Coffee industry certifications treating customers as fools
Date Posted:26 August 2018
Treating customers as fools - worthless and meaningless coffee industry certifications.
I've been silently annoyed for a while how some (but not all) coffee industry programs treat elements of the supply chain and more importantly, the end consumer, as complete fools.
Today, we have various competing regimes for FAIRTRADE, Organic and the recently merged toothless tigers known as UTZ/Rainforest Alliance.
In addition to those formal programs, there are numerous rampant marketing trumpets blown by coffee companies claiming special, exclusive arrangements under the umbrella of Direct Trade relationships. In truth, these hollow claims are often nothing more than an excuse for an all expenses paid junket to foreign soils to top up the vault of carefully staged coffee farming selfies.
Some of these programs are potentially open to broad scale abuse or mis-representation - after-all, I guess we are living in a populist, post-truth era thanks to Donald Trump.
In the interests of self-preservation, let's just play it bit safe for risk of having our own credentials revoked.
Our first look is the well-known coffee program - the FAIRTRADE system (keeping in mind, this article is not intended to attack) - undoubtedly the most honest and tightly controlled. Our comments relate to the commercial benefits from multiple levies and premiums paid by participants in the supply chain, including the end-consumer.
FAIRTRADE was setup as a not-for-profit global organisation - although I'm not really sure or confident of that fact, so let's just make a broad assumption about the NFP origins.
Their mission is noble and for almost a decade we have fully support (and intend to continue supporting) the concept of social values for coffee farmers and their communities being paid a fair price (declared as a minimum) for their crops. This is the feel good part of the FAIRTRADE story and the emotive triggers for social support by consumers.
There are also other elements to the FAIRTRADE program like broader support of coffee farming communities and the vital education and training services for farmers that help them lift qualities of their crops to achieve potentially higher prices.
Unfortunately, it could be reasonably argued the coffee industry in Australia as a whole has largely turned their backs on the FAIRTRADE system - yes, there are many supporters like us and Jasper, Grinders, etc., but they tend to fall into a minority - even our own FAIRTRADE volumes are small compared to other products in our store.
The lack of support or traction may be due to various reasons, such as economic factors, frustrations from limited choices in available coffees throughout the year, restrictive trade practices or philosophical beliefs - with potential to influence low participation rate among coffee companies in Australia.
Of course, I don't have the stats available but let's just assume for a moment that barely 2% of the raw coffee arriving into Australia is FAIRTRADE certified - it's bound to be a low number under 5. That's a really small pool of coffees available and we know first hand how frustrating it is to source these certified coffees, literally every time we try the pickings are slim and I rarely seem to come away feeling like I've bought "well".
As registered participants in the FAIRTRADE supply chain, we pay a price premium for the raw/green FAIRTRADE certified coffees. This is the first levy we are charged and we are happy paying this premium in belief the farmer has also been paid more at the "gate" - so it's the FAIR part of the FAIRTRADE.
In Australia, most of the FAIRTRADE coffees are also double certified Organic (one of the largest importers typically ensures they are double certified), but the Organic certification part is not actively managed, endorsed or recognized by the FAIRTRADE system and can at times create labelling challenges (or conflicts) on products.
Often customers wanting Organic coffees are directed to the FAIRTRADE range being double certified, then become confused about a lack of clear Organic representation on the labels. Generally speaking, our hands are somewhat tied on design and layout of labels for FAIRTRADE products as there are restrictions how the FAIRTRADE products appear visually in order to comply with FAIRTRADE rules, policies and standards.
This results in labels for dual certified coffees are being "dominated" by the FAIRTRADE labelling guidelines and essentially ignoring the Organic part, or relegating the Organic feature oblivious.
With such a small pool of coffees arriving into the country, the limited choices and qualities at times are not representative of the prices paid. It's easy to feel like we pay a lot more for probably less in the cup - everyone takes a crimp of the coffee price in the supply chain, especially certified coffees.
So here's were it get's interesting and just a little bit "questionable". That extra 40 cents per kilo the farmer was guaranteed (called the FAIRTRADE premium) in many instances ends up being up to a couple of bucks extra we have paid out by the time the raw product arrives to us - at this point we are just at the raw coffee sourcing stage.
As the pool of FAIRTRADE coffees remains small, particularly higher qualities, that difference between what the farmer was paid as a basic minimum (the guarantee) and what it actually ended up costing us in added premium widens. It's hard not to imagine there's more than a bit a demand pricing being applied. Limited number of suppliers, limited number of coffees available to purchase and the price has literally no chance of being offered competitively in a small market.
Putting aside the levy we pay for the certified raw coffee there is another cost we pay to participate in the FAIRTRADE system - annual licensing fees, entitling us to the right to use the FAIRTRADE label (trademark) and participate in the flow of goods program that qualifies and ensures a product's authenticity. It's an administration charge to control and manage the program at all stages.
But that's not the end of the additional costs we pay for the privilege of participating in the FAIRTRADE program.
We also have to pay a 3rd premium called a levy on every kilo of coffee sold and this is where I believe the system is bordering upon being unfair. Whilst it's relatively small in monetary value, it's more about the principle that's not entirely fair.
As a business, we accept paying the first and second premiums - it's reasonable. However, we have invested large capital to build the infrastructure required to produce, package and market the FAIRTRADE products into a format for sale - called the value add. For each sale of a FAIRTRADE product, there is this extra levy after we have already paid the other two premiums.
As a sole investor we don't get to retain all of our returns. The FAIRTRADE organisation is not giving us back any of our large costs involved to value-add the FAIRTRADE item from a raw ingredient into a saleable product.
With 3 different types of fees being levied on the coffee roaster, we are unclear as to what the farmer **may** have received from the system. It's entirely possible a low of somewhere around 5 - 20% of these total fees paid (just a guesstimate), but the question arises as to what's happening with the remaining large portion - absorbed into a not-for-profit organisation ?.
If you feel your eyebrows raising at this moment, then you probably see our point.
Maybe it's why participation rates in the FAIRTRADE system for Australian coffee companies remains low and perhaps it's also why coffee companies establish their own direct relationships with farmers to ensure more of a "premium" is received and put to good use, rather than being "lost" into a marketing organisation.
Now, let's get take a look at a different coffee certification program and how consumers are being fooled by large companies pretending to be serious about ethical and responsible sourcing - promoting their meaningless certifications (NOTE: the following comments do not apply to the FAIRTRADE system).
Rainforest Alliance (follow the green frog) and UTZ were similar and until recently separate certification programs that decided to merge. We couldn't see any benefit in the UTZ program but almost 10 years ago we went through the process to become Rainforest Alliance (RFA) certified. At that time, Rainforest Alliance was shaping up as a potential strategic differentiator in the market, except everyone was also jumping on the same bandwagon.
Somewhere along the way, the RFA Organisation (based in the US) seemed to lose relevance, or not achieve it in the first place - failing to gain any realistic legitimacy in our local Australian coffee market. Sure, coffee companies were "on-board" but the missing element was consumer advocacy. Consumers did not understand the meaning or significance in following the green frog and they certainly were not "shopping" with any strong convictions about the benefits of the RFA cause.
Rainforest Alliance is open to the potential for abuse and cheating - there are relatively few control points (no offices or resources in Australia) and companies could use the RFA branding with scant regard or respect to compliance. Some brands placed the logo on packaging and consumers did not realize the "certified" product only needed to contain a minimum of 30% RFA certified coffees, the remaining 70% could be absolute rubbish. A heavy diluted promise.
Rainforest Alliance and UTZ certifications became popular with the large companies seeking an easy way to obtain "useful credentials", e.g. McDonalds and supermarket private label offerings.
These big companies loved the idea of promoting participation in UTZ or Rainforest Alliance like a badge of honour as it enabled them to "tick a box" obtaining an ethical and responsible sourcing with UTZ or RFA logos.
With RFA/UTZ certified products been so easily rorted (of course there is a registration process but it's no where near as rigorous as FAIRTRADE), literally anyone could display the green frog so long as they sourced a bit of RFA product. Or they could get away with using none at all as there has been limited auditing or flow of goods reporting. Certifications should be about traceability and this has been found lacking.
If you compare RFA to the FAIRTRADE system, only registered and valid FAIRTRADE licensee can purchase FAIRTRADE certified raw/green coffees. Literally anyone can purchase UTZ or RFA coffees and there is a negligible price premium for these UTZ/RFA coffees.
So when the large providers of roasted coffee like McDonalds, Coles, Aldi and Woolworths private label proudly espouse their support of sustainable programs like UTZ and RFA, it's cost them literally nothing, it's essentially un-managed and more importantly it's provided them with a free "get out of jail" card for those moments when they might be challenged over irresponsible sourcing.
From an observer's perspective, the UTZ/RFA accreditation appears to be perfectly suited for the lazy Corporate ethos - minimal effort for maximum gain. It would also appear to contradict the real sourcing initiatives of those large retailers - behemoth bullies going out into the market with serious intent to secure the absolute lowest possible cost of supply (and by inference quality).
You see, sourcing bottom of the market supply pricing further perpetuates an arrangement that can only be supported by borderline slave labour pricing - just look at what happened with dairy farmers in Australia during the milk wars and you have some idea of what occurs when the large retailers want their coffee for 70% cheaper than the market average.
Is it really ethical sourcing or a hollow certification acting as blanket insurance policy for dirty deeds, done dirt cheap.
Despite all the marketing promising real change and benefit to coffee farmers, or the environment, these programs are failing to positively reform and transform the most critical element in the supply chain - the economic survival and prosperity of coffee farming communities.
Today, coffee farmers are even worse off than 25 years ago despite all the advances in farming, infrastructure, supply chains and global economics.