Issues in Social and Environmental AccountingVol. 1, No. 2 December 2007Pp 296-310 Supply Chain Information in Environmental Management Accounting – the case of a Vietnamese Coffee Exporter Tobias Viere Stefan Schaltegger Centre for Sustainability Management Leuphana University of Lueneburg, Germany Jan von Enden EDE Consulting Americas, Costa RicaAbstract:This case study discusses Environmental Management Accounting (EMA) which are illustratedwith the case example of Neumann Gruppe Vietnam Ltd., a medium-sized coffee refining andexporting enterprise in Southern Vietnam. It examines the relevance of environment-relatedsupply chain information for corporate environmental and financial decision making and re-veals possibilities for improving eco-efficiency at the site level and for its supply chain.Keywords: Environmental management accounting, coffee supply chain, eco-efficiency, supplychain management, supply chain costing, material and energy flow costing, environmental costaccounting, life cycle assessment1 Introduction sion making and reveals possibilities for improving eco-efficiency at the site levelThis case study discusses the use, con- and for its supply chain.text and application issues of Environ-mental Management Accounting (EMA) All company related information pro-using the case study example of Neu- vided in this case study has been dis-mann Gruppe Vietnam Ltd., a medium- closed by Neumann Gruppe Vietnamsized coffee refining and exporting en- Ltd. and cross-checked by the authors.terprise in Southern Vietnam. It exam- The information is partly simplified toines the relevance of environment- ensure both, confidentiality and a betterrelated supply chain information for cor- understanding of the case.porate environmental and financial deci-Tobias Viere is an EMA lecturer and researcher at the Centre for Sustainability Management (CSM), Leuphana Univer-sity of Lueneburg, Germany, email: email@example.com. Stefan Schaltegger is full professor for Management andBusiness Economics, head of the Centre for Sustainability Management and the MBA Sustainability Management, andVice-President research of the University of Lüneburg, Germany, email: firstname.lastname@example.org. Jan von Endenis Representative of EDE Consulting Americas, San Jose, Costa Rica, email: email@example.com
T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310 2972 Initial situation modities in the world. Until the late 1990s it was even the second most valu-Neumann Gruppe Vietnam Ltd. (called able commodity after oil (see PonteNeumann Vietnam in the following) is 2004). Vietnam is a newcomer on therefining and exporting coffee. Eighty international coffee market and has ex-employees work at their plant in Binh perienced a rapid growth of coffee farm-Doung Province, near to Ho Chi Minh ing for the last two decades. This riseCity. Neumann Vietnam is a subsidiary has not only made Vietnam the secondof the German Neumann Gruppe GmbH, biggest coffee exporter of the world afterone of the world´s largest coffee trading Brasil, but it has also contributed to de-companies. clining prices and ever increasing com- petition in the world market. Since 1970Refining and exporting coffee is only a the average annual price decline hassmall part of the international coffee been 3% for arabica and 5% for robustasupply chain, both in terms of environ- coffees (see Lewin et al. 2004).mental as well as financial importance.Therefore, attention is paid to the com- Globally, the low prices are associatedpany’s performance in relation to value with rising unemployment and povertychain and the system of dependences in in some of the coffee exporting coun-which it operates. tries. At the same time the profits made in the coffee importing countries haveNeumann Vietnam is situated at the in- remained stable or even increased due toterface of smallholders and local compa- the introduction of new brands andnies on one side and multinationals and blends and other value-adding activitiesglobal competition for commodities on (see Lewin et al. 2004). Thus Pontethe other. Neumann’s sales follow the (2004) characterises the coffee supplydemand and rules of international mar- chain as a buyer-driven or more specifi-kets, while their procurement depends cally “roaster-driven” one.on the availability and quality of the lo-cal supply from farmers and middlemen. Vietnam is a mass producer of coffee,The same appears true for environmental not a quality leader. Robusta, the mainand social issues: International require- type of coffee produced in the country,ments for more sustainable coffee pro- is considered less valuable than arabica,duction meet the local, not necessarily which is the main type of coffee pro-congruent perception of environmental duced in most other countries. Robustaimportance. In the following, the eco- achieves lower prices in the world mar-nomic and environmental situation of ket and is mostly used as an ingredientNeumann Vietnam and the Vietnamese of downmarket coffee products. Mostcoffee supply chain are further elabo- consumers prefer the taste of arabica,rated upon. except for certain types of espresso. Hence, Vietnam’s current competitive2.1 Low quality, low price: The eco- situation is a purely price-driven one; itnomic situation of the Vietnamese cof- needs to produce a cheap type of coffeefee supply chain for the mass market at lowest possible costs. It should be noted though, thatCoffee is one of the most traded com- there are initiatives to change this situa-
298 T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310tion. The Vietnamese Ministry of Agri- • Colour sorting: Further value isculture, for instance, is planning to in- added to the coffee beans if they docrease the production of arabica coffee, not only consist of the same sizeto improve the quality of coffee process- but also of the same colour. Beansing and to participate more actively in that are too dark are sorted out asinternational coffee trading (see People’s otherwise the quality of the roastedDaily Online 2006). This might lead to coffee at the customer’s site wouldthe development of higher quality grades deteriorate.in the future, which are less dependent • Wet polishing: This final step pro-on the fluctuating world market prices. duces the highest quality robusta coffee beans by improving and har-2.2 Economic situation and refine- monising the bean’s surface.ment process at Neumann Vietnam The selling price for the different quali-Neumann Vietnam purchases and refines ties of robusta and the purchasing pricecoffee to export it to roasters overseas. for robusta beans depend on the worldTheir customers expect a coffee quality market and the local supply. It varieswhich is above average and they pay from season to season or even shorterpremiums for certain quality grades. time scales due to international com-Competitors of Neumann Vietnam are modity trading. Assuming a rather highvarious Vietnam-based international, purchasing price of €1000 per metricprivate and state-owned coffee export- tonne (t), the per tonne premium for re-ers. The company is not aiming at a finement ranges from less than €5 forhuge market share; rather it is focusing cleaned beans up to €60 for wet polishedon higher qualities. robusta.Neumann Vietnam exports coffee beans 2.3 Coffee and the environmentof different quality grades. To producethese grades, the coffee beans are proc- Coffee is a typical example of a globalessed once or twice through the follow- commodity. Mainly produced in devel-ing refinement steps: oping nations in tropical areas, the ma-• Coffee cleaning: This basic clean- jority of consumers are found in indus- ing step produces the lowest export- trialised countries. Highly efficient con- able quality grade of robusta coffee sumer markets and the large corporate beans. The step ensures that no for- wholesalers, roasters, and traders buy eign matter (e.g. stones, leaves, soil coffee from agricultural smallholders particles) is included in the ex- and middlemen. The widely spread per- ported products which could harm ception of the global value chain of cof- the customers’ roasting devices. fee is one where profits are made in in- dustrialised countries at the expense of• Gravity sorting: Neumann Viet- environmental and social problems in nam’s customers pay a premium for the developing world (see Ponte 2004). deliveries of homogeneous coffee This has lead to initiatives promoting beans. This step allows Neumann to fair trade and sustainable coffee farming produce export coffee beans within including organic, shade-grown and bird a determined range of size. -friendly coffee products. The market
T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310 299share of organic and fair trade coffee is that another crucial step of coffee pro-continuously increasing, however, it is duction is coffee consumption.still less than 2% of the world market(ibid.). 3 Decision situation and companys motivation for using EMADoubtlessly, the cultivation and process-ing of coffee has severe environmental For several commodities, Blowfieldconsequences. Deforestation, loss of (2003) observed a gap between the sus-biodiversity, eutrophication, depletion of tainability or ethical standards of parts ofwater and energy resources, and erosion the demand side and the values and pri-are examples of environmental impacts orities of producers in the chain. This isassociated with the first steps of the cof- particularly true for the Vietnamese cof-fee supply chain. Plentiful measures to fee chain. Neumann Vietnam’s custom-reduce these impacts are available, for ers, international coffee roasters andinstance shade grown and organic culti- traders, are exposed to environmentalvation, diversification and alternating and sustainability concerns in the coffeevegetation, fallowing, planting of grass consuming countries. Many of the inter-under the coffee plants, recycling of national roasters and traders have re-wastewater, composting of other waste, sponded by establishing CSR depart-etc. These measures are perceived as ments, launching of codes of conduct,costly. Therefore, the reasoning is that and offering fair trade and sustainablethe fierce price competition drives harm- coffees. Neumann Vietnam’s suppliers,ful practices (see Clay 2004). in contrast, face almost no direct pres- sures and get little incentives to changeAdmittedly, it can not be concluded that their current way of mass production ofless intense competition would automati- coffee.cally lead to less harmful practices. Onthe contrary, high world market prices Neumann Vietnam’s options to increaseand profit margins encouraged Vietnam- its business performance are related toese authorities to promote coffee farm- the margin between the purchase priceing since the late 1980s and stimulated and the selling price of coffee. Threethe interest of many Vietnamese to take basic options to increase the value addedtheir chance in coffee farming. Without can be distinguished and are linked toknowing much about coffee cultivation, environmental issues:harvesting and processing, this boostlead to deforestation, soil degradation, a) Obtain premiums for better quali-over-fertilisation and further environ- ties of coffee: Neumann Vietnam ismental impacts (see Johnston 2001). already refining robusta coffee to benefit from premiums. The exportWhile coffee cultivation, the supply of sustainable coffees might be achain’s first step, is often in the spotlight further option to receive premiums,of environmental attention, later stages however, the supply and demandin the value chain tend to be disregarded. for sustainable, organic or fair tradeHowever, life cycle analyses (LCA) of robusta coffee from Vietnam iscoffee production, conducted by Diers et negligible. Thus Neumann Vietnamal. (1999) and Salomone (2003) show would have to stimulate the de-
300 T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310 mand and the supply at the same 4 Applying EMA at Neumann Kaf- time. Alternatively, Neumann Viet- fee Vietnam Ltd. nam could also try to export sus- tainable arabica coffee from Viet- As elaborated above, the EMA applica- nam. tion at Neumann Vietnam is expected to support two different decision makingb) Reduce company-internal costs: situations: It needs to provide environ- Considering the purchasing and ment-related cost information on the selling price of coffee as fixed, refinement processes and eco-efficiency Neumann Vietnam could increase potentials within the supply chain. profits by reducing its costs of re- fining and exporting coffee. This includes measures to increase en- 4.1 Material- and energy flow based ergy- and material-efficiency. cost accounting of the refinement processesc) Purchase price reduction: Assum- ing unchanged selling prices, lower The business of refining and exporting purchase prices of course add value coffee is not known for environmental to Neumann Vietnam’s operations. problems like air and water pollution or Eco-efficiency improvements in the intensive energy and resource consump- supply chain might enable suppliers tion. A rough analysis of Neumann’s to reduce their productions costs operations validated this presumption. and prices. Perceivable environmental issues atThe company’s motivation for using Neumann’s site are energy consumptionEMA is to identify if and how environ- (electricity), solid waste and water con-mental aspects are relevant for the busi- sumption. Transportation has not beenness success (for a more general discus- considered for internal accounting as itsion of the business case for sustainabil- is outsourced to suppliers. The low im-ity see e.g. Schaltegger & Wagner pacts of the on-site environmental issues2006). Option a) has not been consid- are highlighted by the following com-ered further as the company is consider- parisons: For refining and exporting aing itself not to be in a strong enough metric tonne of green beans, Neumannposition to foster the development of a Vietnam uses 40 kWh of electric energy,market for sustainable coffee from Viet- while a Vietnamese company that culti-nam. Neumann Vietnam’s interest in vates and processes coffee consumesanalysing the relevance of environ- roughly 50 times more per tonne (seemental aspects on the production costs Doan et al. 2003). The water demand for(option b), can be characterised as an ad- one tonne of green beans is 35 litres onhoc, short-term focused analysis of average, while the water demand foravailable information, while option c) traditional wet processing of coffee canrequires external, supply chain related amount up to 70,000 litres per tonne (seeinformation. Influencing the eco- ICO 2001). An overview of material andefficiency of the suppliers requires a energy inputs and outputs can be foundstrategic, long-term focussed approach in Table 1.(for a comprehensive characterisation ofdifferent decision making situations un- The consideration of inputs and outputsder EMA see Burritt et al. 2002). shows rather low raw material losses;
T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310 301 Table 1 Physical input/output table for 1 t of green bean input Input Outputitem Physical amount item Physical amountgreen beans 1000 kg green beans grade A 430 kgwater 0.035 m3 green beans grade B 370 kgelectric energy 40 kWh green beans grade C 60 kg green beans grade D 55 kg green beans for local market 75 kg dust 2 kg weight loss 8 kg waste water 0.035 m3dust and weight losses due to further lower than the purchasing price. There isdrying of the beans account for one per- no value added for these products. Neu-cent of the total output only. Neverthe- mann Vietnam should therefore aim atless, the financial relevance of these reducing the amount of these products aslosses is not to be neglected. One per- far as possible. To better understand thecent loss equals one percent of the pur- refinement process for the differentchasing costs of green beans, which ac- grades, a product-specific material andcount for more than 95% of the total energy flow related cost accounting hasproduction costs. Furthermore, green been carried out to trace energy and wa-beans grade D and green beans for the ter consumption as well as materiallocal market need to be considered as losses to the different quality grades (seeunwanted products, as the selling price Table 2).for these products is not higher or even Table 2 Physical and monetary flows of green beans grade B current situation best case scenario physical monetary physical monetary amount equivalent amount equivalent green beans gradewanted product B 1000 kg 1.040 € 1000 kg 1.040 € green beans grade D 60 kg 60 € 0 kg 0€unwanted product green beans for local market 10 kg 10 € 0 kg 0€ dust and weightwaste loss 10 kg 0€ 0 kg 0€raw material input green beans 1080 kg -1.080 € 1000 kg -1.000 €further input electric energy 25 kWh -1,50 € 23 kWh -1,40 €profit/loss* 28,50 € 39 €*) not including depreciation, labour costs, and overhead costs like general administration costs,management salaries, etc.
302 T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310As expected, energy and water demand Figure 1 Coffee production chaindo not affect the profitability signifi-cantly. Material losses and the genera-tion of lower quality grades do have fi-nancial implications, though. Assumingthat it would be possible to producegrade B without producing lower qualitygrades and wastes, the profit would in-crease by 37% or 10,50€ per tonne offinal product (see best case scenario inTable 2). These figures are fictional as itis not possible to fully eliminate lowerquality grades and waste. Nevertheless,the results imply that paying premiumsfor high quality supplies, which lead toless unwanted products and wastes, isprofitable within a certain margin. Fur-thermore, the results imply that onlygrade A and B coffee beans contribute toNeumann Vietnam’s profits substan-tially.The material and energy flow based costaccounting has confirmed most of Neu-mann Vietnam’s assumptions, in par-ticular that the financial importance ofenergy and water consumption is ratherlow and that the quality of the purchasedcoffee affects the profitability of thebusiness.4.2 The coffee supply chain’s state ofthe environmentThe coffee supply chain starts with agri-cultural processes in tropical countriesand ends with the consumption and dis- harvest coffee cherries. These activi-posal stages, predominantly in industri- ties are associated with soil erosionalised countries in cooler regions of the and loss of biodiversity due to theworld. The main steps comprise (see extension of agricultural land use;ICO 2001 and Figure 1): eutrophication, eco-toxicity and greenhouse effect due to fertilisation;• Coffee farming: Coffee farmers and mammal and aquatic life toxicity due hired workers plant coffee trees, ap- to pesticide use; and resource deple- ply fertiliser, pesticides and herbi- tion due to the fuel and water con- cides, irrigate the plants and finally sumption required for farming.
T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310 303• Dry/wet processing: The coffee cher- are glasses with screw caps for solu- ries have to be processed to release ble coffees. Roasting does not neces- the green coffee beans. Robusta cof- sarily happen after export, it is also fee cherries are usually treated by common to export roasted coffee. using the dry processing method; • Consumption: Energy consumption is most arabica coffees are wet proc- the most important environmental essed. Dry processing can be issue of this step of the coffee life achieved by solar power (sun-drying) cycle. The making of coffee requires or by the use of fuels; the latter one is energy, mainly electricity, for the more common in Vietnam. After dry- percolator. The habit of leaving cof- ing the coffee cherries are hulled and fee on the hot plate of the percolator grinded to release the green coffee to keep it warm increases the energy bean. The leftovers of this process, demand further. Of course, coffee dried pulp and parchment skin, can making involves a certain amount of be composted. Wet processing is water input as well. more harmful from an environmental • Disposal: Consumers need to dispose point of view, but gains higher selling of coffee grounds and filters as well prices for the coffee beans. The tradi- as the packaging. Coffee grounds and tional wet processing method requires filters are often composted, but have 40,000 to 70,000 litres of water input a comparably long and unsmooth rot- per t of green bean, the mechanical ting process. Packaging as well as mucilage removal method reduces jute and plastic bags from previous this demand down to 1,000 litres. The supply chain steps are recycled, in- organic pollutant load of the gener- cinerated or dumped. The common ated waste water is similar in both environmental problems related to cases. BOD and COD of wet process- waste treatment like energy consump- ing waste water are extremely high, tion, acidification and greenhouse gas while the pH is low. Untreated waste emissions are therefore present. water of wet processing is therefore a • Transportation: Transportation is not major driver of environmental prob- depicted in Figure 1, as it happens in lems caused by the production of cof- between almost all steps of the coffee fee. life cycle. The biggest transportation• Coffee refinement and export: This distance concerns the shipping of part of the coffee life cycle has been green beans or roasted coffee from described above. the producing to the consuming coun-• Coffee roasting and retail: To roast tries. Transportation is associated the green coffee beans, thermal en- with the depletion of natural re- ergy is required. Its generation causes sources, in particular fossil fuels, and air emissions including greenhouse the environmental impacts of com- gases. Decaffeinated and soluble cof- busting the fuels, most prominently fees in particular require water in the global warming. roasting process as well. After roast- ing, coffee needs to be packed, Poly- From a decision making point of view it ethylene foil (PET) ensures that no is important to know at which steps of oxygen reacts with the coffee to the coffee life cycle environmental im- avoid ageing. Other packaging types provements are most promising. Energy-
304 T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310efficiency optimisation of the refinement cultivation (ibid.). This does not lowerprocesses might reduce Neumann Viet- the relevance of substantial environ-nam’s production costs slightly but it has mental impacts in the farming areas, butalmost no impact on the overall environ- it highlights the importance of improv-mental performance of the supply chain ing coffee cooking procedures.(see chapter .(4.1) In the analysis of Diers et al. (1999),Life-cycle assessments (LCA) are a coffee cultivation and processing ac-common tool of environmental account- count for 49%, whereas consumptioning, conducted by companies as well as and disposal account for 41% of the en-research organisations, governments, viron-mental impacts (see Figure 2).etc. (see Schaltegger and Burritt 2000). Furthermore, a comparison of best case,An LCA can be used to highlight the worst case and the current situationenvironmental importance of different places the current situation near to thesteps of a product’s life cycle. Two worst case scenario, meaning that theLCAs have been conducted for coffee improvement potential of the coffee lifeproduction (Diers et al. 1999; Salomone cycle is rather high (see Diers et al.2003). Looking for the highest overall 1999). The coffee processing step has aimprovement potential of the coffee life higher impact in this analysis due to thecycle, the conclusion of both LCAs is fact that wet and dry processing hassimilar: The first and the last steps of the been considered, while Salomone (2003)life cycle matter most. considers dry processing only. Similarly, the analysis of Diers et al. (1999)Salomone (2003) identifies consumption stresses the waste disposal issue moreas the single most important step fol- than Salomone (2003) does which leadslowed by cultivation. Cultivation ac- to a slightly higher importance of thecounts for more than 97% of coffee’s disposal stage. Both LCAs do not ex-total eco-toxicity and eutrophication, plicitly consider loss of biodiversity,while consumption, comprising mainly which is likely to increase the environ-the water use and energy demand for mental importance of the cultivation steppreparing coffee, accounts for more than even further.two thirds of total air acidification,greenhouse effects, photochemical oxi- The results of the two LCAs help deci-dant formation, depletion of ozone layer, sion makers to prioritise options for en-human toxicity and aquatic eco-toxicity. vironmental improvements of the supplyThe importance of the consumption step chain (see Diers et al. 1999, Salomonefor the overall environmental perform- 2003):ance of coffee production is supported • In cultivation, avoidance or reduc-by the results of a sensitivity analysis. It tion of fertiliser use is the most im-reveals that in terms of total weighted portant impact followed by meas-environmental impacts, the impact of ures to avoid erosion. Preservationchanging the coffee making process, e.g. of biodiversity has not been consid-gas stove coffee making instead of an ered in the LCAs, but is likely to beelectric coffee machine, is substantially of importance in the Vietnamesehigher than the impact of avoiding pesti- coffee farming context as well.cides or applying organic fertilizers in • The impacts of wet processing can
T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310 305 Figure 2 Environmental impacts along the coffee value chain (adapted from Diers et al. 1999) % of total environmental impact 50% 40% 30% 20% 10% 0% g l e g il a in ta f fe ti n os ss Re co isp as ce Ro D & ro w de & .p a fr n a cl ti o to Tr in p or n m p tio su ns uc on a Tr od C Pr be substantially reduced by proper on average and the use of thermos waste water treatment and reduc- cans or bottles instead of leaving tion of water consumption. In wet the coffee on the hot plate for sev- and dry processing, fuels are con- eral minutes. sumed for drying. Energy-efficiency • Coffee ground and coffee filters are measures could reduce environ- the biggest contributors to environ- mental impacts like global warming mental impacts of the disposal and resource depletion. stage. Measures to ensure proper• Refinement, export, roasting, retail composting are likely to reduce and transportation are not the high- these impacts. est priority for environmental im- provements of the coffee life cycle. 4.3 Environmental supply chain cost-• In consumption eco-efficiency can ing and management be improved by using electricity from renewable resources or by Neumann Vietnam Ltd. operates in a substituting the coffee machines highly competitive market, thus finan- run by electric energy with differ- cial implications of environmental sup- ent devices, e.g. plunger pots, ply chain improvements are of great in- which can make use of other and terest. Gathering, analysing and using less polluting energy sources like supply chain cost information for mana- gas. A big improvement potential is gerial decision making is not widely the change of consumer habits covered in the general management ac- which includes the avoidance of counting literature. At least some au- pouring one cup of coffee per can thors have elaborated upon this topic in
306 T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310detail, in particular in the context of lo- Figure 3 Composition of coffee culti-gistics (see LaLonde & Pohlen 1996;Cullen et al. 1999). vation costs (Source: EDE 2003) further investment/Supply chain costing provides informa- depreciation 1%tion to determine the overall effective- 16%ness of the supply chain, identify im-provement opportunities, evaluate alter- fertiliser 38%native supply chain structures, and selectsupply chain partners. The implementa-tion of supply chain costing is a difficulttask as its benefits do not necessarilyoccur evenly throughout the chain (seeLaLonde & Pohlen 1996). “The sharingof cost information may give away a hired labour irrigationhard-earned competitive advantage or 43% 2%provide negotiating leverage to theirsupply chain partners” (LaLonde andPohlen 1996, 4). EDE 2003). If farmers manage to use fertilisers in the best possible way theyThe environmental improvement priori- can reduce the costs for purchasing fer-ties elaborated in chapter 4.2can be used tiliser by almost 50%. This reduces theirto analyse supply chain costs. As Neu- total production costs by roughly 20%mann Vietnam is not considering itself and doubles the average farmer’s profits.in a position to affect the consumer be- Looking at these facts from a customer’shaviour or the disposal stage of the cof- perspective, the purchasing price forfee life-cycle, the environmental supply harvested coffee could be reduced sig-chain costing focuses on upstream nificantly without compromising thestages, namely cultivation and process- farmer’s profits.ing. Robusta coffee processing appliesdry processing, i.e. in environmental An environmental supply chain costingterms the processing step is less impor- can also be used to reveal the additionaltant than the cultivation stage. benefits and costs of alternative, less damaging cultivation methods, for in-In cultivation, the use of fertilisers is stance by comparing the premiums paidcostly and harmful for the environment. for organic, shade-grown coffee and theFigure 3 shows the 2003 composition of consequent reduction of production costsproduction costs at an average robusta with the reduced yields. In processing,coffee farm in Dak Lak Province of the saving potential of more energy-Vietnam as investigated by one of the efficient drying devices could be of in-authors (see EDE 2003). Fertilisers ac- terest, too.count for 38% of total production costs.Moreover, the majority of farmers have The availability of supply chain costbeen found to use fertilisers ineffi- information does not solve one majorciently. Many farmers use more than problem: “Restructuring the supplytwice as much fertiliser as necessary (see chain to exploit efficiencies or seize
T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310 307competitive advantages requires a For Neumann Vietnam, the supply chainmechanism capable of equitably allocat- management challenge is to foster eco-ing cost benefits and burdens between efficiency improvements, in particularsupply chain partners” (LaLonde & Poh- reduced use of fertilisers, at the coffeelen 1996, 8). Obviously, most Vietnam- farming stage and to ensure participationese farmers have not adapted methods in the financial benefits. According tofor efficient fertiliser use by themselves. Williamson (1975 and 1985) the threeIf one supply chain actor, like Neumann basic options for co-ordinating supplyVietnam, starts to train farmers on a chains are price (market arrangement),more efficient use it is not necessarily command and control (hierarchical ar-Neumann Vietnam who benefits. The rangement), and negotiation (co-farmers may as well sell their coffee to operative arrangement):other middlemen and exporters or justkeep the farmgate price on the same • Neumann Vietnam could use mar-level to make more profit. At first ket arrangements to provide incen-glance, the incentive for Neumann Viet- tives, or more precisely premiums,nam to facilitate eco-efficiency improve- to its supplier to receive higherments within the supply chain is rather qualities or special types of coffee,low. (Environmental) supply chain man- for instance organic, fair trade cof-agement is considered to be a solution fees if there is a customer demandfor this problem. for it. For the reduction of fertiliser use or other eco-efficiency meas-For Cooper et al. (1997a, 68) supply ures in the upstream supply chain,chain management is “an integrative market arrangements are no prom-philosophy to manage the total flow of a ising option.channel from earliest supplier of raw • Establishing hierarchical arrange-materials to the ultimate customer, and ments is nearest to the original un-beyond, including the disposal process”. derstanding of supply chain man-When taking the perspective of one agement, where rather large enter-company within the chain, the challenge prises purchase key suppliers andis slightly different, though. In this per- own or control distribution chan-spective, according to the author of the nels. However, Neumann Vietnamdefinition above, the supply chain looks does not intend to buy suppliersnot like a chain, but rather like an up- and is also not in a position torooted tree. The company needs to de- dominate the chain.cide how many of the roots and branchesit wants to manage (see Cooper et al. • Co-operative arrangements are the1997b, 9). In this connection, Seuring most promising option for Neu-(2004) has compared different concepts mann Vietnam. For instance, theof environmental management that ad- company can offer its suppliersdress the flow of material and informa- training and support on implement-tion along life cycles or supply chains. ing eco-efficiency measures. InHe concludes that environmental supply return, the suppliers need to agreechain management is the most manage- to either pay Neumann Vietnam forment-oriented approach of all the ap- these services or to share their fi-proaches assessed. nancial benefits. This kind of verti-
308 T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310 cal co-operation is yet difficult to the reciprocal dependence” (Cullen et al. achieve as it requires monitoring of 1999, 31). the success of eco-efficiency meas- ures and the adherence to contracts for all partners involved. Middle- 5 Conclusions men or farmers might take the op- portunity to underestimate the sav- Neumann Vietnam is one of many ac- ings or to sell parts of the harvest to tors, however a large one, in the Viet- other traders and exporters without namese coffee industry and supply Neumann Coffee’s knowledge. chain. Neumann Vietnam’s business, the Thus, horizontal co-operation refinement and export of green robusta seems to be the best available op- coffee beans, does not cause huge envi- tion. Higher energy-efficiency in ronmental impacts. EMA has been used dry processing and appropriate use to confirm this presumption, but it has of fertilisers lead to higher profit- also ascertained the financial relevance ability and/or competitiveness of of even small raw material losses like the Vietnamese coffee industry as a dust and weight loss due to evaporation. whole. Having this in prospect, Vietnamese coffee exporters, trad- In contrast to the rather low environ- ers and related organisations like mental importance of its refinement and the Vietnam Coffee and Cocoa As- export operations, the supply chain in sociation (VICOFA) could share which Neumann Vietnam operates is the costs of training programs for exposed to various substantial environ- coffee farmers and companies of mental concerns. Using LCA informa- the processing step. Neumann Cof- tion in the context of EMA has helped to fee could try to initialise and lobby identify those steps within the coffee such an eco-efficiency programme. supply chain that have highest environ- mental impacts and highest options forThe findings above are in line with the environmental improvement measures.results of a comprehensive analysis of Cultivation and consumption are thesustainable cotton supply chains con- most important steps from an environ-ducted by Goldbach et al. (2003). The mental perspective. Some of the envi-authors have observed that the initial ronmental concerns in the supply chainphase of environmental and sustainabil- have direct financial consequences. En-ity supply chain management is charac- ergy inefficiencies and the overuse ofterised by co-operative or even hierar- fertiliser diminish the overall supplychical arrangements, while at later stages chain profits or lead to higher marketmarket arrangements gain importance. prices. Neumann Vietnam can get a bet-Furthermore, they conclude that envi- ter understanding of these interdepend-ronmental supply chain management encies by applying supply chain costing.cannot be viewed as a technical matter Measures to increase the supply chainonly. Instead it is an inter-organisational eco-efficiency need supply chain man-concept (see Goldbach et al. 2003). It agement efforts, in particular horizontalimplies a “change from managing sup- co-operation.ply chains based on serial dependenceand power to recognising and managing Besides Neumann Vietnam, further ac-
T. Viere, S. Schaltegger, J.v. Enden / Issues in Social and Environmental Accounting 2 (2007) 296-310 309tors within the supply chain can contrib- ing. Links Between Businessute to environmental and related finan- Actors and Environmental Man-cial improvements. Coffee consumers agement Accounting Tools”,have an even bigger role in this than ex- Australian Accounting Review,pected. By demanding alternative types Vol. 12, No. 2, pp. 39-50.of coffees like organic, fair trade or sus- Clay, J. (2004) World Agriculture andtainable coffee, consumers influence the the Environment. A Commodity-supply chain indirectly, in particular the By-Commodity Guide to Impactscultivation step. But consumers can also and Practices. Washingtondirectly reduce the environmental bur- D.C.: Island Press.dens of the coffee life cycle, for instance Cooper, M.C., Ellram, L.M., Gardner,by not making more coffee than is con- J.T. & Hanks, A.M. (1997a)sumed, by using insulated coffee pots “Meshing multiple alliances”,rather than leaving coffee on the perco- Journal of Business Logistics,lator stove, by purchasing electricity Vol. 18, No. 1, pp. 67-87.from renewable sources or by substitut- __________, Lambert, M.L. & Pagh,ing their electricity-run coffee machine. J.D. (1997b) “Supply Chain Management: More Than a NewThis case study reveals the importance Name for Logistics”, Interna-of environment-related supply chain in- tional Journal of Logistics Man-formation for corporate decision- agement, Vol. 8, No. 1, pp. 1-making. EMA can make use of tools like 14.LCA to satisfy this demand. In combina- Cullen, J., Berry, A.J., Seal, W., Dunlop,tion with concepts like supply chain A., Ahmed, M. & Marson, J.costing this analysis leads to the identifi- (1999) “Interfirm Supply Chainscation and prioritisation of eco- – the contribution of manage-efficiency improvements along the ment accounting”, Managementchain. In contrast to the still growing Accounting, June 1999, pp. 30-niche market solutions, like fair trade or 32.organic coffee farming, supply chain eco Diers, A., Langowski, H. C., Pannkoke,-efficiency measures show a potential to K. & Hop, R. (1999) Produkt-directly enter the mass market of Viet- Ökobilanz vakuumverpackternamese coffee production. Röstkaffee. Bayreuth: Eco- Informa. Doan, T., Sturm, A. & Enden, J.v.References (2003) “First Environmental Report of Tan Lam Company”,Blowfield, M. (2003) “Ethical Supply undisclosed document, can be Chains in the Cocoa, Coffee and requested from the authors. Tea Industries”, Greener Man- EDE Consulting for Coffee (eds.) (2003) agement International, Vol. 43, “Project results from Dak Lak pp. 15-24. area”, undisclosed document,Burritt R., Hahn, T. & Schaltegger, S. can be requested from the au- (2002) “Towards a Comprehen- thors. sive Framework for Environ- Goldbach, M., Seuring, S. & Back, S. mental Management Account- (2003) “Co-ordinating Sustain-
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