The study explored coffee value based on numerous factors, such as product format, private label vs. national brands and certifications.
A new economic report shows that while coffee has enough value to ensure profitability for everyone in the supply chain, the current distribution of value heavily favors roasters and direct-to-consumer sellers, often at the expense of coffee farmers.
The report (direct download here) highlights the critical disconnect between prices paid to farmers and prices paid by consumers, while calling for commitments on the parts of coffee companies to promote more fair value distribution.
“Current value distribution makes coffee production economically unviable for most farming families and the planet,” GCP Director Annette Pensel said in an announcement of the report today. “This challenges the ambition of the coffee industry to become sustainable. We invite the coffee sector to rethink the value system and act collectively to secure its future.”
Titled “Grounds for Sharing,” the report was commissioned by the Global Coffee Platform (GCP), IDH and Solidaridad, and conducted by the economic research firm Le Basic.
While value distribution in the coffee industry is already widely believed to favor downstream actors, the new report goes into unprecedented detail, with a particular focus on the German coffee market and four of its key green coffee suppliers: Brazil, Colombia, Ethiopia and Vietnam.
In a webinar introducing the report today, authors said many of the key findings could be reasonably extrapolated to other key consumer markets, such as the United States, as well as other traditional producer markets.
Key Findings
Smallholder Farm Labor
Among the key findings of the report is actually one of the sector’s most glaring omissions: the cost of labor on many small farms.
“The study found that the economic model for smaller family farms is not including one of the main costs: family labor,” Andrea Olivar, the strategy director Solidaridad Latin America said in a an announcement from IDH. “Without a proper valuation of family labor, it is near impossible to fully reward farmers for their coffee.”
The Dramatic Impact of Product Formats
The report found that value varied dramatically between end-product formats (bagged ground coffee, whole bean coffee, single-serve capsules or single-serve pods), with single-serve formats commanding much higher prices per volume of coffee.
The report suggests coffee companies with diversified product portfolios might use this data to better their own understanding of value and, subsequently, its distribution.
Leveraging Value
The report found that “intangible value creation” through branding, marketing and advertising remains a key leverage point for roasters and retailers, with created value often reinvested in the form of research and development, product innovation or operational costs.
On the other side of the coffee chain, the report found that many farmers have limited insights or control over the final destination or form of their coffees, putting them at a disadvantage in terms of value capturing.
Industry Call to Action
With these findings, the three sustainability advocacy groups are urging actors throughout the coffee supply chain to commit to better sourcing practices, while also exploring economically grounded mechanisms for equitable value distribution.
Said IDH Agri-Commodities Director Tessa Meulensteen, “With the right mechanisms, companies can more easily comply with due diligence and reporting requirements, and ensure a sustainable supply of coffee in the long run.”
Download the full report here.
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Nick Brown Nick Brown is the editor of Daily Coffee News by Roast Magazine.
