UNITED NATIONS DEVELOPMENT PROGRAMME

Coffee Scoping Paper

Green Commodities Facility

UNDP INTERNAL WORKING DOCUMENT (PLEASE DO NOT QUOTE): May 2010

TABLE OF CONTENTS

Global Importance of coffee..................................................................................................................................... 3 Global production and trade .................................................................................................................................... 3 Supply chain dynamics ............................................................................................................................................ 5 Commodity Production Systems .............................................................................................................................. 6 Relationship between commodity and ecosystem services ...................................................................................... 7 Green Commodity Production practices .................................................................................................................13 Economic value of good agricultural practice showing benefits and trade offs ......................................................16 Tools to promote sustainable coffee production .....................................................................................................18 Annex 1: Baseline on institutions and initiatives on commodity ............................................................................ 20

Green Commodities Facility

Coffee Scoping Paper

GLOBAL IMPORTANCE OF COFFEE

1.1 Scale and global distribution of crop production
Coffee is an evergreen shrub that grows throughout the moist subtropics and high-altitude, moist tropics. The total production of coffee in the world accounts for 8.2 million metric tons (MT) of green, unroasted, beans, distributed along 9.7 million hectares1. There are mainly two types of coffee that are widely grown: Arabica, and Robusta. Both of these, especially Arabica, have several different varieties, which have been bred to adapt to different geographical and agronomic conditions, as well as for different bean qualities. Figure 1 shows the distribution of coffee by regions and amount of production. Although coffee is produced in over 60 countries, only three account for more than half of the world's total: Brazil, Vietnam and Colombia. On the other hand, the value-added coffee industry is worth about US$ 60 billion worldwide, making coffee the second most valuable legally traded commodity after oil2. In general, the area planted to coffee is decreasing while productivity has increased in exporting countries; due mostly to low market prices that reached historic lows at the beginning of the twenty-first century, in many cases forcing farmers to convert to other crops. And although Figure 1. World coffee distribution in production markets in developed countries are moving towards higher quality coffee (i.e. consumers are willing to pay a volumes. premium for what they consume), they are also drinking less of it. As a result, the estimated world production for crop year 2009/10 has been revised downward between 120 to 122 million bags by the International Coffee Organization (ICO)3.

GLOBAL PRODUCTION AND TRADE

2.1 Identification of highest ranking producing countries
The top ten producing countries in the world account for 82 percent of the total production, with Brazil, Vietnam and Colombia leading the charts in terms of volume. In terms of area however, Brazil, Indonesia and Mexico together register below half of the land dedicated to coffee farming. Table 1 shows data from FAO (2008) in these regards. Some of these countries are net exporters of coffee, since their local per capita consumption is very low, such as the case of India, where they consume 0.1 Kg per person per year4.
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According to FAO latest statistics for 2008: http://faostat.fao.org/site/567/DesktopDefault.aspx?PageID=567#ancor Clay, J. 2004. World Agriculture and the Environment. Island Press. USA. 204pp. Coffee trading is also counted in bags of 60 Kg each Hoyt, D. and MacMillan, J. 2004. The Global Coffee Trade. Case: IB-53. Standford. Graduate School of Business. 24p. http://www.probeinternational.org/files/The%20Global%20Coffee%20Trade.pdf 3

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Coffee Scoping Paper

Table 1. Major coffee (green bean) producing countries by volume, and the area harvested (Source: FAO, 2008) Country Production Area harvested ('000 tons) ('000 Ha) Brazil Vietnam Colombia Indonesia Ethiopia Mexico India Guatemala Peru Honduras 2,790 1,056 689 683 273 266 262 255 226 218 2,216 530 733 977 407 756 342 245 324 230

Characteristics of the international market The international market of coffee is price-driven, creating buyer driven value chains in which producers, local traders and governments are increasingly marginalized 5. Market movements and coffee prices continue to be dominated by reduced production in a number of exporting countries and the steady erosion of stocks in both exporting and importing countries6. Moreover, wide swings in the price of green coffee and the great dependence of coffee growers on the market pose a permanent risk to more than 100 million people 7. Since the late 1980s coffee prices have been subject to serious fluctuations on the world market, and in 1989 severe price drops occurred when the ICOs International Coffee Agreement (ICA) price control clause was suspended. Without mandates for price controls, coffee prices dropped severely8. In general, the pricing of coffee is such that for a cup of coffee that a customer purchases in the USA, about 1 percent goes back to the farmer. When it comes to supermarket coffee price, out of a pound of coffee purchased, only about 6 percent reaches the farmers who grew the crop. For example, in 2003 the coffee growers earned just US$5.5 billion, but retail sales exceeded US$70 billion worldwide. The roasting of the beans is done primarily in the importing countries, due partly to the already set up infrastructure for processing large volumes of beans and because the coffee blends sold usually have beans from several countries9. This explains also why the roasters enjoy the highest profit margins in the supply chain, earning over 55% of the retail value.

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Calo, M. and Wise, T. 2005. Revaluing Peasant Coffee Production: Organic and Fair Trade Markets in Mexico . GDAE. 61p. http://ase.tufts.edu/gdae/pubs/rp/revaluingcoffee05.pdf and N.A. Captulo 2 . CAF Y AGRICULTURA ORGNICA EN MXICO . 25p. http://catarina.udlap.mx/u_dl_a/tales/documentos/lec/cepeda_g_c/capitulo2.pdf ICO, 2010. Coffee Market Report. March 2010. 7p http://www.gtz.de/en/themen/laendliche-entwicklung/7388.htm Watson, K. 2001. Deforestation, Coffee Cultivation, and Land Degradation: The Challenge of Developing a Sustainable Land Management Strategy in Brazils Mata Atlntica Rainforest . Lund University Masters Programme in Environmental Science . Thesis: 2001-02-05 . 40p. Hoyt, D. and MacMillan, J. 2004. The Global Coffee Trade. Case: IB-53. Standford. Graduate School of Business. 24p. http://www.probeinternational.org/files/The%20Global%20Coffee%20Trade.pdf 4

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Coffee Scoping Paper

SUPPLY CHAIN DYNAMICS

3.1 Description of Supply Chain
The supply chain of coffee implies a great deal of processing of the cherries to extract the beans, as well as several stakeholders before it reaches final customers. The actual number of stakeholders however can vary considerably, whether one entity can fill a number of the different functions within the chain or not. There are also differences when the coffee is for local consumption or for international trade. Figure 2 shows a diagrammatic version of the supply chain for Figure 2. Coffee supply chain diagram, from producer to consumer. coffee. The entire supply chain of coffee involves tens of millions people, of which some 25 million are coffee farmers. In terms of processors for the cherries, there are around 3,000 worldwide and some 1,200 roasters in the food industry, while there are over 160 exporters which deliver coffee to the world markets 10. Some of the major traders are Neumann Kaffee Gruppe, Volcafe Group, Cargill and Louis Dreyfuss Commodities. Five large multinational processors are known to dominate almost half of the coffee retail markets, more information on table 2.
Table 2. Five largest coffee processors, share of the market and major brands they distribute. (Source: Hoyt and Macmillan, 2004) Company Share of worldwide green Major commercial brand(s) coffee volume (%) Kraft Foods 13 Maxwell House, Yuban, General Foods' International Coffees, Jacobs Nescafe, Taster's Choice Hills Brothers, Chuckful O' Nuts, Douwe Egberts Folgers, Millstone Davidoff caf, Pure Trend, Vista -

Nestl Sara Lee Procter and Gamble Tchibo Total

13 10 4 4 44

10

Clay, J. 2004. World Agriculture and the Environment. Island Press. USA. 204pp. and UNCTAD/IISD. 2003. Sustainability in the coffee sector: exploring opportunities for international cooperation. U.N. Conference on Trade and Development. http://www.iisd.org/pdf/2003/sci_coffee_background.pdf 5

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Coffee Scoping Paper

COMMODITY PRODUCTION SYSTEMS

4.1 Typology of production systems
Types of production systems As mentioned before, there are mainly two species that account for the bulk of coffee around the world: arabica (Coffea arabica) and robusta (C. canephora). The variety of coffee used depends on the conditions in the area where the plantation is to be established, as well as the quality of the beans grown, as shown in the following chart (Table 3).
Table 3. Comparison of Arabica and Robusta coffee varieties (Adapted from Clay, 2004) Arabica Robusta Altitude of cultivation Temperature requirements Humidity requirements Soil requirements Disease resistance Flavor profile Average price Labor as % of total variable costs Agrochemical and material inputs as % of total variable costs Overhead as % of total variable costs Proportion of world supply Main products 500-2000m Moderate Lower Fertile soil Low Fuller flavor Higher (up to 30%) 40% 25% 35% 75% High-quality brands and specialty coffees 0-1000m More heat tolerant More sensitive to cold Higher Poorer soils Higher Weaker flavor Lower 60% 15% 25% 25% Instant, flavorings, massproduced brands

Coffee is a shrub that grows up to 10 meters in height though it is usually pruned to about 2 meters to facilitate harvesting. It is produced mainly under two types of systems: shaded and full-sun coffee. By definition the first type is grown in association with other -taller- trees or with other subsistence or cash crops. This is traditionally part of a small farmer's overall farming strategy where mostly Arabica varieties are planted. In the case of fullsun grown coffee, the varieties used are Robusta, and larger monoculture stands are common. This type of production systems is usually referred to as technified, since it requires more agrochemical inputs and is planted in higher densities. Nonetheless, full-sun coffee is gaining more terrain both in smaller and larger plantations, using more chemicals and increased mechanization, due partly to higher yielding varieties 11.

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Clay, J. 2004. World Agriculture and the Environment. Island Press. USA. 204pp. 6

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Pruning is a necessary practice in coffee farms, so that the trees can remain productive through the years. Thus, the trees are pruned so that they do not grow many branches, develops well and with a proper shape. In fact, every tree of a particular variety needs different pruning, according their characteristics 12. The processing of coffee beans is another essential part in the production of coffee, since the beans have to be separated from the cherries in no later than 24 hours after harvesting, in order to retain their overall quality. There are two beans per cherry. There are two ways of processing beans, either wet or dry. In general, however, the process consists in separating the good quality from the low quality cherries (i.e. ripe from green); pulping the cherries; fermenting them to remove the hull and drying of the beans to 11-12 percent humidity13. This method involves machinery and consumes about 12.5-17 liters of water per kilogram. On the other hand, if done through the dry process, the cherries are dried and then threshed, and water expenditure is between 1.414 liter per kilogram14. Proportion of production carried out by small producers vs. agribusiness and average sizes/dimensions of production sites As it can be seen in Table 3, most of the coffee bean supply comes from Arabica varieties, which is mostly planted in small land holds. Small and medium farms range from 10 to 50 hectares in size 15. In Brazil, the largest coffee producer, the vast majority of farms are less than 10 hectares in size. It has been estimated that 71% of farms are less than 10 hectares, 25% of farms are less than 50 hectares, and only 4% of farms are larger than 50 hectares. In Brazil, 80% of farmers produce Arabica varieties16. Despite these numbers, in places like Vietnam, the second coffee producer in the world, the threshold between a small and a large farm has been estimated at 1.5 hectares17. Clay (2004) reports that over half of the world's production is done in areas of 5 hectares or less. It is important to note, though, that despite there being millions of farmers that supply the world markets with green coffee beans, it is mainly a handful of large transnational corporations (see table 2) that control the roasting and other steps of the chain, in many cases purchasing directly from the farmer, thus reducing the number of players and augmenting the profits through price and market control.

RELATIONSHIP BETWEEN COMMODITY AND ECOSYSTEM SERVICES

5.1 Description of unsustainable practices of current production systems
Production expansion Being a tree crop coffee, plantations have traditionally been thought as part of the forest cover, while nowadays it is clear that coffee can be a significant driver of forest degradation. Especially during high price-peaks, coffee
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More information on pruning and other crop management needs: http://www.fao.org/DOCREP/006/AD219E/AD219E06.htm More details on coffee processing at: http://www.coffeeresearch.org/agriculture/processing.htm Clay, J. 2004. World Agriculture and the Environment. Island Press. USA. 204pp. Oxfam International. 2002. Mugged: poverty in your coffee cup. 59p. http://www.maketradefair.com/assets/english/mugged.pdf http://www.coffeeresearch.org/coffee/brazil.htm Rios, A. and Shively, G. 2005. Farm size and nonparametric efficiency measurements for coffee farms in Vietnam. Selected Paper prepared for presentation at the American Agricultural Economics Association Annual Meeting, Providence, Rhode Island, July 24-27. 22p. http://www.agecon.purdue.edu/staff/shively/rs.pdf 7

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can spur rapid deforestation, as has been reported to occur in Sumatra during the past three decades18. Coffee production has been typified within a loop of deforestation, coffee production and land degradation in Brazil; which is associated with biodiversity loss (e.g. bird habitat loss), water pollution, and erosion among other environmental impacts19. The case of Vietnam is remarkable, where in the last two decades its production passed from only a few hundred thousand bags of coffee, to nearly 15 million20. This rapid expansion of coffee farming has put intense pressure on the environment and highlighted the need to make the industrys agricultural practices more sustainable21. This trend is likely to be discontinued however, due to lower prices in the international markets, and intensification of production because of higher yielding and full-sun varieties; and in a scenario where specialty coffees are gaining more attention. Labor requirements Although more mechanized methods are being employed in Brazil and Australia, most of coffee harvesting is done using human labor. There are three methods for harvesting the beans: selective picking, strip-picking and mechanical harvesting. Selective bean-picking is no easy task, as the cherries in the same tree mature in stages, so the picker must be well trained for the task, in many cases performed in adverse geographical conditions (i.e. high slopes). Not surprisingly labor, along with land, represents one of the most significant factors that affect the production of this commodity (table 3 shows that between 40-60 percent of productions costs are associated with labor requirements). This is why many small farmers employ their family labor, child labor being common, in order to be able to produce. On the other hand, conditions for coffee workers on large plantations varies widely, but most are paid the equivalent to sweatshop wages and toil under abysmal working conditions. In Guatemala for example, coffee pickers have to pick a 100-pound quota in order to get the minimum wage of less than $3/day 22. Water use requirements and machinery Water requirements of coffee plantations vary on whether they are irrigated or depend on rainfall. In the State of Minas Gerais, Brazil, these requirements vary considerably throughout the region and have been estimated per plant to be between 800-1500mm of H20/year23. However, present methods of estimating crop water requirements for the purposes of irrigation design and management, are reported to be imprecise and probably subject to large errors depending on local circumstances and the system of irrigation used 24. When it comes to artificial irrigation, there are several ways to do it in coffee, all with varying results. Some of them are: conventional sprinklers, micro-jets or dripping. The choice depends on the particular conditions, resources and the priorities of individual growers.
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Gaveau, et al. 2009. Three decades of deforestation in southwest Sumatra: Effects of coffee prices, law enforcement and rural poverty . Biological Conservation 142(3): 597605 Watson, K. 2001. Deforestation, Coffee Cultivation, and Land Degradation: The Challenge of Developing a Sustainable Land Management Strategy in Brazils Mata Atlntica Rainforest . Lund University Masters Programme in Environmental Science . Thesis: 2001-02-05 . 40p. Oxfam International. 2002. Mugged: poverty in your coffee cup. 59p. http://www.maketradefair.com/assets/english/mugged.pdf Rainforest Alliance. Vietnam Coffee Profile: http://www.rainforest-alliance.org/profiles/documents/vietnam_coffee_profile.pdf http://www.purefood.org/Starbucks/coffeelabor.htm Lemos, et al. 2010. Spatial-temporal analysis of water requirements of coffee crop in Minas Gerais State, Brazil . Revista Brasileira de Engenharia Agrcola e Ambiental 14(2): 165172 Carr, M.K.V. 2001. The water relations and irrigation requirements of coffee . Experimental Agriculture 37: 1-36 8

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The wet processing of water has reportedly been estimated at 3000-4000 liters for every 240 kilograms of coffee25. Aside from the machinery employed during the processing of the beans, during harvesting there have been attempts for mechanized picking, especially on large plantations (e.g. in Brazil) where harvesting machines shake all the cherries from the tree. This is not as of yet a common practice. The overall impact of coffee production has been projected in the so-called water footprint, which has been estimated to be 140 liters of water per cup of regular coffee (i.e. using 7g of roasted coffee) from production to consumption (i.e. for consuming countries in the North). This numbers correspond for the Netherlands, and it is noteworthy that this water is mostly imported, as most of it gets used up during the growing and processing of the coffee in developing countries26. Chemical inputs It is said that after cotton and tobacco, conventionally-produced coffee is the third most heavily treated crop in the world in terms of agrochemicals. Not only are some of the synthetic pesticides and fertilizers used banned in most western nations; they are often used without any genuine regulatory supervision 27. Technified coffee production (i.e. full-sun grown) results in a spiraling dependence on agrochemicals such as herbicides, fungicides, nematicides, and fertilizers. The following table (Table 4) shows some of the most commonly used agrochemicals applied in coffee plantations.
Table 4. Common agrochemical inputs used to control pests and pathogens in coffee farms. (Adapted from www.coffeehabitat.com)
Agrochemical Endosulfan (brand name Thiodan) Chlorpyrifos (brand name Dursban) Diazinon (brand name Basudin) Disulfoton Description Used against coffee cherry borer Impact Does not dissolve readily in water and sticks to soil particles. It is toxic to mammals, birds, and fish. Effects the central nervous system, and in animals causes kidney, testes, and liver damage.

A broad spectrum It has caused human deaths, and has been linked to birth defects. It organophosphate used against is extremely toxic to birds, freshwater and marine organisms, bees, coffee cherry borer and coffee and other wildlife. It can bioaccumulate and effect bird reproduction. leaf miner Used against coffee borer Not very toxic to mammals unless inhaled; it is nonetheless highly toxic to wildlife and beneficial insects, and acutely toxic to birds. High toxicity to mammals by all routes of exposure. It is also highly toxic to birds and fish. Degrades or is metabolized by plants into harmful compounds that are very persistent in the environment. One of the most toxic pesticides, very toxic to birds when ingested or through skin exposure. Also highly toxic to animals and fish. Persistent in soil and will bioaccumulate. Only slightly toxic to birds, little is known about its effect on humans, but it is a suspected that there is potential for reproductive problems with chronic exposure. The major concern is that longterm use of this and other copper-based fungicides is copper

A systemic organophosphate insecticide used against leaf miner. Organophosphate used against leaf miner.

Methyl parathion28 (ethyl parathion, parathion) Triadimefon (brand name Bayleton)

Copper-based fungicide used to against coffee rust.

25 26

27 28

Data for Costa Rica, according to Clay (2004) Chapagain, K. and Hoekstra, A. 2007. The water footprint of coffee and tea consumption in the Netherlands . Ecological Economics 69: 109-118. For more information on water footprint: http://www.waterfootprint.org http://www.nrdc.org/health/farming/ccc/chap4.asp and http://www.thenibble.com/REVIEWS/nutri/matter/organic-coffee3.asp It is banned in Indonesia and restricted in Colombia, but Pesticide Action Network reports that there is evidence that methyl parathion is not used safely in Central America and is regularly misused in developing countries. 9

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accumulation in soils, such as been found in coffee farms in Kenya and in Costa Rica. Cypermethrin A synthetic pyrethroid used against coffee cherry borer. Generally low direct toxicity to birds, but ingestion via contaminated insects causes mortality in young birds. Extremely toxic to fish other aquatic organisms, and should not be applied any place where it may drift into water.

Increased nitrogen fertilizer applications have gone hand in hand with the widespread removal of shade cover from Central American coffee plantations. Heavy synthetic fertilizer inputs in coffee have contributed to nitrate contamination of drinking water aquifers in Costa Rica 29, where the government recommends that sun coffee producers apply 30 kilograms of nitrogen per hectare per year compared with shade coffee producers who use little or none. In Colombia, with some 86% of coffee production technified, the country applies more than 400,000 metric tons of chemical fertilizers, at least when they can afford them during periods of high international prices30. Review of intensification processes, green revolution, and higher yielding varieties for the crop. All through the history of coffee cultivation there have been constant improvements to the different types of cultivars, which today are available by the dozens. As the international markets grew, so did the demand for specific types of beans, resulting in more intensification production in the sub-tropics. However, the broadest government and international agency interventions regarding coffee planting materials took place between the 70s and 80s, when several new high yielding varieties were introduced in different regions, particularly in Mesoamerica31. These new varieties corresponded to a production model aimed at higher densities and yields, in lower shade stands, with a tendency of higher agrochemical input use. Today, even the largest stakeholders in the supply chain research and develop new coffee varieties. Nestl, for example, has just released seven new varieties in the Philipines, and a few years ago it obtained a patent for a genetically engineered coffee32. In this last regard, there are still no commercially available varieties of GMcoffee, but research has been underway for a few years.

5.1 Impact of commodity production on ES

Deforestation Deforestation can be a direct consequence of coffee cultivation, especially when international prices escalate. It remains, nonetheless, a concern in high-producing countries of Asia and Latin America. Since 2001, when international prices reached a 100-year historical low, the crisis is still affecting marginal farmers, who may still practice shifting agriculture33. Two other factors explain historical coffee expansion and deforestation: complex labor arrangements and costs, as well State policies 34,35.

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http://www.nrdc.org/health/farming/ccc/chap4.asp Clay, J. 2004. World Agriculture and the Environment. Island Press. USA. 204pp. Potvin, C., C. T. Owen, S. Melzi, and P. Beaucage. 2005. Biodiversity and modernization in four coffee-producing villages of Mexico. Ecology and Society 10(1): 18. [online] URL: http://www.ecologyandsociety.org/vol10/iss1/art18/ http://www.philstar.com/Article.aspx?articleId=555569 and http://www.organicconsumers.org/ge/coffee060417.cfm Watson, K. 2001. Deforestation, Coffee Cultivation, and Land Degradation: The Challenge of Developing a Sustainable Land Management Strategy in Brazils Mata Atlntica Rainforest . Lund University Masters Programme in Environmental Science . Thesis: 2001-02-05 . 40p. Brannstrom, C. 2000. Coffee Labor Regimes and Deforestation on a Brazilian Frontier, 1915-1965 . Economic Geography 76(4): 326-346 10

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A study in Sumatra, Indonesia, showed that in the study area where no law enforcement was applied, the deforestation reached 52% of the forested area between 1972 and 200635 (Figure 3). In the case of Indonesia, as opposed to what is generally thought, high deforestation peaks have rather been associated with local currency devaluation, which followed higher local prices for coffee, despite the international low market prices. Another example is Madagascar, where coffee remains its Figure 3. Cumulative forest loss in the study area around Bukit Barisan Selatan National Park (BBSNP), in Sumatra, major export crop, and which was introduced in the region due to coffee cultivation (Gaveau et al., 2009) where the largest remaining forest cover lied. The removal of such forest cover has led to higher soil erosion rates on coffee plots, nearly double from those of lowland subsistence plots, because broad expanses of bare soil under the coffee bushes are particularly vulnerable to violent storms during the rainy season36.

Carbon emissions Depending on the method used, the production of 1,000 kilogram of green coffee beans can cause between 900-1,400 kilogram of CO2 equivalent37. Energy used in the processing of beans near the farms, plus transportation from farms to beneficios (processing facilities) and on to ships until it reaches final Figure 4. Loss of forest cover in Madagascar, customers are also important contributors to emissions.
partly associated to coffee cultivation

Other source of carbon emissions, beyond the coffee farms, are the coffee shops. For example, based on utility bills alone, Starbucks is serving up about 2,223 kilograms of carbon with its drinks. This company alone accounts for 81,000 tons of CO2 due to transporting coffee materials and disposing solid waste that result from roasting the beans38. Some estimates round up the numbers for total CO2 emissions of coffee cultivation and preparation, so that the extraction of raw materials, the production, and the use of agrochemicals (e.g. fertilizer and pesticides) are all included to a total of 33g of CO2 per cup of coffee; and the consumer making the coffee produces up to 18g of CO2 equivalent. This adds up to 51g of CO2 equivalent per cup39. Small-Scale Producers and Carbon Sequestration It was already stated that more than half of coffee production is done in small farms, creating a great potential for carbon sequestration under proper management strategies. However, if farms are managed under full-sun
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Gaveau, et al. 2009. Three decades of deforestation in southwest Sumatra: Effects of coffee prices, law enforcement and rural poverty . Biological Conservation 142(3): 597605 http://www.geocases1.co.uk/printable/Deforestation%20of%20TRF%20a%20case%20study%20of%20Madagascar.htm http://www.hrnstiftung.org/carbon-footprint-coffee.html Carbon with that late? http://www.forbes.com/2007/07/02/starbucks-emissions-environment-biz-cz_sn_0703green_carbon.html http://knowledge.allianz.com/en/take_action/product_carbon_footprint/coffee.html 11

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systems, the amount of CO2 sequestered will be lower. For example, in Sumatra, soil carbon stocks in shade coffee were 60 percent of that expected in primary forest in Sumatra, versus 45 percent for sun coffee40. Other examples for the Central American region show that in El Salvador, carbon sequestration values for various types of shade coffee management were estimated (in tons/Ha/year): 174 for rustic shade to 77 for shade monoculture. Another study of carbon stocks in Costa Rican coffee farms calculated aerial (above ground) carbon stocks ranging from 11 tons per Ha for simple shade (one heavily pruned shade species) to nearly 32 for diverse shade41. Furthermore, there are companies marketing coffee products as carbon-negative, meaning they off-set their carbon emissions plus a further contribution on carbon sequestration. Such is the case of Tiny Footprint Coffee, which claims to plant carbon-sucking trees in Ecuador that each absorb 54 pounds of carbon from the environment42. Habitat degradation Intensification of coffee production from shade-grown to full-sun systems is held responsible in great part for the reduction of habitats for birds, pollinating insects and other organisms in the tropics. Particularly, bird species diversity are much lower in intensive full-sun coffee plantations in the Dominican Republic, Colombia and Mexico, by as much as 50-90 percent43. But shade-grown coffee can also have its negative effects when thinning or clearing of forests occurs. Considerable biodiversity is lost both above and below ground. Microorganisms in particular are affected through clearing, soil disturbance, and exposure. Even with shade coffee the number of tree species can be reduced by 80% or more. Mammals and reptiles show declines in populations and species diversity relative to natural forests. Bat species are reduced by half or more in agroforestry systems such as shade-grown coffee, and the emergence of new dominant species occurs44.

5.2 Link to climate change

GHG emissions contribution by commodity production and transport and mitigation options The most important factors for CO2 emissions in coffee production are the quantities of fertilizers used in the field and uncontrolled emissions of methane gases from by-products during wet processing45. The use of a nitrogen-rich formula is likely to release nitrous oxide (N2O) and CO2, while the wet processing of the beans

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M. van Noordwijk, S. Rahayu, K. Hairiah, Y. C. Wulan, A. Farida, and. B. Verbist. 2002. Carbon stock assessment for a forest-to-coffee conversion landscape in Sumber-Jaya (Lampung, Indonesia): from allometric equations to land use change analysis. Science in China 45: 75-86 Polzot, C. 2004. Carbon Storage in Coffee Agroecosystems of Southern Costa Rica: Potential Applications for the Clean Development Mechanism. M.Sc. thesis, York University, Toronto. 162p http://www.yorku.ca/lasnubes/?p=2855 and http://www.coffeehabitat.com/2008/03/coffee-and-carb.html For more information on this brand: http://www.tinyfootprintcoffee.com. Despite what this advertising claims, it seems vague in explaining what species are to be planted or how the trees are going to be managed until maturity. http://www.birdlife.org/action/science/sowb/pressure/34.html and http://wwf.panda.org/about_our_earth/agriculture_impacts/coffee/environmental_impacts/ Clay, J. 2004. World Agriculture and the Environment. Island Press. USA. 204pp. http://www.hrnstiftung.org/carbon-footprint-coffee.html 12

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releases methane. Some estimates place methane (CH4) emissions from processing 1,000 metric ton of coffee at 76 tons, considering a water use of 1 cubic meter per fanega of coffee46. Interestingly, studies in Costa Rica determined that shaded-coffee plantations can release more of these two GHG than full-sun stands47. On the other hand, the shipping and roasting parts of the chain also contribute with GHG emissions. Roasting however is more of a concern in terms of particulate matter and volatile organic compounds, which cause air pollution and constitute health hazards 48. Mitigation options for these sort of emissions, especially during the wet processing of coffee include using water-saving techniques such as the one known as Becolsub, which can reduce water usage by as much as 95 percent. Additionally, the technique also allows for a better management of 92 percent of the organic matter produced during this process49. Other initiatives involve producing biogas out of the fermented pulp, thereby powering the process and saving money, as many farmers' organizations are doing in several parts of the world50. Adaptation strategies required in supply chains in light of climate change Coffee shops in the northern countries are becoming aware of the consequences of climate change and are acting to mitigate locally their emissions. Starbucks is remodeling their shops, so that they are more energy efficient. The promotion and marketing of low carbon footprint coffee is another strategy they are using, and research institutes in several countries are putting up together water reduction techniques for reuse of byproducts in order to lower GHG and external fertilizer use. Predominance of full-sun production systems, although some studies claim they release less GHG than shaded coffee, can revert some overall positive consequences that contribute to biodiversity protection and maintenance of soil fertility. One last aspect has to do with the reduction of emissions due to transport, which could be lowered if travel distances were shorter. The average food miles for coffee are estimated at around 7,680 kilometers51.

GREEN COMMODITY PRODUCTION PRACTICES

6.1 Farm management practices
Integrated farming and integrated pest management (IPM) strategies IPM strategies are contemplated for coffee production as a way to reduce the use and impacts of pesticides, especially insecticides. The abuse of chemicals cannot only create resistance in the pest, but also cause serious damage to the humans (refer to Table 4). Moreover, combined biological and cultural controls can successfully replace the use of insecticides and maintain yields.
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A fanega is equivalent to 55.5L. This information from: http://www.cd4cdm.org/Latin%20America/Ecuador/Training%20Workshop%20%20Reforestation%20and%20Bioenergy/docs/lunes/lu_8_fugaspower.pps Montenegro, J. and Abarca, S. 2001. Importancia del sector agropecuario costarricense en la mitigacin del calentamiento global. MAG-MINAE-PNUD-GEF. pp. 67-78. http://cglobal.imn.ac.cr/Pdf/mitigacion/Estudio%20sobre%20Factores%20de%20Emision%20Agr%C3%ADcola.pdf EPA: http://www.epa.gov/ttn/chief/ap42/ch09/final/c9s13-2.pdf Becolsub, for its Spanish accronym, is a technique developed by CENICAFE in Colombia, and which stands for Ecological Processing with Byproducts Management. http://methanetomarkets.org/documents/ag_colombia_res_assessment.pdf The example of coffee farmers in Tanzania is shown here: http://news.bbc.co.uk/2/hi/africa/6571547.stm http://www.organiclinker.com/food-miles-info.cfm?fm=coffee 13

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Shade regulation seeks a middle point in order to incorporate organic matter into the soils while increasing cherry production. Cyclical or alternate pruning provides an advantage in that ventilation improves significantly between the rows, along with light and the rate of photosynthesis, among the plants in the area52. Farmer Field Schools has been an effective way to get farmers to interact with researchers and has significantly reduced risks to health and environment in smallholder coffee farming systems in Africa 53. The following table shows some of the strategies that can be used to attack pests, under the IPM scheme (Table 5).
Table 5. Different IPM strategies and actions that can be implemented in coffee fields Strategy Actions Pruning -Increases ventilation within the fields, managing structure, production and quality of the plants -There are four types of pruning: selective, in rows or furrows, by lots and in patches -Removing side shoots: for plant energy efficiency and humidity control -Collecting berry borer (Broca) infested cherries -Collecting residual cherries from the previous crop -Use of ethanol/methanol traps: simulate the smell produced by a ripe coffee berry and attracts broca and other insects -Selective and moderate application of agrochemicals -Applications of the fungus Beauveria bassiana against Broca -Parasitoid use: Cephalonomia stephanoderis, Prorops nasuta, Phymastichus coffea -Conservation of natural enemies already present (spiders, wasps, mantis and others) -Use of pest and disease resistant varieties -Renewal of fields: allows to maintain uniform, healthy, sturdy, and well-producing plants, with the proper characteristics of the selected varieties. This also keeps the reproductive structures of major coffee diseases from accumulating, reducing considerably the incidence and severity of these diseases and enabling the producer to reduce pesticide quantity and dosage, leading to higher profits and better harvested coffee quality.

Other cultural practices

Biological control

Planting material

Soil management The main issues in coffee plantations that impact on soil health and subsequently coffee production are the loss of valuable topsoil and organic matter, decline in soil fertility, decrease in soil pH (less than 5) and the breakdown of soil structure54. Reducing erosion can be achieved through planting on contours around hills and spacing the trees so that they are staggered up hillsides. This practice can reduce runoff by 25 percent, thus retaining more water for the crop. Contour strips (alternating bands of trees with bands of other vegetation) were also found to provide erosion control, but the most effective practice to reduce erosion is to plant grass between the bushes55. In addition, the incorporation of organic matter, such as soil cover like mulches or green manures (e.g. from the

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Rodrguez, C.; et al. 2008. Best Practices for Coffee Growing and Processing in Accordance with C.A.F.E. Practices Guidelines V2.0. Starbucks Coffee Agronomy Company. 72 p. Pest Management Notes No. 9. http://www.pan-uk.org/Internat/IPMinDC/pmn9.pdf NSW. 2008. Northern Rivers Soil BMP Guide . Coffee . Best Management Practices for Soil Health . Australia. 32p. http://www.tuckombillandcare.org.au/SoilBMPCoffeeAug08.pdf Clay, J. 2004. World Agriculture and the Environment. Island Press. USA. 204pp. 14

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shade trees), and by promoting soil biological activity is particularly important to maintain soil fertility, soil carbon and avoid compaction, among other things56. Water management The most important aspect of water management is to reduce the amount used during the wet processing stage, where the cherries are depulped and the beans are separated from the mucilage. This process generally consumes large amounts of water, polluting it and causing eutrophication and releasing unnecessary amounts of methane into the atmosphere. There are already more efficient processes that have been developed by research institutes and private companies (e.g. Nestl) regarding better use of water during the wet processing of coffee, which considerably reduces water use and thus pollution 57. This is one of the crucial aspects in better management practices, along with soil conservation practices that reduce run-off and increase water retention. Habitat management Habitat conversion can be an environmental issue especially in parts of the world where the crop is experiencing expansion (i.e. Vietnam and other countries in Southeast Asia) and where natural forests can still be converted to coffee production. This expansion is occurring in poor soils and with robusta varieties, which are mainly grown under full-sun conditions. However, suitable areas for this type of coffee already exist in degraded lands, providing an opportunity for bringing such lands back in production using better production techniques555. Thus, a moratorium to such schemes should be encouraged. Management of habitats, especially for birds, pollinating insects and indicator species is especially important for biodiversity conservation and a key point for certain certification types. Approximately 150 bird species live on farms of shade grown coffee, whereas non-shaded coffee supports s few as 20-50 species58. Shaded coffee gains an important relevance in this point, where different types of systems are worthy of mentioning: Rustic: Coffee trees are planted in an existing forest with few changes to the native plants. Traditional polyculture: This method is more deliberate than the rustic method. It consists of integrating other plants such as fruits, vegetables, etc within the coffee farm. Commercial polyculture: similar to traditional polyculture, but with more coffee and less shade trees. This type of shade allows higher production, but also requires the use of some pesticides and fertilizers. Reduced or specialized shade: uses a single canopy to provide shade. Typically from Inga, Erythrina, Gliricidia or Grevillea. Some studies have concluded that the impact of shaded-coffee in natural forest is rather negative. On the other hand, coffee shrubs can have a positive impact on plant and animal diversity in those parts of the landscape that are deforested and dominated by agriculture and where shade trees are used 59.
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NSW. 2008. Northern Rivers Soil BMP Guide . Coffee . Best Management Practices for Soil Health . Australia. 32p. http://www.tuckombillandcare.org.au/SoilBMPCoffeeAug08.pdf More information on such initiatives on: Managing and the environmental cost of coffee production (http://www.mesoamerican.org/pdf/Measuring%20and%20Managing%20the%20Environmental%20Cost%20of%20C.pdf) and http://methanetomarkets.org/documents/ag_colombia_res_assessment.pdf and http://www.nestle.com/CSV/CSVinAction/AllCaseStudies/ImprovingPost-harvesting.htm According to http://www.coffeeresearch.org/politics/birdsafe.htm http://www.su.se/english/about/press/press-releases/coffee-cultivation-good-for-diversity-in-agrarian-settlements-but-not-in-forests-1.1203 15

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Carbon management Coffee is a semi-perennial crop, giving fruits decades later after been sown. Thus, carbon retention is possible. Soil carbon can be controlled and enhanced with the application of organic matter that comes from the processing of the coffee itself (e.g. compost of the pulp using earthworms) and through incorporation of matter from the shade trades (especially legumes like Erythrina or Gliricidia). Some farmers and brands are in fact marketing coffee under the carbon offsets logic, and as long as no shifting agriculture is practiced it remains a viable option. The transport, roasting, packaging and consumption of coffee also have their impacts on carbon emissions, and all must be addressed within their own dimension in order to lower their emissions. Large trading companies and roasters can seek to reduce their emissions not only by offsetting them but through reducing food miles, for example. Livelihood impacts Coffee farmers are mostly impacted by the international prices of coffee, which sometimes do not even cover the production costs. However, the implementation of better management practices (e.g. IPM, shaded-coffee, fallowing, soil conservation), as well as lower agrochemical application and less water usage can put them in a favorable position to sell their coffee with an added value under specialty coffee market niches. Facilitated land tenure schemes and credit for production, on the other hand, are important policy tools that can help marginal farmers incorporate such practices and provide for their families and communities better living and decent labor conditions. One key aspect to highlight in this item is child labor, which is still very common in all producing regions of Africa, Asia and Latin America. In Kenya, for example, a significant 60 percent of the workforce employed in agriculture is estimated to be children, millions of which work in coffee farms60.

ECONOMIC VALUE OF GOOD AGRICULTURAL PRACTICE SHOWING BENEFITS AND TRADE OFFS
7.1 Input costs
A study comparing organic and conventional farms in Costa Rica found that half of the organic farms met or exceeded production of their conventional counterparts over a three-year period, but that the average mean yield of the organic farms combined was 22% lower than that of the conventional farms61. This has a direct relationship with the availability of inputs and labor, thus costs of production vary amongst the different regions. The following chart shows some of the costs that coffee growers in Mexico have to incur in order to produce conventional versus organic coffee, as well as their net incomes (Table 6).

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http://globalmarch.org/worstformsreport/world/kenya.html Lyngbk, A. E., et al. 2001. Productivity and profitability of multistrata organic versus conventional coffee farms in Costa Rica. AGROFORESTRY SYSTEMS 53: 205213 16

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Table 6. Production and labor costs estimates per hectare, as well as income of conventional vs. organic coffee in Mexico. (Source: GDAE, 2005)62 Conventional Organic Labor costs (US$) Labor needs (days/hectare) Total production costs (US$) Net income (US$/quintal) 27 37 35 35 40 108 52 71

7.2 Different scenarios for agrochemical and its effect on yields The study in Costa Rica calculated average organic yield as 1080 Kg/Ha of green coffee, versus 1386 Kg/Ha for conventional. This difference can be explained in coffee's high requirements of nutrients and their availability. For instance, it takes about 2000 kg of organic fertilizer to supply 40 Kg of nitrogen to one hectare, versus 87-267 Kg of inorganic fertilizer63. This being the case, farmers may not have the ability to produce or acquire the additional compost, manures, and other organic matter needed to sustain yields. This is especially true for smallholders with limited resources and means of assessing soil health and formulating the right corrective measures64. In such conditions, it remains a challenge whether a large number of farmers will be able to convert to organic farming, since it may not be possible for all to obtain the resources to guarantee a successful productivity. Although proper markets for organic coffee are not currently able to commercialize the entire available offer, it is a positive point for farmers to reduce agrochemical use, since they could potentially obtain a better price for their coffee. Clay (2004), states that specialty coffee in Nicaragua is currently selling for US$1.20 per pound while the regular price for coffee is US$0.55 per pound.

7.3 Livelihood benefits from green commodity production

Uses of organisms harvested from production sites, besides crops Some methods can help farmers diversify their production, whether for subsistance farming or for local markets, both improving their resilience. These strategies can integrate high-value crops (e.g. vegetables and fruits) or intersperse coffee with fruit trees, vegetables, and/or ornamentals in order to diversify sources of income and reduce dependence on a single product 65. While this production systems do not restore biodiversity to the levels found in native stands, they maintain higher levels than the alternatives, and they tend to yield more financially stable local economies as well 66.

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Calo, M. and Wise, T. 2005. Revaluing Peasant Coffee Production: Organic and Fair Trade Markets in Mexico . GDAE. 61p. http://ase.tufts.edu/gdae/pubs/rp/revaluingcoffee05.pdf and N.A. Captulo 2 . CAF Y AGRICULTURA ORGNICA EN MXICO . 25p. http://catarina.udlap.mx/u_dl_a/tales/documentos/lec/cepeda_g_c/capitulo2.pdf Valkila, J. 2009. Fair Trade organic coffee production in Nicaragua Sustainable development or a poverty trap? ECOLOGICAL ECONOMICS 68:30183025 Grossman, J. M. 2003. Exploring farmer knowledge of soil processes in organic coffee systems of Chiapas, Mexico. GEODERMA 111:267-287 For an extended list on the crops suggested for this diversified systems, as suggested for different entities, check out Exhibit 4. Hoyt, D. and MacMillan, J. 2004. The Global Coffee Trade. Case: IB-53. Standford. Graduate School of Business. 24p. http://www.probeinternational.org/files/The%20Global%20Coffee%20Trade.pdf Clay, J. 2004. World Agriculture and the Environment. Island Press. USA. 204pp. 17

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Aside from the diversification of production within the farm, giving added value to by-products in the coffee processing, like the pulp that is removed from the cherries, is an interesting approach to produce on-farm fertilizers that can lower production costs.

TOOLS TO PROMOTE SUSTAINABLE COFFEE PRODUCTION

8.1 Certification
The emergence of significant new markets for organic and fairly traded products has been hailed as an important part of the effort to address the chronic poverty suffered by many small scale agricultural producers in the developing world. Nowhere are these markets more developed than in coffee, where a variety of organic, bird friendly, fair trade, and other certification systems promise more value to the producer for attributes valued by consumers67. These schemes represent a valuable market niche for small scale coffee producers that could raise their standard of living while reducing environmental impacts. The social, environmental, and health standard-based labels allow consumers to choose to pay a higher price for coffee that has such desirable attributes. Organic premiums raise export prices by US$0.10-0.50/lb over the international market price67. Fair Trade coffee, meanwhile, offers even higher rewards, paying a fixed US$1.26/lb for conventional Fair Trade coffee and US$1.41/lb directly to producer cooperatives for organic Fair Trade coffee68. The convenience of these schemes is such that the premium obtained could double the amount of money into the farmers' hands. One important aspect to consider is that third-party certification has a cost to farmers and their Table 7. Coverage of select eco-label systems for coffee. (Source: 2003) organizations. These costs prevent in many cases marginalized farmers to participate in such initiatives, despite their economic condition makes them virtually organic coffee producers. This is somewhat contradictory, when some of these certifications are meant to raise living conditions of farmers. Principles and Criteria for Certification There are currently six different types of certification for coffee, all with the aim to deliver more sustainably produced coffee. They are: Organic, Fair Trade, Rain Forest Alliance, Smithsonian Bird Friendly, UTZ and 4C Common

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Calo, M. and Wise, T. 2005. Revaluing Peasant Coffee Production: Organic and Fair Trade Markets in Mexico . GDAE. 61p. http://ase.tufts.edu/gdae/pubs/rp/revaluingcoffee05.pdf FLO. 2010. Fairtrade minimum price and fairtrade premium table. 26p. 18

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Code69. Table 7 shows some of the criteria for a few of the currently existing eco-labels and some for newly formulated ones. Many farmers in all producing countries are committed to one or many types of certification, delivering to specialty coffee markets in North America, Europe, Asia and Oceania. Markets for certified commodity Despite a high offer of certified coffees, the market has not really expanded to cover a large share of the global production. Nevertheless, relative to previous decades these schemes have grown considerably at 5-10 percent annually70. Despite the rise of specialty coffee consumption in the Northern countries the import volumes are rather small. In the USA, for example, the imports of specialty beans represented a 17 percent of the total volume, while the profits of retailers and coffeeshops added up to a staggering US$ 8.47 billion in 2003 alone 71. In other words, despite specialty coffees pay a premium to producers, they generally fail to cover the added costs associated with maintaining the certification. For example, the large labor investment required by organic production is poorly remunerated by the market returns to organic production. The two year transition period, during which producers receive no premium is particularly burdensome. A US$ 0.25/lb price premium provides a poor incentive for conversion to organic methods, allowing producers to recover their initial investment only over an unreasonably long time period. In effect, the premium alone pays the equivalent of poverty level wages for the labor needed to comply with the standards. Another critique has to do with fair trade coffee, for which some analysts think it cannot be sustainable for a market to grow, since the fixed minimum price acts as a price floor, leading to excess supply. Since not all farmers can be Fair Trade certified many sell a fraction of their coffee to the conventional market 72. Oxfam's vision of a market that works for the farmers is worthy at looking. They propose action in five areas: restore of balance of supply and demand; restore the quality of coffee and raise productivity; raise prices and revive livelihoods; retain and build value-adding capacity and to establish real alternatives for rural development. Implementing these initiatives is a task that requires the involvement of all major players in the supply chain of this ubiquitous commodity 73.

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The Specialty Coffee Association of America has developed a matrix comparing in full detail all the aspects pertaining to the different certification schemes. It can be downloaded from: http://www.scaa.org/?page=cert_codes Calo, M. and Wise, T. 2005. Revaluing Peasant Coffee Production: Organic and Fair Trade Markets in Mexico . GDAE. 61p. http://ase.tufts.edu/gdae/pubs/rp/revaluingcoffee05.pdf http://www.msnbc.msn.com/id/8841941/ Weber, J. 2007. Fair trade coffee enthusiasts should confront reality . Cato Journal 27(1): 109-117 For a through analysis on the coffee crisis and sustainability alternatives of its production: Oxfam International. 2002. Mugged: poverty in your coffee cup. 59p. http://www.maketradefair.com/assets/english/mugged.pdf 19

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ANNEX 1: BASELINE ON INSTITUTIONS AND INITIATIVES ON COMMODITY

Institution International Coffee Organization (ICO)
http://www.ico.org

Profile The main intergovernmental organization for coffee, bringing together producing and consuming countries to tackle the challenges facing the world coffee sector through international cooperation Is one of twenty members of Fairtrade Labelling Organizations International (FLO), and the only third-party certifier of Fair Trade products in the United States. They audit transactions between US companies offering Fair Trade Certified products and the international suppliers from whom they source, in order to guarantee that the farmers and farm workers behind Fair Trade Certified goods were paid a fair, above-market price.

Trans Fair USA http://www.transfairusa.org

Neumann Kaffee Gruppe (NKG)

http://www.nkg.net

Is the world's leading green Coffee service group. With 48 companies in 28 countries we are present in all important markets and offer a broad range of quality services and products along the green coffee value chain

Specialty Coffee Association of America (SCAA)

http://www.scaa.org

The SCAA has also been at the forefront of developing and promoting specialty coffee and is committed to meeting the challenges of a rapidly changing industry by setting and maintaining standards, expanding our professional certification programs, conducting industry-specific research, and providing even more opportunities to connect, exchange, and work together so our industry continues to thrive. The Common Code for the Coffee Community (4C) was drawn up by GTZ in collaboration with representatives of the private and public sectors, important international organisations and representatives of producer countries, such as small-scale farmers from Guatemala or Kenya. Actors from more than 20 countries from Brazil to Kenya to Viet Nam coffee roasting companies such as Tchibo, Kraft Foods and Nestl, coffee traders such as the Neumann Kaffee Gruppe, and also representatives of non-governmental organisations such as Oxfam and major Brazilian and Ugandan labour unions joined together to develop a system for greater sustainability in the coffee sector mass market. Online coffee buying guide. In 1993, the Rainforest Alliance and its partner groups in the Sustainable Agriculture Network (SAN) demonstrated that traditional, forested coffee farms are havens for wildlife. Now, coffee lovers everywhere can support farmers who maintain these rainforest refuges simply by buying beans stamped with the Rainforest Alliance Certified seal of approval. Mission: to inspire and nurture the human spirit one person, one cup and one neighborhood at a time.

Code for the Coffee Community (4C), GTZ

http://www.gtz.de/en/themen/laendlicheentwicklung/7388.htm

Coffee review
http://www.coffeereview.com/

Rain Forest Alliance

http://www.rainforestalliance.org/agriculture.cfm?id=coffee

Starbucks
http://www.starbucks.com

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