Sustainability: Recommendations from a Brief Cost-Benefit Analysis by Carlos H. J. Brando

May 4, 2012 in Uncategorized

The roasters’ increasing demand for sustainable coffee is not causing production to react fast enough to meet it. Are the rewards for producing sustainable coffee right? Let’s see if a brief cost-benefit analysis on the growers’ side can explain what is happening and point to solutions.

The most evident benefit of producing sustainable coffee is the price premium paid by roasters followed by preferential access to specific clients and markets. However the most important (and more durable) advantage of becoming a sustainable coffee producer may lie on better management, cost control and greater production efficiencies, all of which are required to become sustainable and are therefore “hidden” benefits of sustainability. That these hidden benefits are neither easily perceived nor necessarily short term may explain why the supply of sustainable coffees may be trailing demand.

Although technical assistance, consulting and auditing costs are often mentioned on the other side of the equation, they are far from being the most important costs to become sustainable. These are undoubtedly the costs of compliance with the sustainability codes, for example, adequate storage of coffee, fertilizers and agro-chemicals, treatment and disposal of wastes or provision of health and social services to labor. Even with currently falling but still good coffee prices, these compliance costs may consume the growers’ profits for a few years. In the lack of proper financing to help growers spread these costs over a longer period of time, it is unlikely that the production of sustainable coffee will increase to meet the demand with the price premiums prevailing today. In the short run the benefits may be perceived as not covering the costs or may indeed not cover the costs!

Even if the short term solution may be higher price premiums, as it has happened in a few recent cases, the long term solution may be structural, with better extension services to promote sustainability (good sustainable agricultural practices), the training of growers to become better managers (lower costs, higher yields, greater efficiencies) and, very important, credit lines at reasonable terms (ability to pay for changes). Behind this structural change lies an organizational and behavioral (perhaps generational) change: understand and incorporate sustainability, manage change efficiently and share the costs of change (government, growers and industry). The setting is clear for Public Private Partnerships (PPPs) whereby government provides training and finance, the industry provides market access and price premiums and growers implement the changes to become sustainable, with benefits to all involved.

One limitation of the model above is the difficulty to extend training and finance to small growers who account for most of the world’s coffee production. The solution is the formation of groups of growers facilitated by the trade (exporters, cooperatives and associations) with the support of the sustainability platforms. Largely absent from this article about sustainability, the sustainability platforms, that are at the heart of the sustainability process and have been its “midwife”, should be seriously thinking about redesigning themselves to evolve from sustainability labels to sustainability services. The platforms that will best support change are the ones whose codes of conduct and allied services will help improve management to implement changes at the growers’ level.

The alignment of standards and the creation of conditions for permanent improvement from base-line to more demanding codes is a current challenge for sustainability platforms. There may also be room for baseline national standards that can become the first step of the sustainability ladder. Last but not least, another challenge to be addressed is that the reliance of sustainability codes on the national labor and environmental legislation prevailing in each country can cause sustainable coffees in country X to be “more sustainable” than in country Y because the legislation in the former is more rigorous than in the latter. But this deserves another Outlook article…

by Carlos H. J. Brando

http://www.peamarketing.com.br/coffidential/coffidential-056.pdf

1 response to Sustainability: Recommendations from a Brief Cost-Benefit Analysis by Carlos H. J. Brando

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