Coffee Value Chain: a blend of upgrading - Duke viu workshop2009
Coffee Value Chain: a blend ofupgrading
Outline• Basic facts about coffee• Coffee GVC• Who’s capturing the gain?• Economic, environmental, social upgrading: what does it mean for coffee VC and local development?• Deliverables (presentation, word file, working files)
Basic Facts About Coffee• Until 1990, the world trade of coffee was subject to a quota system controled by ICO;• After the quota system was abolished, the prices have been going up and down reflecting supply and demand trends;• Being a primary commodity, coffee prices are inherently unstable. One source of price instability is the vulnerability of coffee plants to unfavorable weather conditions and climate changes;
Basic Facts About Coffee (2)• Despite falling prices in the 1990s, the world production and exports of coffee increased;• Vietan emerged as a big exporter in the 1990s, when the country planted over a million acres between 1990 and 2000 of coffee and flooded the market with cheap Robusta beans;
Price Trend – 1980-2009Source: International Coffee Organization
Coffee: the main actors• Brazil, Vietnam, Colombia and Germany are the main exporters;• More than 50 developing countries are highly dependent on coffee exports; 25 of them are in Africa• The two most important producers and exporters of coffee in Africa are Ethiopia and Uganda.
Two Different Export Models African Model Germany Model• Production occurs in • no production: smallholder farmers; Germany re-exports• Involve millions of processed coffee at cheap laborers; prices up to five times more than what it pays• Exports of non- for the product; processed coffee; • Exports are controlled• Exports depends on the by domestic brands; middle men and global buyers; • Belgium, Italy and USA follows the Germany model.
Coffee Global Value Chain Input – Output Stages Growing/ Inputs Mediators Roasters Retail Processing Seed Harvesting Facilitate trade Roasting Supermarket Land Processing (i.e., wet method, Grinding Food Service dry method)Irrigation Parchment Coffee Blending Mass Retail Fertilizer (seed coat removed) Coffeeshops Labor BrewingMachinery
Coffee Global Value Chain Actors Drivers Growing/ Inputs Mediators Roasters Retail ProcessingSmall and Medium Producers International Branded Trader Manufacturers i.e., Nestle, Sara Lee Estates/Plantations Branded Blends Marketing Board (i.e., Starbucks) Cooperatives Independent Roasters Exporters
GVC Structure Open Questions• What are the differences between global value chains and local value chains in shaping upgrading? (social, environmental, economic)• Does concentration of the industry along the International Traders and Roasters segments make upgrading easier, harder?• Do mediating bodies help growers? Are there differences between large and small?
Environmental upgrading: Coffee Life Cycle Exporting Developing countries countries Importing countriesSource:Salomone, 2003
Main environmental issues & upgrading• Cultivation • Open questions – Pollution and eutrophication – What pesticides and (pesticide and fertilizer use) fertilizers are used? • measures of water – Water consumption and pollution/eutrophication pollution – Differences between big and – Depletion of soil small farms approaches and – Deforestation (shadow vs. impacts? sun) – Is the shade grown coffee – Biodiversity (shadow vs. sun) more environmentally friendly? • what are the differences in• Processing (wet vs. dry) productivity? – Water consumption and – Is it possible to reduce the pollution quantity of water used in the wet processing? – Energy consumption – Reduction of impacts – Air pollution through corporation? • how to promote it? – Is water treatment in place in the wet process?
Main environmental issues & upgrading• Consumption • Open questions – Water use – How much water – Waste production and energy are (e.g. through away used? cups) – Technologies to – Energy reduce the use of consumption water and energy in the coffee machine? – Air pollution – How to promote the reduction of waste? Is it possible to combine environmental upgrading with social and economic?
Social upgrading in coffee chains• Who are the workers and different dynamics (Regular vs. irregular, ethnic minorities, gender composition and child labor, seasonal)• Output standards on quantity (employment creation) and quality of labor (wages, hour, benefits, contracts)• Enabling rights (freedom of association, discrimination, force labor)
Social upgrading in coffee chains (2)• What’s the role of global buyers on labor and environmental upgrading?• Do smaller producers’ workers have rights compared to exporters/marketing boards?• Do the pickers have organizing rights?
Economic Upgrading: making money out of a commodity• Product upgrading: – Specialty blending – Sustainable coffee• Process upgrading: – Wet vs. dry processing (?)• Functional upgrading: – From harvesting to branding and roasting
Branding and differentiating• New way and loci of consumption• Local tastes and culture• New blends• Brands: values and sense-making• Role of distribution• Crisis
Labels for a better world• Sustainability and quality• Private vs. Public, global vs. national, coffee specific vs. general• Costs to put in place the certification as barrier to entry?• Crisis?• Collective actions?• Who benefits?• Real value of certifications?
Overall questions• How does the structure of the chain affect the types of upgrading?• Driving players, mediators & upgrading strategies?• Cooperatives? Better relations with international traders?• What are the conditions to (functional) upgrade?• Is there upgrading potential more through domestic or international market and impact on chain dynamic?• Who’s capturing the gains?• Can economic upgrading comes along with social and evironmental ?• Why are some developing countries not upgrading?• Is there a local development driven by upgrading strategies?
Methodology• Case studies: Brazil, Costa Rica, Ethiopia and Vietnam.• Two main research questions: (1) how producers in developing countries were able or not able to upgrade and improve labor and environmental standards? (2) under what circumstances producers in developing countries succeeded in pursuing (functional) upgrading?
Methodology (2)• We will use historical narratives to develop causal explanation and pattern matching (comparisons between different cases).• The focus of the research will be to understand the sequence of events that leads to economic, environmental and social upgrading;• We will use the existing typologies of the GVC literature to classify the case of upgrading.
Strategy of the research• Analyze many papers and data avalible from secondary sources;• Identify the independent and dependent variables (upgrading) and develop typologies of upgrading based on the GVC literature;• Interview bussiness associations, small producers, international traders, and government representatives in each one of the four countries;• Interview global buyers (branded manufactures) in some developed coutries.• Revise the intial hypotheses, develop conditional generalizations and write the paper.