Fact Sheet: Real Farmer Income™
At a glance

• Nespresso is committed to paying premium prices for Nespresso AAA coffees a...
located in the same regions that were not part of the program. A profit and loss analysis for each
farm was compiled.

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Real Farmer Income

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Nespresso has created the concept of Real Farmer Income™ in order to help farmers

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Real Farmer Income

  1. 1. Fact Sheet: Real Farmer Income™ At a glance • Nespresso is committed to paying premium prices for Nespresso AAA coffees adhering to the principles of quality and sustainability management of coffee farms • Nespresso has created the concept of Real Farmer Income™ in order to help farmers • achieve a higher disposable income by receiving premium prices for quality coffee, increasing their yields, and reducing their production costs • Nespresso and its partners are working to help farmers keep better track of their accounting in farm management Much of the debate in coffee supply chains in recent years has concentrated on fluctuations in coffee pricing, but these debates do not focus on the absolute levels of income generated by coffee farming activities. Best practices combined with a commitment to Rainforest Alliance certification within the Nespresso AAA Sustainable Quality™ Coffee Program ensure the balance is struck between yield- and income-increasing initiatives, and the protection of vital ecosystems as well as the sustainability of coffee farming communities. Although the macro-economics of coffee have been studied in depth, little research has been conducted on coffee farm economics. As such, many solutions to address the volatility of the coffee market have been very broad in their approach. For example, some solutions have proposed the promotion of local coffee consumption, fixed minimum prices, increased support for small coffee producers (i.e. better infrastructure, access to credits, better vertical integration of producers in the value chain), development of production technologies, tax cuts, differentiation, and certification. While all of these measures can help, there is one important piece missing: the farmers own abilities to efficiently optimize their resources. The Nespresso AAA Sustainable Quality™ Coffee Program places the farmer centre stage. It has allowed Nespresso to understand the cultural and economic differences between different farms and regions and this, in turn, has facilitated better dialogue with coffee farmers. Nespresso is committed to paying premium prices for Nespresso AAA coffees adhering to the principles of quality and sustainability management of coffee farms. The Nespresso premium fluctuates from country to country and over time but on average price premium for Nespresso AAA coffee is 35% above the New York market and 10%-15% above similar quality coffees. In order to ensure that the premium prices farmers receive result in an increase in net income Nespresso has created the concept of Real Farmer Income™. Farmers in most cases do not know their production costs or productivity levels and are mostly concerned with the final sale price, rather than net farm income. For this reason Nespresso is helping farmers increase their income through improved productivity and quality while at the same time reducing their costs through production efficiencies. Within the Nespresso AAA Program these practices collectively constitute Qualitivity™. In 2008, Nespresso asked INCAE, the leading business school in Latin America, to conduct an independent study in order to understand if, in fact, the Nespresso AAA Sustainable Quality™ Coffee Program was really having a positive impact on farmers’ income levels. The study was conducted in three Nespresso coffee origins: Guatemala, Colombia and Costa Rica. The researchers analysed and compared data from farms participating in the Nespresso AAA Program with data from farms
  2. 2. located in the same regions that were not part of the program. A profit and loss analysis for each farm was compiled. In all three countries, while price is the main reason why farmers decided to participate in The Nespresso AAA Sustainable Quality™ Coffee Program, they also appreciate that their relationship with Nespresso and coffee suppliers leads to greater price transparency. Farmers in the survey do not recognise the importance of accounting in farm management. More than 60% of farmers in Costa Rica do not keep records of their accounting in books. In Guatemala, more than 70% of farmers use coffee price as the main financial indicator as opposed to net income or costs. In all three countries a high percentage of farmers were unable to say what their production costs were. The study did however demonstrate that the Nespresso AAA Sustainable Quality™ Coffee Program was helping farmers to have better understanding of net income and not just price. A major objective of the Nespresso AAA Program is to ensure that coffee farmers in the program do maintain accurate and up to date farm management reports. The study concluded that there are a number of opportunities for Nespresso to positively contribute to Real Farmer Income™ by working with farmers to help improve farming and management practices, as well as financial and commercial strategies. Among the results, in the Caldas Region of Colombia where Nespresso and its partners have been working intensively, Real Farmer Income™ on Nespresso AAA farms is more than double that of comparable farmers.

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