship with their suppliers and, of course, a fair price for the products they produced (Murray & Raynolds, 2000). Furthermore, it aimed to provide the poor producers access to the developed Northern markets and to build a sustainable relationship with them (Develtere and Pollet, 2005). Currently, Fair Trade developed itself into a label which distinguishes the Fair Trade products from other products. The label of Fair Trade is provided by the Fair Trade Labelling Organizations (FLO, 2007).

The Fair Trade Labelling Organization (FLO) defines Fair Trade as follows:

“Fair-trade is a trading partnership, based on dialogue, transparency and respect, which seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of marginalised producers and workers especially in the developing countries (Smith & Barrientos, 2005; BAFTS, 2008).”

In other words, Fair Trade aims to minimize inefficiencies and inequalities (Nicholls, 2005). The target group of Fair Trade are the small scale producers that form organizations such as associations and co operations (Slob & Oldenziel, 2003)

Barratt Brown (1993), Nicholls & Opal (2005) and Develtere & Pollet (2005)

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import Fair Trade products, established in 1990) (Befair, 2008). The FINE-criteria are given in figure 5.

Figure 5: Practices that define the goals & criteria of the Fair Trade (FINE-criteria)

Source: Barratt Brown (1993); Nicholls & Opal (2005) and Develtere & Pollet (2005)

Products that comply with the above outlined practices are certified and provided with a fair-trade label (Nicholls, 2005).

Since the 1990s the market of Fair Trade products increased from a small niche to a market with an amount of €500 million total annual sales in 2002 (Young, 2003). The Fair Trade market enables over 3000 products varying from coffee, tea, cocoa, to all different kinds of fruits, vegetables flowers and handicrafts (FLO, 2007)

The latest figures of the Fair-trade Labelling Organizations (FLO) determine that global annual sales of the fair-trade market are approximately €1.1 billion in 2005, which represents an increase of 37% over 2004 (FLO, 2007).

The fair-trade movement argues that the system of free markets will hurt poor producers due to a payment of less than equitable prices for their products, in other words an unfair price (Miller, 2007). The trade terms of free trade are set by the richer nations, consequently terms of trade are unfair (Sidwell, 2008). Therefore, Fair Trade guarantees that producers in developing countries receive a fair price for their products (The Economist, 2006) “however unfair the conventional market is” (FLO, 2007). Fair Trade adheres a floor price that is a minimum price paid for the produce; even if the market price for the produce is lower (Murray et. al., 2003) plus a premium of $0.10 per pound. This premium was increased

1 Improve wellbeing and livelyhoods of producers by providing continuity in the trading relationship, paying a better price, strengthening producer organizations and improving market access

2 Agreed minimum prices and social premium to cover production costs 3 Promote opportunities for development, especially indigenous people and

women

4 No child or forced labour exploitation in the production process 5 Provision of market information, cooperation on competition

6 Decent wages, good housing, wealth and safety, right to join trade unions, democratic structure in co-operatives

7 Awareness of consumers about the negative effects on poor producers of international trade so the they can positively exercise their purchasing power 8 Set an example of partnership in trade trough respect, dialogue and transparency 9 Protect human rights by economic security, environmentally sustainable and

responsible production and social justice

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in 2007, from $0.05 to the current $0.10 per pound (Sidwell, 2008). Table 1 shows the prices and premiums of coffee as used in the FLO contract

Table 1: Prices and premiums of coffee as used in the FLO contract

Table 1 exhibits the regular prices and the Fair Trade prices, for unwashed and washed Robusta- and Arabica-coffee, expressed in US$/lb. The prices of the washed and unwashed Robusta- and Arabica-coffee are divided

per region: Central America, Africa, Asia and South America and Caribbean.

Coffee Type Central America, Africa, Asia South America, Carribean Central America, Africa, Asia South America, Carribean Unwashed Robusta $ 1.26 / lb $ 1.24 / lb $ 1.41 / lb $ 1.39 / lb Washed Robusta $ 1.20 / lb $ 1.20 / lb $ 1.35 / lb $ 1.35 / lb Unwashed Arabica $ 1.10 / lb $ 1.10 / lb $ 1.25 / lb $ 1.25 / lb Washed Arabica $ 1.06 / lb $ 1.06 / lb $ 1.21 / lb $ 1.21 / lb

Regular Prices Fair Trade Prices

Source: May (2004)

Thus, producers, provided that their products meet certain standards, receive an ‘above-market’ price. The fair-trade movement argues in this manner that certified producers can receive above market prices for their produce, because they meet the fair-trade standards of development, environmental sustainability and labour (Miller, 2007).

The buyers of Fair Trade products can display the Fair Trade seal, if the coffee has been produced in its integrity from beans that carry the classification of sustainable Fair Trade beans from certified coffee producers (Russel, 2007).

3.2 Alternative Trade Initiative 2: Coffee Quality Institute

Coffee Quality Institute has been established in 2003 and can be characterised as a NGO. The mission of this alternative trade initiative is: “to work internationally to improve the quality of

coffee and the lives of the people who produce it.” Thus the focus of the Coffee Quality

Institute is on the quality of the (specialty) coffee The organization believes that high quality coffee can improve the living conditions of the coffee producers and their families. Moreover, the Coffee Quality Institute believes that quality is the only feature that is sustainable

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Figure 6: Elaborated programmes initiated by the Coffee Quality Institute

Coffee Corps Matches coffee experts (volunteers), with coffee producers who are

seeking for technical assistance. They help to improve their marketing skills, processes for quality control and their methods of production

Grading System Defines standards for quality. The result is a grading certificate that

offers potential buyers a measure of the flavor for a specific amount of coffee.

Licensed Graders An accreditation for coffee cuppers, who recognize the talent at work in

the coffee industry.

Women in Coffee Leadership Program

Develops the diverse skills and talents of women in the industry, creating a network of leaders committed to quality and sustainability.

Programmes

Source: (Coffee Institute Annual Report, 2006)

Table 2 shows an overview of the revenues and expenses of the Coffee Quality Institute. Especially the last row is interesting as it presents the percentage level that supports the programme of the Coffee Quality Institute, outlined in figure 6. As table 2 shows, the portion of each $ of the revenues that directly support the program, increased with 30 cents over the period 2003-2006.

Table 2: Financial Overview of Coffee Quality Institute, 2003-2006

Table 2 exhibits a financial overview, expressed in US $, of the Coffee Quality Institute over the period 2003-2006. The financial overview distinguishes: support and revenues, expenses, a summary of the net assets and the

portion of each US$ that directly supports the programmes elaborated in figure 6.

2003 2004 2005 2006

In-kind and volunteers contributions 276,258 1,047,387 656,471 $2,916,310

Other contributions, grants & support 842,727 1,769,479 2,026,441 1,231,598

Other income 62,972 814 308 23

Total support and revenues 1,181,957 2,817,680 2,683,220 4,147,931

Program and project expenses 773,132 2,483,425 2,389,838 3,958,882

Administrative and general expenses 296,656 272,569 286,273 206,389

Total expenses 1,069,7882,755,994 2,676,111 4,165,271

Net assets, beginning 140,406 252,575 314,261 321,37

Net assets, ending 252,575 314,261 321,27 304,03

Increase in net assets 112,169 61,686 7,109 -17,34

Portion of every dollar in support and revenues directly supporting

programs $0.65 $0.88 $0.89 $0.95

Summary of Net Assets Expenses

Support and revenues

Source: (Coffee Institute Annual Report, 2006)

3.3 Alternative Trade Initiative 3: Utz Certified

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independent initiative, in which the Ahold Group no longer plays a role. The purposes of Utz Certified were to look after the workers and consumers’ health, to provide them with access towards basic social services and provide the coffee producers with the needed assistance to implement these standards (Potts, 2007). The main goal of this initiative is protecting and improving the environmental, the social and the economic conditions of all coffee producers on this planet (Utz Certified, 2008). The mission statement of Utz Certified is: “to enable

coffee brands to credibly and transparently demonstrate their commitment to sustainable development at the producer level.” Utz Certified uses its own Code of Conduct in order to

certify coffee (Utz Certified, 2007). This Code of Conduct has been developed by leading retailers from Europe in order to provide insurance regarding proper growth practices with respect to society and environment as well as it aims to provide safety regarding the produced commodity (Slob & Oldenziel, 2003). Potts (2007) and May et. al. (2003) described some key elements of the certification system of Utz Certified mentioned in their Code of Conduct, which are shown in figure 7:

Figure 7: Criteria for Certification used by Utz Certified 1 Separation of store chemicals and adopt chemical reducing

systems, recycling and re-use

2 Traceability and record keping of the procuced coffee and a complaint form

3 Use of products that are banned in Europe, US or Japan are prohibited

4 Worker health, safety and welfare

5 Internal audits use of proper farm, water, soil, substrate, waste and pollution management plans

6 Crop protection

7 Use of fertilizeers and irrigation

Utz Certified Criteria for Certification

Source: Slob & Oldenziel (2003); Potts (2007) and May (2004)

Utz Certified focuses on middle and large scale coffee farms. Unlike Fair Trade, that focuses on small scale producers only. With regard to the coffee producers , Utz Certified uses a ‘real-time market-database.’ With respect to this database, producers are allowed to observe the price at which similar coffee is being sold.

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The pricing system Utz Certified adheres to is according to the market-based principle; thereby Utz Certified is avoiding a fixed price, also known as a price floor as is used by Fair Trade. Nonetheless, Utz Certified recommends that the consumers pay a so called “Sustainable Differential” to the coffee producers in certain periods of time when coffee prices are extremely low; these differentials are on top of differentials regarding normal quality as well as market prices. The realization of this “Sustainable Differential” has been done with help of negotiations between buyers and sellers referring to the added value of Utz Certified coffee. Utz Certified avoids interference in these negotiations (Slob & Oldenziel, 2003; Potts, 2007). Utz Certified uses the price threshold in order to mandate the “Sustainability Differential”. Differences in quality are not included in this threshold. This price threshold is outlined in figure 8:

Figure 8: Regular threshold of Utz Certified

Figure 8 exhibits the regular threshold that mandates the “Sustainability Differential” for Robusta-coffee and Arabica-coffee, expressed in US$/lb

Robusta Coffee $ 0.70 / lb

Arabica Cofee $ 0.2948 /l b

Source: Slob & Oldenziel (2003); Giovanucci (2003)

When the coffee prices fall below the above outlined threshold, Utz Certified recommends the “Sustainability Differential” given in figure 9:

Figure 9: Recommended threshold of Utz Certified

Figure 9 exhibits the recommended threshold of Utz Certified when prices fall below regular threshold for Washed and Unwashed Robusta-coffee and Washed and Unwashed Arabica-coffee, expressed in US$/lb

Unwashed Robusta $ 0.0272 / lb

Washed Robusta $ 0.0454 / lb

Unwashed Arabica $ 0.04 / lb

Washed Arabica $ 0.07 / lb

Source: Slob & Oldenziel (2003); Giovanucci (2003)

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Utz Certified benchmarked its criteria for certification to the standards of EurepGap. EurepGAP was established in 1997 by retailers that belong to the Euro Retailer Produce Working Group (EUREP), aiming to create an agreement regarding procedures and standards of well agricultural practices, focussing on business to business rather that business to consumer. Eurep itself focuses on fruit and vegetables only. The goal of EurepGAP is: “to

respond to Consumer Concerns on Food Safety, Animal Welfare, Environmental Protection and Worker Welfare by:

• Encouraging adoption of commercially viable Farm Assurance Schemes, which

promotes the minimisation of agrochemical inputs, within Europe and world wide;

• Developing a Good Agricultural Practice (GAP) Framework for benchmarking

existing Farm Assurance Schemes and Standards including traceability;

• Providing guidance for continuous improvement and understanding of best practice; • Communicating and consulting openly with consumers including producers, exporters

and importers (EurepGAP, 2007).”

The buyers of products of Utz Certified can display the Utz certified seal if at least 90 percent of the coffee is characterised as sustainable Utz beans from certified farms or cooperations (Russel, 2007).

3.4 Alternative Trade Initiative 4: Cup of Excellence

Cup of Excellence was established in 1999, initiated by coffee connoisseurs in cooperation with NGOs and international governmental support. The aim of this alternative trade initiative was to support high priced as well as high quality coffee. In order to do so, Cup of Excellence yearly organizes a competition in which producers of high quality coffee are identified. The best coffee is consequently recognised and awarded (Sidwell, 2008). The coffee producers who win the competition are acknowledged for their quality as well as their dedication. Furthermore, most of the record prices at auction are for the coffee producers who need and deserve it.After winning the award, the coffee industry does recognize the coffee producer as a farmer that produces high quality coffee. Roasters will visit the winning cooperative or farm to buy its coffee.

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coffee producer receives approximately 85 percent of the price for which the coffee is sold. The amount of companies that bought the coffee in 2007 was approximately 120.

Countries that participate are: Bolivia, Brazil, Colombia, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.

The selection process regarding the Cup of Excellence award comprises three stages: • International jury which is made up of international coffee professionals

• National jury which is made up of host country cuppers

• Pre-selection or screening

Nevertheless, Cup of Excellence is not an initiative that provides the coffee producers with a certificate. This initiative focuses on the quality of coffee producers by organizing an election. However, all coffee producers are able to submit. No criteria are required (Cup of Excellence, 2008).

3.5 Alternative Trade Initiative 5: Rainforest Alliance

Rainforest Alliance was established in 1987. Rainforest Alliance is a NGO that aims to ensure sustainable livelihoods regarding people of whom the livelihood depends on agricultural land. Rainforest Alliance helps those people by transforming their production process in a sustainable way (Rainforest Alliance, 2008).

Rainforest Alliance is coordinated by the Sustainable Agriculture Network (SAN). SAN is a network of NGOs, which is established out of eight conservation groups, ranging from research centres to NGOs. See figure 10 for an overview of these members.

Figure 10: The members of the Sustainable Agriculture Network and their country of origin

# Organization Country of Origin

1 Conservación y Desarrollo Ecuador

2 Imaflora Brazil

3 Fundación Natura Colombia

4 Pronatura Chiapas Mexico

5 Toledo Institute for Development and the Environment Belize

6 Fundación Interamericana Tropical Guatemala

7 Instituto para la Cooperación y Autodesarrollo Honduras

8 Nepenthes Denmark

9 SalvaNATURA El Salvador

10 The Rainforest Alliance USA & Costa Rica

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Rainforest Alliance is the US based secretariat of SAN (Vallejo and Hauselmann, 2004). The mission statement of this alternative trade initiative is: “protecting ecosystems and

the people and wildlife that depend on them by transforming land-use practices, business practices and consumer behaviour.” Coffee producers that participate in this alternative trade

initiative need a range of standards that represent the Rainforest Alliance program, by integrating conservation, local communities, agriculture and workers (Slob & Oldenziel, 2003). Figure 11 shows these standards. Besides the social criteria aiming to protect the coffee producer, these criteria focus predominantly on ecology, emphasizing the protection of the increasing losses regarding biodiversity and habitat through deforestation and sostrive to protect the environment as well as the people (Rainforest Alliance, 2007). Figure 11 gives an overview of coffee standards of Rainforest Alliance.

Rainforest Alliance obtained an EKO-label , which means that harm causing effects on the environment are avoided regarding the production of coffee. Products with an EKO-label are characterised to be less damaging to the environment compared to bands that are equivalent. For instance, coffee which contains an EKO-label is efficient with respect to energy use, it has to be recycled, and it does not include chlorofluorocarbon, also known as CFCS, as these endanger the ozone layer.

Figure 11: Rainforest Alliance certification standards for coffee

Source: Potts (2007)

The certified Rainforest Alliance coffee does not, in contrast to Fair Trade that gives farmers who are disadvantaged a price guarantee, use price premiums. It promotes sustainable management on the coffee farms (Slob & Oldenziel, 2003). In this manner the Rainforest Alliance (2007) states: “The certification process benefits farmers by increasing efficiency,

1 Producers of coffee have to maintain or establish a canopy of mixed native trees in the regions where traditionally coffee has been cultivated 2 The part of the farm were production takes place,

has to include 10 or more species of native trees, 3 At least 70 trees per hectare must grow in shade

and be evergreens

4 The part of the farm where production takes place, over 40 percent of ground must be in shade 5 During a dry season, pruning is restricted

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cleaner, safer, more dignified workplace where their rights are respected. Certified farmers have better access to specialty buyers, contract stability, favourable credit options, publicity, technical assistance and premium markets. The Rainforest Alliance and SAN members are not directly involved in the negotiations between farmers and their product buyers. Most farmers are able to utilize their certification to receive a price premium.”

The start of Rainforest Alliance in the coffee sector began slowly. However, Rainforest Alliance certifies approximately 200,000 lb of coffee in 2006, with an annual estimated growth rate of 100 percent (Giovanucci, 2007). Today, 508 operations of Rainforest Alliance on 18.575 hectares of coffee are certified. The operations are based in Brazil, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Hawaii Honduras, Mexico, Nicaragua, Panama and the Philippines (Slob & Oldenziel, 2003).

In the past, Rainforest Alliance certifications were mostly given to large scale producers of coffee plantations. However, the amount of small scale producers is increasing and according to Raynolds et. al. (2007), the small scale coffee farmers outnumber the large scale coffee plantations. Nevertheless, most Rainforest Alliance labelled coffee comes from plantations. Mostly the Rainforest Alliance label is not represented on the point of purchase (retail shops), as it is only possible to use this seal when at least 30 percent of the coffee is certified (Russel, 2007).

3.6 Alternative Trade Initiative 6: Starbucks Preferred Supplier Program

Starbucks developed in 2001 the Preferred Supplier Program, in order to create a sustainable system which was completely integrated into the decision making structure as well as the corporate business plan of the company (Potts, 2007). Preferred Suppliers in this manner are the coffee producers that participate in their program. The aim of this alternative is to:

“encourage continuous improvements in sustainable coffee production. Our ultimate goal is to create a fully sustainable coffee production supply chain. The ultimate goal would be to have all sustainability factors included in the cost of production, and therefore, covered through our outright pricing program (Starbucks, 2001).”

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Program are: no defect coffee beans, good coloured bean with a consistent size and a good flavour (Starbucks, 2001). Coffee producers can reach the status of ‘preferred supplier’ when they score 100 points. Figure 12 shows the pointing system used by Starbucks.

Figure 12: Point System of Starbucks for preferred suppliers; divided in economic, social and environmental variables

Source: Slob & Oldenziel (2003); May (2004)

For each 10 points that can be obtained, a price incentive of $0.01/lb is given. Consequently, a preferred supplier can reach a price of $0.10/lb. Furthermore, the pointing system of Starbucks shows the level of importance with regard to the criteria they use which were developed in cooperation with the Centre for Environmental Leadership in Business, based on Conservation Principle for Coffee Production (Slob & Oldenziel, 2003).

In 2005 Starbucks received an award from the World Environment Centre, in recognition of the Coffee And Farmer Equity (C.A.F.E.) practices (Sidwell, 2008). Starbucks’ goal is to comply 50 percent of their coffee in line with alternative trade initiative.

Starbucks does not make a distinction regarding coffee producers that are allowed to participate in their program. All registered producers have this possibility.

3.7 Alternative Trade Initiative 7: Progreso Cafes Limited

Progreso was established in 1997 as a reaction to the low coffee prices of that time (see figure 3). This alternative trade initiative differs from the former alternative trade initiatives as it is characterised as a chain of coffee bars. The joint set-up of Progreso was between OXFAM, a group of NGOs from three continents that work together in order to fight injustice and poverty (OXFAM, 2008), and coffee growers in Honduras. Currently Progreso comprises coffee

co-Soil Management 5 points Wages and Benefits 10 points Transparency 20 points Water Reduction 5 points Health and Safety 10 points

Clean Water 5 points Living Conditions 10 points Water Buffer Zone 5 points

Conservation 5 points Use of Shade 5 points

Energy Use 5 points

Pest Management 5 points Waste Management 5 points Accepted Agrochemical _{5 points}

Society Economy

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coffee offered by the Progreso bars is 100 percent Fair Trade certified. That is why their criteria are equal.

With respect to the coffee bars share that is owned by Progreso, 25 percent was bought on behalf of the coffee co-operations, that are also known as the coffee suppliers. Another 25 percent of the shares are owned by a so-called “Coffee Producers' Trust (CPT).” The CPT pays for projects that promote development in poor communities, which are dependent on the coffee production. The remaining 50 percent of the shares are owned by Oxfam.

With help of the Progreso bars, located in the United Kingdom, the benefits regarding coffee producers are twofold:

• They are provided with the dividends regarding the profit that is made;

• They receive the Fair Trade organic price premium. (Progreso, 2008)

3.8 Alternative Trade Initiative 8: The Common Code of the Coffee Community

Association

The German Agency for Technical Cooperation (Deutsche Gesellschaft fur Technische

Zusammen Arbeit GTZ) and the German Coffee Organisation (Deutschert Kaffee-Verband DKV) developed the Common Code for the Coffee Community (4Cs), aiming to develop a

global code for economically, environmentally and socially sustainable trading, processing, growing and marketing of mainstream coffee (Raynolds et. al., 2007). The 4Cs Association targets the complete supply chain of green coffee. In order to do so, coffee roasters , coffee producers , NGOs as well as other organizations are brought together to improve conditions regarding mainstream coffee (Sidwell, 2008). Figure 13 gives reasons for producers as well as roasters to join the Common Code for Coffee Community Association.

Figure 13: Reasons for coffee producers and coffee roasters to join the Common Code for Coffee Community Association.

Reasons for producers to join the 4Cs Reasons for roasters to join the 4Cs Preservation of the environment Preservation of the environment Empowerment and improved management capacity Positive image

Foreseeable demand for Common Code coffee Commitment to corporate social responsibility Improved social conditions for workers and their families Enhanced market transparency

The Contribution of Alternative Trade Initiatives to Sustainable Development in the Coffee Producing Sector

The Contribution of Alternative Trade Initiatives to

Sustainable Development in the Coffee Producing Sector

A comparative analysis of the existing alternative trade initiatives

The Contribution of Alternative Trade Initiatives to

Sustainable Development in the Coffee Producing Sector

A comparative analysis of the existing alternative trade initiatives

TABLE OF CONTENTS

LIST OF ABBREVIATIONS

1. INTRODUCTION

2. BACKGROUND

3. ALTERNATIVE TRADE INITIATIVES