Over the past 36 months, the coffee industry has seen a wave of consolidations roll through the retail/manufacturing sector and those of us on the sidelines have been trying to figure out what it all means (see Sara Morrocchi’s great talk at Re:co Dublin last year). While some argued that consolidation was going to be bad for the farmers, others opined that this was a sign of a maturing sector, following the trend of many other businesses. Larger companies need acquisitions to continue their growth, while many medium or smaller outfits need influxes of capital and more experienced management to take them to the next level of growth or impact.
The changing retail landscape also triggered changes in related areas, the latest being coffee certification. UTZ and Rainforest Alliance, arguably the largest sustainability certifications for coffee, are merging. In fact, not only are their certification programs merging, their entire organizational structures are fusing. This joint NGO will keep the name Rainforest Alliance, and by 2019, there will be a new certification standard for coffee and other crops.
I think that this is a great move by both organizations – while clearly a radical decision, it will nonetheless give the new organization the opportunity to be innovative in addressing issues of sustainability in coffee. I interpret the merger as a response to several issues:
- Consolidation of coffee retailers.
Nestle and JAB account for over 33% of the global retail sector for coffee. There are fewer larger companies that buy certified coffee and therefore there is increased competition for a smaller number of potential customers. These customers (roasters, importers, exporters) are also starting to design and carry out their own sustainability standards through company-specific sourcing guidelines and may put less of an emphasis on certification.
- New tools for building sustainability in the coffee sector.
Voluntary third party certifications were once the best (or only?) tool the industry had for generating impact at origins of their supply chain – on environment, farmer income and how revenue is shared amongst cooperative members. Yet today, many roasters, importers and exporters have their own sustainability plans and they make their own direct investments in origin. In addition, we have seen the rise of multi-stakeholder platforms that seek to align different actors and their sustainability investments – the Sustainable Coffee Challenge, the Global Coffee Platform and IDB’s SAFE Platform are some of these examples. In light of these new, more direct and collaborative approaches, certifications sound a bit like yesterday’s news.
- Current political environment towards climate change.
The merger is also a response to the current US political environment towards climate change and sustainability in general. Back in November 2016, at the kickoff meeting of the USAID Feed the Future funded Alliance for Climate Smart Resilient Coffee, Bambi Semroc made a very prescient statement:
“In the current political environment, it will have to be private companies that lead the fight on climate change…”
Bambi opened her remarks about the need to gather everyone at the table, but that the voice that will be heard in the current administration will be that of the private sector. I don’t think she foresaw the US leaving the Paris Treaty at the time she said that – but Bambi makes a great point. Private companies tied to the coffee sector now need to lead on how to make this crop a sustainable product. The new super-NGO that will form as a result of the of the R.A. and UTZ merger will be well positioned to play a leading role in this current political context.
My hope is that the new Rainforest Alliance takes advantage of this tremendous opportunity in front of them. Each organization brings strengths to the table: R.A. with its conservation and environmental know-how and valued brand, and UTZ with its strong business acumen. By joining forces these organizations will be more effective in their mission to find a balance among agricultural production needs, environmental conservation and restoration of environmental services. The golden opportunity before them is to re-imagine the certification system and to address some of the current weaknesses of the system, which include, among others, 1) cost structures, especially for farmers; 2) conflict of interests resulting from verifiers/auditors providing technical assistance; 3) limited transparency up the chain on certified sales & demand; and 4) limited impact on productivity and poverty.
In closing, I’d like to cite one of my colleagues, Rick Jones, who works on addressing issues of systemic violence in El Salvador. One of his strategies for influencing others and finding consensus and new solutions is to “gather unlikely allies in improbable spaces.” The current environment requires innovation, and by bringing former competitors into a new organization designed to “tackle environmental and social issues around the world, including climate change, deforestation, poverty, and unsustainable farming,” this is a first step towards redesigning incentive systems that can promote and foster sustainability for coffee farmers. I wish them the best on this important journey.
(In the interest of full disclosure, the author is a member of the UTZ Standard Committee)