Global Market Report: Coffee prices and sustainability

GLOBAL MARKET REPORT

Coffee prices and sustainability

SUSTAINABLE COMMODITIES

MARKETPLACE SERIES

Steany Bermudez, Vivek Voora and Cristina Larrea

September 2022

Despite the effects of the

COVID-19 pandemic, global

coffee supply and demand

have grown.

From the Ethiopian forests where—as the

legend goes—goat herders ﬁrst discovered

it, coee has become a staple for many

consumers (Deshmukh, 2021). Coee is one

of the world’s most traded commodities and

consumed beverages (Food and Agriculture

Organization of the United Nations [FAO],

2022b). The coee plant is a shrub or small

tree that needs about 3–4 years to start

producing red cherries, which are then

strip- or hand-harvested (National Coee

Association, n.d.). Strip harvesting, which

can be mechanized, involves removing all

the cherries from the branch at once, while

hand harvesting, a more labour-intensive

process, consists of selectively harvesting

ripened cherries. Harvested coee cherries

are processed immediately using a dry or wet

method to facilitate the milling process, which

involves hulling to extract the coee bean

(green coee) and an optional polishing step

before being graded and sorted by weight,

size, and quality so they can be sold (National

Coee Association, n.d.). Green coee beans

are then roasted to unlock their ﬂavour,

becoming brown roasted beans, which are

ground and brewed to produce the coee

beverage we commonly enjoy.

Arabica and Robusta are the two main

coee species that have come to dominate

the market, with global production in 2020

consisting of about 58% Arabica and 42%

Robusta (International Coee Organization,

2021, p. 9). While many factors aect quality,

Arabica coee has historically been considered

higher quality as it has a smoother, sweeter

taste. Robusta has twice the caeine content,

making it more bitter and well suited for

ready-to-drink applications and espresso

blends (Petruzzello, 2021). Fine Robusta

Standards and Protocols were introduced

in 2019 to improve the quality of coee

made with Robusta (Impallomeni, 2019).

The Arabica coee plant is more sensitive

to higher temperatures and must be grown

in subtropical climates at altitudes of 600 m

to 2,000 m. It is well suited for agroforestry

and shaded environments (Petruzzello,

2021). Robusta coee is more resistant to

temperature ﬂuctuations and can be grown

from sea level to 600 m in full sun (Petruzzello,

2021). It is also more disease resistant and

Market Overview

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generally produces higher yields. Today, coee

has become a highly sophisticated product,

with producers and roasters developing a

wide range of varietals and ﬂavours to meet

dierent users’ expectations and to respond to

consumption trends.

The coee sector has grown into a lucrative

business downstream, reaching a retail market

value of approximately USD 102 billion in

2020. It is expected to continue expanding at

a compound annual growth rate (CAGR) of

at least 4.28% from 2021 to 2026 (Mordor

Intelligence, 2021). The coee value chain

provides direct employment to an estimated

125 million people worldwide (Fairtrade

Foundation, 2022). The U.S. coee industry

alone employed almost 1.7 million people in

2015. Coee is grown on 12.5 million farms

around the world, predominantly run by

smallholder farmers cultivating 5 ha or less—

indeed, 95% of coee farms span 5 ha or less

and 84% span less than 2 ha (Panhuysen &

Pierrot, 2020, p. 56). Smallholder farmers

account for most global coee production as

they comprise 73%–80% of coee farmers

globally (Fairtrade Foundation, 2022;

Panhuysen & Pierrot, 2020, p. 56). Larger

estates produce the remainder, with coee

estates greater than 50 ha rarely found

outside of Central and South America

(Panhuysen & Pierrot, 2020, p. 56).

LIVELIHOODS

There are 12.5 million coffee farms in the world.

95% of coffee farms have an area of 5 ha or less.

84% have less than 2 ha.

Figure 1. Global coffee production from 2008 to 2019. Coffee that complies with voluntary

sustainability standards (VSSs) reached 21% to 45.4% of total production in 2019.

Note: Conventional production volumes do not comply with a VSS, while VSS-compliant production volumes

refer to coffee produced in compliance with at least one VSS. Production volumes that are deﬁned as

potentially VSS compliant cannot be deﬁnitively identiﬁed as conventional or VSS compliant with the data

currently available.

Source: FAO, 2022a; Meier et al., 2021.

VSS compliant

Potentially

VSS compliant

Conventional

20192015 2016 2017 20182014201320122011201020092008

Tonnes (millions)

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Coffee prices and sustainability

Coee production increased from about

8.5 million tonnes in 2008 to 10.7 million

tonnes in 2020 from cultivating 11 million

ha, according to the FAO (2022). Production

has not slowed over the last decade as its

CAGR of 1.53% from 2008 to 2019 jumped

to 2.73% from 2014 to 2019. About 80% of

coee production was exported in 2021/2022,

up from 64% in 2020 and 74% in 2019,

providing an important source of foreign

exchange revenues for exporting countries

(FAO, 2022a; Foreign Agricultural Service,

2021; United Nations, 2022). Brazil, Vietnam,

and Colombia have consistently been the

highest-producing countries and largest

exporters since 2016, exporting some 33

million, 29 million, and 14 million 60-kg bags,

respectively, in 2021/2022. The European

Union (EU), United States, and Japan have

consistently been the largest importers over

this period, importing about 43 million, 26

million, and 7 million 60-kg bags, respectively,

in 2021/2022 (Foreign Agricultural Service,

2021, p. 9). Global coee supply and demand

have remained fairly stable over the last 5

years, with supply exceeding demand by 1%–

4%. Nevertheless, rising demand is expected

to outstrip supply starting in 2021/2022, while

supply is expected to drop, mostly due to

unfavourable weather conditions (Foreign

Agricultural Service, 2021; International

Coee Organization, 2022, p. 9).

The COVID-19 pandemic has been

particularly challenging for the coee sector

as coee is primarily grown for export

(Foreign Agricultural Service, 2021, p. 9).

On the production side, COVID-19 has

disrupted the availability of labour, inputs,

and extension services and made it dicult

to move products to markets (Panhuysen

& Pierrot, 2020, p. 56). Despite these

challenges, global coee production in 2020

rose by about 660,000 tonnes from 2019

(FAO, 2022a). Shipping disruptions have

boosted transportation costs and aected

product quality and availability (Hernandez

et al., 2020, p. 12; Mera et al., 2021, p.

43). Furthermore, government public

health measures due to the pandemic have

limited and prevented out-of-home coee

consumption (Mera et al., 2021, p. 43;

Mordor Intelligence, 2021). Nevertheless,

demand remained strong as companies over-

purchased coee to guarantee production

and sales and drew on stockpiles to maintain

product output (Mera et al., 2021, p. 43).

End consumers have also shifted their

consumption patterns by moving to online

shopping and at-home coee consumption

options (Mordor Intelligence, 2021).

Climate change continues

to threaten the long-term

viability of the coffee sector.

The disruptions of the pandemic on the

global coee value chain provide a cautionary

tale for current and anticipated climate

change impacts. Changing climatic conditions

are expected to render some coee-growing

regions no longer suitable (Grüter et al.,

2022). Based on global climate models used

to explore three climate scenarios and soil

conditions, highly and moderately suitable

Arabica coee-growing environments around

the world are expected to decrease by 50%

and 30%, respectively, by 2050 (Grüter et

al., 2022). The eects of climate change are

also expected to lead to the emergence of

existing and new coee pests and diseases

as well as the loss of productive agricultural

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lands, which will invariably aect coee

farming (Pham et al., 2019). For instance, the

coee leaf rust fungus greatly impacted coee

production in various parts of Latin America

from 2012 to 2017, causing an estimated

USD 3 billion in losses and negatively

aecting 2 million farmers (McKenna et

al., 2020; Pham et al., 2019). More recently,

severe and unexpected frost in Brazil’s coee

belt in June and July 2021 caused global

coee prices to spike by 13% (Foreign

Agricultural Service, 2021, p. 9; Figueiredo &

Teixeira, 2021).

Although coee farmers are used to

ﬂuctuating weather patterns, they will need to

adapt to less predictable growing conditions

and more extreme climatic events. More

attention to climate resilience is especially

important in coee cultivation, as it requires

long-term planning to get a return on

investment. The vast majority of today’s

production comes from smallholder farmers

with fewer resources to cope with shocks,

making them more vulnerable to climate

change. Numerous adaptation measures exist

in the coee sector. These include moving

production to areas with more suitable

climates and switching to more climate-

resilient species such as Robusta or adopting

more sustainable farming practices, like

shade-grown coee to reduce temperatures

or mulching to maintain soil moisture (Pham

et al., 2019). Some countries have started

climate-prooﬁng their coee sectors. For

instance, an estimated 85% of Colombia’s

coee now consists of leaf rust-resistant

varieties, and areas projected to oer suitable

coee-growing conditions are being mapped

(Boer et al., 2020; David, 2021; Foreign

Agricultural Service, 2021, p. 9). Vietnamese

coee growers commonly intercrop their

Robusta coee plants with fruits such as

avocado and durian and are working to

improve their irrigation eciency to lower

costs and maintain productivity (Foreign

Agricultural Service, 2021, p. 9; Hofstetter,

2016; International Union for Conservation

of Nature, 2020).

Moving coee production to more suitable

areas must be done carefully to prevent

ecosystem losses (i.e., deforestation or

degradation), which will exacerbate climate

change (Panhuysen & Pierrot, 2020, p.

56). For instance, coee cultivation in the

Peruvian Amazon was directly responsible

for a quarter of its deforestation in 2012,

and the upward expansion of coee farming

continues to pose a high risk to forested and

protected areas (Panhuysen & Pierrot, 2020,

p. 56; Rainforest Alliance, 2021a, p. 14; van

Dijkhorst et al., 2017, p. 11). Additionally,

consuming countries increasingly put

legislative frameworks in place to ensure that

industry players understand and mitigate

deforestation risks in their supply chains,

such as the EU proposal for a regulation on

deforestation-free products. What is clear

is that coee farmers will have to become

more resourceful and diversiﬁed by varying

cropping patterns and livelihood activities to

face changing weather patterns that will aect

dierent parts of the global coee value chain

in unpredictable ways (Foreign Agricultural

Service, 2021, p. 9).

Despite its vulnerability to the eects

of climate change, coee farming has

climate change mitigation and adaptation

potential. While deforestation-free farming is

essential to slow global climate change and

biodiversity losses, coee cultivation oers

tangible opportunities to restore mixed-use

forests in coee-growing regions around the

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Coffee prices and sustainability

world. Agroforestry techniques that cultivate

trees with crops, regenerative agriculture

practices that restore degraded land and

ecosystems, and intercropping can provide

shade and cooler environments suitable for

growing good-quality Arabica coee while

sequestering carbon and diversifying revenue

crops (Ahmed et al., 2021; Pham et al.,

2019). For example, coee farmers in Peru’s

Alto Mayo Protected Forest have been

able to weather the COVID-19 pandemic

by growing more sustainable certiﬁed

coee through agroforestry practices and

generating revenues by selling carbon credits

via the United Nations REDD+ programme

(Bauza, 2021; Specialty Coee Association,

2021). It is clear that regenerative coee

farming systems will be required not only to

halt—but also reverse—the degradation of

natural environments and rural communities

around the world and to restore them.

This can be done by building healthy and

fertile soils that can retain and ﬁlter water,

returning shade trees, and enhancing wildlife

habitats (Murphy & Lilliston, 2022; Vu

Le et al., 2021).

“REDD+, which stands for Reduce Emissions from Deforestation and Forest Degradation while fostering forest

conservation, is a framework created by the UNFCCC Conference of the Parties (COP) to guide activities in the

forest sector that reduces emissions from deforestation and forest degradation, as well as the sustainable management

of forests and the conservation and enhancement of forest carbon stocks in developing countries” (United Nations

Framework Convention on Climate Change, 2022).

Coffee produced in

compliance with VSSs offers

opportunities to improve the

sustainability and resilience

of the sector.

Eorts are ongoing to move the coee sector

toward sustainability and improve farmer

resilience to face challenges such as climate

change. The implementation of VSSs, which

began in the sector more than 30 years ago, is

one of these eorts. Complying with a VSS

allows farmers to dierentiate themselves

from conventional coee producers in the

marketplace (Voora et al., 2019, p. 6). In

exchange for adopting farming practices that

can provide beneﬁts to the environment and

communities, farmers can label and sell their

products as VSS compliant.

VSSs in the coee sector typically require

farmers to adopt more sustainable farming

practices, such as soil, water, forest, and

energy conservation measures that can make

their operations more resilient to changes,

including extended droughts (Voora et al.,

2022). VSS-compliant farmers may also get

higher prices and premiums for their coee

and establish stronger links with buyers,

which can help them cope with market

ﬂuctuations (Bianco, 2020; Elder, 2021, p. 9).

While oering numerous potential beneﬁts,

VSSs can be further strengthened to improve

farmer resilience to challenges such as climate

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change and human health pandemics (Bianco,

2020; Elder et al., 2021, p. 168).

In 2019, more than 1.1 million farmers

produced 2.09 million–4.55 million tonnes of

VSS-compliant coee, with a total farm gate

value of between USD 4 billion and USD 11

billion. This is a drop of 460,000–570,000

tonnes from the previous year (Meier et al.,

2021). The farm gate value estimate was

derived from FAO averaged producer prices

per tonne multiplied by VSS-compliant coee

volumes produced per country. The most

prominent VSSs in the coee sector, ordered

by 2019 production volumes, are 4C (1.61

million tonnes), UTZ (1.08 million tonnes),

Fairtrade (0.82 million tonnes), Rainforest

Alliance (0.67 million tonnes), and Organic

(0.37 million tonnes) (see Figure 2) (Meier

et al., 2021). Since the Rainforest Alliance

and UTZ Certiﬁed merger in 2018, the

UTZ standard and correspondent label are

gradually being replaced by the Rainforest

Alliance Certiﬁcation Program and labelled

with the new Rainforest Alliance seal from

2020. The Global Coee Platform (GCP)

(2022) supports all of these initiatives and has

created an Equivalence Mechanism based on

the GCP Baseline Coee Code to establish

a baseline of more sustainable practices

in the industry.

VSS-compliant coee, which grew at a CAGR

of 13% to 19% between 2008 and 2019,

now represents 21% to 45% of total global

production (see Figure 2) (Meier et al., 2021).

Despite this signiﬁcant growth, there are signs

that the supply of VSS-compliant coee may

be declining as its CAGR contracted between

1% and 7% from 2014 to 2019. Almost all of

the losses in VSS-compliant production are

due to a drop in 4C coee, which fell from

2.76 million tonnes in 2016 to 1.61 million

tonnes in 2019. This downward trend can

also be partly explained by coee buyers

shifting from sourcing coee that complies

with third-party-certiﬁed or veriﬁed VSSs to

coee that complies with their own second-

party corporate sustainability programs (i.e.,

Tchibo) or the use of other frameworks to

report on their sourcing practices (i.e., Global

Reporting Initiative, UN Global Compact)

(Panhuysen & Pierrot, 2020). Additionally,

supply outstripping demand may have

discouraged farmers from becoming and

remaining VSS-compliant (Meier et al., 2021),

especially if markets do not incentivize the

consumption of VSS-compliant coee.

How much coffee is

compliant (by VSS)?

Figure 2. VSS-compliant coffee

production volumes in 2019

Source: Meier et al., 2021.

4Cs

1,606,821 tonnes

Fairtrade International

824,404 tonnes

UTZ Certiﬁed

1,083,649 tonnes

Rainforest Alliance

669,698 tonnes

Organic

370,006 tonnes

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Coffee prices and sustainability

In 2019, almost 60% of VSS-compliant coee

came from Latin America and the Caribbean

(Brazil, Colombia, and Peru), followed by

Asia (Vietnam, Indonesia, and India) and

Africa (Ethiopia, Côte d’Ivoire, and Uganda).

Vietnam produced the most VSS-compliant

coee that year, reaching some 506,000

tonnes (see Figure 3).

According to our analysis, Brazil, Vietnam,

Indonesia, Colombia, and Ethiopia oer VSSs

the greatest potential to expand based on the

size of their conventional coee production.

Among the least developed countries

producing coee, the Democratic Republic

of the Congo, Ethiopia, Guinea, Haiti, and

Yemen oer VSSs the most opportunities

to promote sustainable development by

Figure 3. Coffee Growing Regions of the World: Distribution of coffee production in the

top 10 producing countries in 2019

Note: Countries with lower Climate Risk Index scores are those that have been most impacted by extreme

whether events in the reference period.

Sources: Meier et al., 2021; FAO, 2022a; Eckstein, D., et al. 2021; Voora, V. et al. 2019

Uganda

India

Peru

Honduras

Ethiopia

Indonesia

Colombia

Vietnam

Brazil

VSS compliant

Potentially VSS compliant

Conventional

Tonnes

(millions)

Guatemala

1–10 11–20 21–50 51–100 >100 Harvest area

Prevalent VSS-compliant area

Climate Risk Index score for 2000–2019

Brazil

Peru

Ethiopia

Uganda

India

Colombia

Honduras

Guatemala

Vietnam

Indonesia

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adopting more sustainable coee farming

practices based on their share of global coee

production, limited presence of VSSs, and

Human Development Index ranking.

Equally important, VSS-compliant coee

farming can also result in higher yields

compared to conventional production. Our

analysis shows that in 2019, VSS-compliant

coee yields were higher in 21 coee-

producing countries, potentially about the

same in three, and lower in 16. VSS-compliant

yields tended to be higher in larger coee-

producing countries, such as Brazil, Vietnam,

Colombia, Indonesia, and Honduras. Ethiopia,

Laos, and China are exceptions, as VSS-

compliant coee yields were lower than

conventional coee yields in these major

coee-producing countries (FAO, 2022a;

Meier et al., 2021). This may be partially

explained by the fact that coee-producing

regions with well-functioning farming

cooperatives and a supporting environment

may be better able to take full advantage of

VSS-compliant practices for their members,

which can also result in higher productivity

levels (Le Coq, 2016).

Demand for VSS-compliant

coffee is increasing, but not

enough to balance supply.

The availability of VSS-compliant coee sold

as conventional coee is another challenge

hindering its long-term viability, as some

companies source VSS-compliant coee at

lower conventional prices to beneﬁt from

their risk mitigation beneﬁts. Between

2008 and 2019, only 12% to 65% of VSS-

compliant coee production was sold as

such (Meier et al., 2021). In some cases,

coee farmers who cannot sell their product

as VSS-compliant do not receive premiums

and consequently struggle to pay the costs

of maintaining their certiﬁcation (Centre for

the Promotion of Imports from developing

countries, 2021; Mongabay.com, 2021).

Falling incomes due to poor prices and

higher production costs in 2020 because

of COVID-19 supply chain disruptions—

coupled with farmers’ reliance on coee as

the main source of livelihoods—have led

to higher poverty rates among smallholder

coee farmers (Mongabay.com, 2021). This,

in turn, prevents farmers from investing

further in sustainable production and

climate resilience (International Coee

Organization, 2020, p. 14).

Although the global supply of VSS-

compliant coee is decreasing, demand for

VSS-compliant coee continues to grow

in traditional markets (Europe and North

America). Nevertheless, this growth has

not yet caught up with supply, leading to an

MARKET VALUE

More than 1.1 million farmers produced 2.09

million–4.55 million tonnes of VSS-compliant

coffee with a total farm-gate value of USD 4

billion to USD 11 billion.

CAGR

Conventional production contracted at a CAGR

of 3.17% from 2008 to 2019, but grew at 7%

from 2014 to 2019.

VSS-compliant production grew at a CAGR

of 13% to 19% between 2008 and 2019 but

contracted to between 1% and 7% from 2014

to 2019.

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Coffee prices and sustainability

ongoing oversupply of VSS-compliant coee.

As mentioned above, this supply–demand

gap may be reducing global VSS-compliant

coee production. Consumer preference for

more sustainable coee consumption options

has strengthened during the pandemic,

particularly in traditional markets (Centre for

the Promotion of Imports from developing

countries, 2021). A GlobalData consumer

survey found that the consumption patterns

of 43% of all coee drinkers are inﬂuenced by

“ethical, environmentally friendly, or socially

responsible coee options” (GlobalData

Consumer, 2020). Many European retailers,

including ALDI, Lidl, and Sainsbury’s, have

developed their own sustainable product

lines using VSS-compliant coee, which has

boosted sales (Centre for the Promotion of

Imports from developing countries, 2021).

Nevertheless, it is still too early to know what

sort of impact the upcoming EU regulations

on corporate sustainability due diligence and

corporate sustainability reporting will have

on the production and consumption trends

of VSS-compliant coee, as countries within

the EU are the main consumers (European

Commission, 2022). Furthermore, what

happens if coee buyers do not ﬁnd VSSs

to be a potential tool to help them comply

with these regulations or if VSSs do not

adapt accordingly?

The former regulation will require targeted

companies to implement, monitor, and

report on due diligence activities conducted

throughout the entire value chain to identify

and prevent potential adverse human rights

and environmental impacts, minimize the

eects of actual impacts, and establish

complaint procedures for the beneﬁt of

communities. The new regulation—in the

consultation phase—will require targeted

companies to report on environmental,

social, and governance issues, including

climate change, pollution, water resources,

biodiversity, workers, aected communities,

and business ethics related to three corporate

areas: a company’s strategies and assessments

on the potential positive and adverse

impacts of its direct and indirect operations;

implementing measures such as policies,

targets, action plans, and budget allocations;

and performance measurement on a speciﬁc

set of metrics (KPMG, 2022).

Both regulations target environmental and

social issues that most VSSs cover in their

production requirements and can help

coee growers adopt practices that can

beneﬁt the environment and communities

while reducing harm. Most VSSs operating

in the coee sector also have assurance

and grievance mechanisms in place that

may align with these regulations. Still, all

VSSs are dierent in terms of the stage of

the value chain and related requirements

they cover; their eectiveness in supporting

farmers in adopting VSS-compliant practices

and verifying their compliance; and how

they incorporate performance metrics,

measurement guidelines, and technology to

support this data journey. Going forward,

a more in-depth review is needed of the

potential alignment and gaps between

VSSs operating in the coee sector and

regulations to support the coee buyers

complying with them.

Beyond traditional markets, VSS-compliant

coee consumption in producing countries

and emerging economies such as Russia,

China, and Indonesia has historically been

very low. However, these markets oer great

potential, as domestic consumption rates

have been growing exponentially, primarily

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due to millennials with higher disposable

incomes. For instance, VSS-compliant coee

remains niche, but its popularity is growing

in Colombia as households have more

disposable income (Federación Nacional

de Cafeteros de Colombia, 2020, p. 107).

In Indonesia, increasing VSS-compliant

production may be due to a growing

domestic market with more roasting facilities

and coee shops serving high-quality coees

with sustainability claims (Food ingredients

Asia, 2022, p. 23).

While younger generations are generally more

willing to pay for VSS-compliant coee, many

people in emerging economies are still limited

by price. Oering incentives to consumers

to buy VSS-compliant coee can stimulate

sustainable consumption (Meier et al.,

2020, p. 88). This can include subscription

services where consumers pay in advance for

sustainable product baskets with coee or

chocolate at discounted prices (Alves, 2021).

Uncertainty about VSS-compliant coee and

greenwashing remains challenging. On-the-

go coees, typical coee shops, and street

vendors oer fewer prepared coee options

than what is available in supermarkets,

making it harder for their clients to choose

VSS-compliant coee. In Colombia, most

consumers do not know what VSS logos mean

or distrust their credibility (Velez, 2020).

Indonesian consumers have been subject to

greenwashing and misled by companies so

they can charge premiums (Food ingredients

Asia, 2022, p. 23).

Nevertheless, communication campaigns

such as the Global Coee Platform’s eorts

to educate consumers and promote local

VSS-compliant coee consumption can

encourage sustainable consumption in these

emerging markets (Global Coee Platform,

2019, p. 30; Pierides, 2019; Sierra, 2020).

In Colombia, Toma Café’s promotional

campaigns, barista training programs, and

marketing strategies have reached a broad

range of consumers, including young adults

and students, some with prior interest and

knowledge of sustainability (Euromonitor

International, 2015). Building trust and

transparency is key to shaping consumer

behaviours, especially when many hope to

adopt more sustainable lifestyles.

The 10 largest coee-roasting companies,

which account for 35% of total global coee

sourcing (Panhuysen & Pierrot, 2020),

bought an estimated 3.5 million tonnes

of coee in 2020, up from 3.31 million

tonnes in 2016. About 1.4 million tonnes,

or 39%, of all coee purchased in 2020 was

sustainably sourced and compliant with a

VSS or a corporate sustainability initiative,

such as Starbucks’ C.A.F.E. Practices

or Nestlé’s Nespresso AAA. Corporate

sustainability initiatives refer to sustainable

coee production programs created by

private companies rather than by independent

third parties. In terms of meeting sourcing

commitments, Nestlé, Starbucks, and

Smuckers almost met their targets by

2020. Major developments in sustainability

sourcing commitments include JDE’s 40%

and Nestlé’s 100% sustainable sourcing

targets to be reached by 2025 and Ueshima

Coee Company's goal to reach 100% by

2030 for their own coee brands. Strauss,

Massimo Zanetti, and Lavazza have yet to set

sustainable sourcing commitments. Based

on these commitments and assessing them

against current coee sourcing information,

an extra 570,000 tonnes of sustainable coee

could be sourced by 2025.

IISD.org/ssi 11

Coffee prices and sustainability

Sustainable sourcing commitments are yet to be met.

Figure 4. Major coffee-roasting companies and their sustainable sourcing commitments

*Note: Data not found for sustainable sourcing commitments.

**Note. Data refers to 2019 as per Coffee Barometer 2020.

Sources: Authors’ estimations based on Panhuysen & Pierrot, 2020. Speciﬁc company sources: Keurig Dr

Pepper, 2019; JDE Peet’s, 2020; JDE Peet’s N.V., 2020, p. 260; Lavazza, 2020, 2021; Massimo Zanetti Beverage

USA, 2022; Navratil, 2021; Nestlé, 2020; Starbucks, 2020a, 2020b, p. 23; Strauss, 2021; Tchibo Coffee Service,

n.d., and personal email correspondence with the company; The J.M. Smucker Co., 2020; Ueshima Coffee

Company, 2022a, 2022b.

Sustainable consumption Conventional consumption

Sustainable sourcing commitment

Tonnes (thousands)

Keurig Dr. Pepper

Massimo Zanetti*

Tchibo

Ueshima Coffee Co.**

Lavazza*

Strauss*

Starbucks

Smuckers

Jacobs Douwe Egberts

Nestle

106,881

153,000

170,000

190,000

267,000

282,000

310,000

360,000

730,000

985,000

0 200 400 600 800 1,000

10% sustainable sourcing by 2018

100% sustainable sourcing by 2020

100% sustainable sourcing by 2025

100% sustainable sourcing by 2020

40% sustainable sourcing by 2025

100% sustainable sourcing by 2025

IISD.org/ssi 12

Global Market Report

Although VSS-compliant production has

declined in recent years, coee-roasting

companies may continue to adopt more

ambitious sustainable sourcing commitments,

and sustainable consumption in emerging

economies may continue to rise. This could

maintain and even boost demand for coee

compliant with a VSS and/or a corporate

sustainability initiative. Still, demand may

grow slowly, while the upcoming corporate

sustainability due diligence and corporate

sustainability reporting regulations in the

EU, and other similar regulations that may

emerge in other jurisdictions, may crimp

the consumption and production of VSS-

compliant coee. This is why a prediction on

VSS-compliant production can, at best, be

viewed as an educated guess. A pessimistic

outlook weighs a short-term decreasing trend

in VSS-compliant production more heavily.

This translates into a steady decline to about

1 million tonnes by 2025 due to a shift toward

corporate sustainability initiatives, the eects

of due diligence and corporate reporting

regulations, and a continued inability to sell

VSS-compliant products as such. A more

optimistic outlook weighs the increasing long-

term VSS-compliant production trend more

heavily and projects a steady increase to more

than 3 million tonnes by 2025.

VSS-compliant production is likely to

contract in the short term. However, we

predict that it will rebound to almost 2

million tonnes by 2025 as demand for

sustainable coee continues to grow,

motivating sustainable coee sourcing

commitments, and VSS-compliant coee

farmers enjoy more success selling their

harvest as a VSS-compliant product.

Consequently, we expect VSS-compliant

coee production to range from 950,000

tonnes to 3.31 million tonnes by 2025.

IISD.org/ssi 13

Coffee prices and sustainability

Sustaining the coffee

sector will require improving

farm gate prices and the

equitable distribution of

information and proﬁts.

Pricing is another crucial factor in the

viability of VSS-compliant coee, as it can

determine if coee farmers stand to gain

ﬁnancially from implementing VSSs. Eorts

to shift the coee sector toward sustainability,

such as implementing VSSs, are partly driven

by a need to internalize the external costs

associated with the industry. Agricultural

external costs are those typically not

captured in the market price of agricultural

products and not borne by farmers, such as

the negative eects of agrochemical use on

human health and the environment.

The external cost of conventional coee

grown in Mexico in 2017 was found to

be USD 7.80 per kg of parchment coee

versus USD 3.50 per kg of parchment coee

for traditional and organic farming coee

production systems, which tend to have less

detrimental socio-ecological impacts (de

Adelhary Toorop et al., 2017). The external

cost of certiﬁed versus conventional coee

grown by smallholder farmers in Vietnam

was found to be 20% lower and 13% more

proﬁtable (generating annual proﬁts of

EUR 1,695/ha vs. EUR 1,472/ha) in 2016

(Verkooijen et al., 2016). Internalizing the

external costs associated with the production

of conventional coee would make VSS-

compliant coee prices much more

competitive. Therefore, examining how coee

prices intersect with the sustainability of the

sector is critical.

The behaviour of coee market prices, which

have been highly variable, aects the price

that VSS-compliant farmers get. Coee

pricing has traditionally ﬂuctuated with large

swings that follow the international market

price for coee, or “C-price,” as coee is also

traded in the futures market. The C-price

determines the price of coee as it is bought

and sold along the value chain. It serves as a

pricing guide, benchmark, or price-discovery

tool to buy and sell coee, make business

decisions, or plan investments.

For instance, the C-price dropped to historic

lows in April 1975 (just before a massive frost

in Brazil) and in October 2001, when coee

was traded at USD 0.4638/pound, with prices

recovering and reaching highs in March

1977 of USD 3.08/pound and in April 2011

of USD 2.98/pound (Trading Economics,

2022). More recently, in August 2018, the

international market price for coee dropped

below USD 1/pound for the ﬁrst time in 12

years, a price considered well below the cost

of production for most coee farmers in the

world (Specialty Coee Association, 2019a),

with new lows reached in 2019.

Several factors inﬂuence ﬂuctuations of the

coee market price, the most important one

being global supply and demand dynamics.

Indeed, when the global supply of coee

outpaces demand fuelled by favourable

weather, improved yields, production capacity

via harvesting mechanization, increased

cultivation land, or public support (i.e.,

subsidies), it pushes prices downward

A Dive into Coffee Prices

IISD.org/ssi 14

Global Market Report

(Ballard, 2010). When the global coee

supply and inventories are disrupted due

to extreme ﬂuctuations such as rising

temperatures, droughts, frosts, pests, diseases

(i.e., coee leaf rust), and government

policies (i.e., export quotas), it pushes

coee prices upward. For instance, fears of

losing up to 40% of the coee harvest in

Brazil due to an unexpected frost pushed

the international coee price above USD 2

per pound in August 2021 (Perez & Batista,

2021). Other factors inﬂuencing the C-price

include speculation (Hernandez et al.,

2020) in the futures markets and exchange

rate movements.

These ﬂuctuations and coee price drops are

mostly felt by small-scale farmers in countries

that depend highly on coee exports as a

source of income, such as Burundi, Uganda,

and Honduras, where low farm gate prices

coupled with higher production costs have

resulted in losses or unsustainably low

earnings (Estrella et al., 2019; FAO, 2018;

Meier et al. 2020). In addition, many coee

smallholder farmers lack the experience and

knowledge to use risk management tools to

mitigate the price risks and are unable to

protect themselves from market ﬂuctuations.

Coee farmers are then in the most

vulnerable position in the value chain.

They are the ﬁrst to be aected by low

prices and price volatility but also the ﬁrst to

experience the eects of droughts, ﬂoods, and

other weather events, intensiﬁed by climate

change (Baptista & Jenkins, 2017, p. 32).

The C-price, along with certain factors that

lead to great variability, inﬂuence farm gate

prices in coee across producing countries.

These factors include coee type, origin,

quality, dierentiation (i.e., specialty or

sustainably grown coee), level of association

and bargaining power of farmers, input

availability, rural infrastructure, and the

institutional environment, which plays a

key role in determining the prices received

by coee farmers (Lerner et al., 2021;

Lordemann et al., 2021). Agricultural policy

and supporting actions of governments (i.e.,

coee funds, subsidies) can—and do—make

a huge dierence in producers’ livelihoods

(Grabs, 2018). For instance, the Government

of Honduras passes market price volatility

onto producers much more directly, in

contrast to the situation in Costa Rica or

Colombia. Furthermore, poor infrastructure

(i.e., roads, transport services to ports) in

producing countries may lead to the use

of intermediaries to transport the coee

from farm to port, reducing the price that

coee farmers obtain in the end (Lerner

et al., 2021).

The coee market is also highly competitive,

with a few large companies and their value

chains dominating it (Mordor Intelligence,

2021), which allows exporters and roasters

to determine a favourable price for the coee

they buy from farmers (Econexus, 2013;

ETC Group, 2019). They are also better able

to transfer any price increase upstream and to

end consumers, protecting themselves from

coee price volatility and exacerbating the

inequality and power asymmetry of farmers.

The pattern in coffee shows that

input costs increased by 8% annually

between 2015 and 2020, but prices rose

just 1% in the same period. As a result,

some farmers break even while others

struggle to cover their costs.

IISD.org/ssi 15

Coffee prices and sustainability

Coee farmers also tend to receive the

smallest margins in the value chain. The farm

gate price and production costs determine

coee farmers’ margins. Despite the

dierences in production costs across coee

farms, regions, and countries due to dierent

taxes, transportation and input costs, the

type of coee grown, production methods,

equipment, and technology (Cadena, 2019,

p. 13; Estrella et al., 2019), the overall

pattern in coee shows that input costs rose

8% annually between 2015 and 2020, while

prices advanced just 1% in the same period

(Keen, 2020). As a result, some farmers break

even while others struggle to cover their costs

(Estrella et al., 2019).

In contrast, the greatest economic value is

generated in the middle of the coee supply

chain: exporters and roasters. Exporters can

get between 50% and 54% of the free on

board (FOB) price in some cases (including

cupping, grading, storing, milling, transport,

taxes, export documentation, and margins)

(Nordic Approach, n.d.). They often pay

premiums to farmers by making second

payments to coee cooperatives or coee

washing stations (Nordic Approach, n.d.).

In many cases, however, they cannot collect

information on how these premiums are

distributed or invested back into the farming

communities. Proﬁt margin outcomes from

an exporter’s perspective are higher when

selling coees with high-quality scores. The

lowest margins for all actors in the value

chain involve the production and sale of

ordinary or low-grade fully washed coees

(Church, 2018).

Roasters usually enjoy the highest gross proﬁt

margins in the coee chain (44% to 65%).

A study by the Specialty Coee Association

found that when costs are considered, the

net proﬁt margin can vary from 7% to 12%

(Bellwether Coee, 2021; Specialty Coee

Association, 2017). However, one of the

key issues is also the hidden trade margins

and prices paid by roasters to farmers, or

Table 2. Minimum prices and premiums for coffees negotiated through the Fairtrade

Labelling Organization contract system in USD/lb, Arabica and Robusta. FOB prices paid

for Fairtrade (2020).

Type of coffee Conventional

Fairtrade minimum prices

+ certiﬁed Organic

Fairtrade

premium

Washed Arabica 1.26 1.41 plus the Organic differential:

+30 cents

+20 cents

Non-washed Arabica 1.20 1.35 plus the Organic differential:

+30 cents

+20 cents

Washed Robusta 1.05 1.05 plus the Organic differential:

+30 cents

+20 cents

Non-washed Robusta 1.0 1.01 plus the Organic differential:

+30 cents

+20 cents

Source: Authors, with data extracted from Fairtrade International, n.d.

IISD.org/ssi 16

Global Market Report

indirect payments in the form of community

infrastructure or social programs. Large

multinationals and coee roasters such as

Starbucks, Nestlé, and JDE tend not to

disclose how much they pay for their coee

or whether they guarantee minimum prices or

oer premiums.

Coee buyers who trade directly with

farmers tend to be more transparent about

prices. Some publish and update pricing data

regularly on their websites and direct trade

platforms (i.e., Typica, Beyco) and in annual

reports. This allows farmers to assess coee

market prices and better negotiate the price

for their coee when engaging directly with

the roaster (Southey, 2021). Farmers selling

through direct trade tend to receive higher

prices for their coee and have better proﬁt

margins because they save costs such as

registration fees or exporter fees (Oden, 2021).

VSSs can improve farm gate

coffee prices, but more must

be done to increase farmers’

income.

In this context, VSS settlers are one actor

among others who have established a

few measures to increase coee farmer

prices and mitigate the historical price

volatility, including minimum prices and

premiums. The most recognized are Fairtrade

International minimum prices and Fairtrade

International and Organic premiums. Other

VSSs, such as Rainforest Alliance, began in

2021 to implement mandatory sustainability

dierentials, which are cash payments that

coee buyers make to compliant farmers

over and above the market price (Rainforest

Alliance, 2021b).

In 2020, the coee market price hovered

around USD 1.20/lb for Arabica and USD

1/lb for Robusta, while Fairtrade minimum

prices stood at USD 1.35/lb for the former

and USD 1.01/lb for the latter. An organic

dierential of USD 30 cents/lb was added

to this minimum price when farmers sold

their coee in compliance with the Organic

scheme. The Fairtrade premium stood at

USD 20 cents/lb (see Table 2).

These ﬂoor prices and premiums act as a

baseline for coee pricing because producers

and traders can also negotiate higher prices

for VSS-compliant coees based on quality

and other attributes (Southey, 2021; Specialty

Coee Association, 2019b). They enhance the

transparency of coee prices. The Fairtrade

minimum price also protects farmers

mainly when international market prices

are depressed. Farmers may obtain higher

prices if they grow specialty coee, which

refers to high-quality coees with cupping

scores exceeding 80 points, according to

the Specialty Coee Association Q-grading.

For instance, the median price for coees

ranging between 82 points and 87 points

in 2019/2020 was USD 2.60/lb (Specialty

Coee Association, 2020). However, this

market makes up only about 30% or less of

the coee produced in the world. Specialty

coees that are sold in small quantities of

micro-lots also tend to be less volatile from

year to year (Kornman, 2020; Specialty

Coee Association, 2019b).

Prices reported for VSS-compliant and

specialty coees often refer to FOB and not

to farm gate prices, as several transactions

between farm gates and ports do not

IISD.org/ssi 17

Coffee prices and sustainability

usually stipulate prices in U.S. dollars per

green pound. This complicates the process

of calculating what really gets back to the

farmers. Also, depending on the country

and region (i.e., lack of institutional

support, poor infrastructure) and the use of

intermediaries who may keep a large part

of the premiums for themselves, specialty

and VSS-compliant farmers may end up

receiving conventional market prices for

their coee (AgriLogic, 2018, p. 94). Some

stakeholders in the sector, such as the

Specialty Coee Association and many

specialty buyers, are trying to understand

and compile information on how much of

the FOB price makes it back to the farm

gate to ﬁnd out the real price farmers obtain.

To better illustrate the dierences between

conventional, VSS-compliant, and specialty

prices, Figure 5 showcases coee market

prices from 2010 to 2021 (USD/lb); the

average FOB prices received in East Africa,

Latin America, and Asia for conventional

coee; prices paid by VSSs such as Fairtrade

and Organic; and specialty coees in the

same regions. (Please note that these are

average prices and do not reﬂect the reality of

all coee farmers).

According to our analysis and the data shown

in Figure 5, coee producers associated

with at least one VSS—Organic or Fairtrade,

based on data availability—may have received

higher prices than the international market

Figure 5. Minimum prices and premiums for Fairtrade (FT) coffee, average conventional,

and specialty coffee prices from 2011 to 2021

Source: Fairtrade International, n.d.; Specialty Coffee Association, 2019b; Trading Economics, 2022.

2014

2016

2018

2020

2022

1.00

0.50

1.50

2.00

2.50

3.00

Price (USD/lb)

Specialty coffees (average quality): 2.41

Commodity price (Arabica)

FT minimum price + organic + premium: 1.91

FT minimum price + organic: 1.71

FT minimum price conventional: 1.46

Average FOB conventional: 1.16

IISD.org/ssi 18

Global Market Report

price from 2015 onward. Prices tend to

increase with double certiﬁcation of Fairtrade

and Organic. The price that farmers get is

even higher when selling specialty coee

(average quality) through direct trade, which

reduces the number of intermediaries

as farmers establish direct commercial

relationships with roasters or importers.

However, we can deduce from the graph

that coee buyers may be more willing to

pay premium dierentials for VSS-compliant

coee when international coee prices are

depressed, while premiums above the market

price are less frequent for VSS-compliant

coee when market prices are higher and are

more commonly paid for specialty coee.

The price dierentials that voluntary

sustainability standards pay have sparked

some concerns. Higher premiums will

incentivize farmers to increase VSS-compliant

production, but when demand for more

sustainably grown coee does not rise at

the same pace as production, farmers are

forced to sell their coee at conventional

prices and cannot recover the cost of using

VSS-compliant practices. This can discourage

farmers from continuing to comply and

cause them to leave the schemes. As already

mentioned, the supply of global VSS-

compliant coee fell between 1% and 7%

CAGR from 2014 to 2019, with research

suggesting that a lack of demand contributed

to this decrease (Meier et al., 2020, p. 88;

Meier et al., 2021).

For coee farmers, the eects of

participation in a VSS have been mixed.

Research indicates that these standards

have an overall positive impact on

the prices that coee farmers receive

(Evidensia, 2020; DeFries et al., 2017). As

Figure 5 shows, farmers certiﬁed under

Fairtrade and Organic can get an average

of 20%–30% higher prices than their non-

certiﬁed counterparts over a year (Fairtrade

International, 2021; Specialty Coee

Association, 2019, p. 71; Trading Economics,

2022). Research on farm revenues also

suggests that complying with a VSS across

a few commodities, including coee,

translates into markedly higher crop income

for farmers compared to non-compliant

farms. However, eects on net household

income are less explored, with more studies

revealing no signiﬁcant results between VSS-

compliant and non-VSS-compliant farmers

(Elder et al., 2019, p. 168; Evidensia, 2020;

Panhuysen & Pierrot, 2020).

However, our analysis shows that VSS prices

(Fairtrade, Organic) do not necessarily make

a dierence when farmers are already selling

specialty coee. There are also concerns

about the minimum price oered by

certiﬁcation schemes such as Fairtrade, as it

is deemed too low to cover production costs

or to contribute appreciably to the overall

household income (DeFries et al., 2017). It

is important to recognize that an oversupply

of VSS-compliant coee means farmers

may have to sell at lower conventional prices

and therefore will not beneﬁt from higher

prices and premiums (Specialty Coee

Association, 2019, p. 71; Voora et al., 2019,

p. 6). Imbalances in supply and demand

will probably always remain because of time

frame lags for production and dierent

consumption trends.

Building from these issues, VSSs such

as Fairtrade, Rainforest Alliance, and

Bonsucro—alongside many other

organizations that are part of the Living

Income Community of Practice—have

been working to develop the concept of

IISD.org/ssi 19

Coffee prices and sustainability

living income reference prices in coee. For

instance, Fairtrade released the ﬁrst price

reference for Colombian coee farmers

in July 2021. It aims to indicate the price

needed for full-time Fairtrade farmers with

adequate, sustainable productivity levels to

earn a living income that gives them and their

families a sustainable livelihood (Fairtrade

International, 2021).

As an example, the recommended

Fairtrade Living Income Reference Price

for conventional coee is COP 9,900

(about USD 2.75) per kilogram of dried

parchment coee and COP 11,000 (USD

3.06) per kilogram for Organic. These prices

factor in the costs for farmers to adopt the

required agricultural practices to achieve

sustainable yield levels and to pay a living

wage to any workers they may hire (Fairtrade

International, 2021).

Other tools are also available to help coee

buyers raise the price they pay to farmers,

such as the Living Income Benchmark. This

tool helps users understand the dierence

or gap between the actual household income

and a basic, decent standard of living income

for a farming household for a given sector

and country. When coee buyers know the

living income gap, they can deﬁne price

dierentials to help close it (The Living

Income Community of Practice, 2021).

Several coee buyers are involved in living

income initiatives, including Nestlé, Tchibo,

and Keurig (Cordes et al., 2021). It remains

to be seen how these measures will be applied

in practice, how they will be adjusted to

market dynamics (i.e., inﬂation and exchange

rate ﬂuctuations), and how it will aect coee

farmers if they are not applied across the

board, as traders in a free-market economy

may opt to purchase coee from farmers and

countries at a lower price (Stencel, 2008).

Other actors have also put in place measures

to increase farm gate prices and mitigate

volatility. For instance, the governments

of Rwanda and Brazil have established

minimum prices for green beans considering

average costs of production, minimum proﬁt

margins for farmers, and international prices

(Cashin & McDermott, 2002). They buy

farmers’ coee at that price when market

prices fall below the minimum guaranteed

price. Other governments have also set up

coee funds to alleviate the eects of low

prices. For instance, Colombia has created a

fund of up to USD 34 million to help coee

farmers (subsidies based on production/

tonnes), and Kenya has implemented a

series of legislative actions, including a USD

15 million subsidy program, to support

coee farmers aected by low international

prices (FAO, 2018).

However, some studies have found that in

a global market economy, commodity price

shocks in the coee sector are so long-

lasting that they make mechanisms such as

price stabilization schemes, buer stocks,

price ceilings and ﬂoors, and guaranteed

prices unviable in the long term (Cashin

& McDermott, 2002; Lewin et al., 2004).

For instance, price ﬂoors may not reﬂect

farmers’ production costs in the end (Gomes

& Teixeira, 2019). Experts also point

out that price guarantees can encourage

the overproduction of coee and lead to

debilitating prices in the long run (Gebre,

2020). They can promote ineciency and

low quality, as farmers may be reluctant

to implement good practices if they have a

guaranteed buyer. In addition, not all coee-

growing countries can aord to support

IISD.org/ssi 20

Global Market Report

farmers, creating disadvantages for poorer

nations (Lewin et al., 2004).

Large roasters have also established support

programs for farmers—for instance, to access

loans and funds, technical assistance, and

training on business planning and price risk

management (Starbucks Coee Company,

2020). Other roasters and retailers are

working to deﬁne living income reference

prices or trading directly to pay higher prices

to coee farmers. There are examples of

roasters involved in direct trade that have

bought high-quality coee for a price that

is 25% to 30% above the Fair Trade and

Organic combined price (Oden, 2021).

However, these measures do not necessarily

mean a proportional increase in the price the

individual farmer, farmworkers, and others

obtain (Rogers, 2019). In practice, the use

and distribution among farmers of premiums

or higher prices paid by these specialty buyers

and direct traders is not usually veriﬁed or

monitored (Baptista & Jenkins, 2017, p. 32;

Nordic Approach, n.d.).

A way forward: Increasing

farm prices and sharing

value to build sustainable

and resilient coffee systems

Despite the eorts of VSSs, private sector

actors, and governments in producing

countries to provide farmers better incomes

and mitigate their vulnerability in a volatile

market, in the current free-market economy

we live in and with a highly competitive

sector, the eects of these initiatives alone

have been temporary (excluding the living

income reference price benchmarks that

require further use and analysis). They also

have had little impact in terms of deﬁning

and maintaining fair prices for farmers in

the long run that reward them for facing

risks, sustaining a wealthy value chain, and

adopting good social and environmental

practices. In other words, there is a need to

share ﬁnancial gains with farmers for the

societal value and beneﬁts they create by

implementing sustainable practices.

Tackling the recurring cycle of a brief period

of high coee prices followed by an extended

period of low prices will require coordinated

actions from many actors. What is most

needed is not market intervention but rather

market cooperation among exporters, with

the involvement of importers (Amrouk, 2018;

Bellweather Coee, n.d.), and governments

in producing and consuming countries

and VSSs to ensure that the global coee

market protects the livelihoods of millions

of smallholder producers. Actors along the

chain can put the following measures in place

to help farmers get better prices and greater

value for their VSS-compliant coee.

Promote value addition and more

ecient and resilient production

systems. Governments in producing and

consuming countries, buyers, exporters,

extension service providers, and standard-

setting bodies can collaborate to help farmers

produce and maintain high-quality coee

beans, as farmers can negotiate better prices

even if they comply with VSSs. They can

also support farmers’ groups in investing in

roasting facilities when coee is consumed

locally or in neighbouring markets (i.e., urban

centres) as they can obtain higher prices

and margins for roasted coee. Farmers can

leverage voluntary standards when the market

IISD.org/ssi 21

Coffee prices and sustainability

demands VSS-compliant coee, and these

supporting actors can help them in dierent

ways to comply and maintain certiﬁcation

(Elder et al., 2021, p. 168).

Jointly, these actors can also support farmers

in adopting more ecient and diversiﬁed

production systems that can help them

to remain competitive when coee prices

are depressed and generate other revenue

streams—for instance, by maintaining

records of inputs used, costs, and yields;

incorporating technology and equipment

when appropriate and maintaining it well;

and helping farmers cultivate other crops

or engage in o-farm employment. They

can also help farmers build resilience to

climate change by maintaining good soil

quality, capturing rainwater, and adopting

agroforestry. VSSs can use the training and

monitoring activities they conduct with

farmers to improve their production eciency

and adaptation capabilities.

Increase demand for VSS-compliant

coee in producing countries. Stimulating

demand in producing countries is considered

an eective way to increase prices in the

coee sector. According to the FAO (2018),

the greatest impact on coee prices would

come from actions designed to control coee

production and/or stimulate demand. This

is particularly relevant for VSS-compliant

coee to balance the existing oversupply and

support farmers in obtaining higher prices

for their coee that reﬂect sustainability

investments and external beneﬁts.

Governments in producing countries can play

this role by collaborating with roasters, coee

shops, retailers, and VSSs via education and

awareness-raising campaigns and promotional

activities. Governments can also help deﬁne

accounting methods that internalize the social

and environmental costs of growing coee

typically borne by society, which should be

reﬂected in the prices paid to producers and,

ultimately, the ﬁnal price the consumer pays.

This can support raising the competitiveness

of VSS-compliant coee and increase demand.

Governments, traders, standard-setting

bodies, and extension services can support

farmers and farmer groups in producing

VSS-compliant coee by establishing direct

and personal relationships with roasters

in importing countries. This could help in

understanding the value of cultivating coee

sustainably and the challenges farmers face

and determine prices that adequately reﬂect

sustainability investments by farmers. This

could be done by developing/using “direct

trade” digital platforms and e-commerce

channels. VSSs can encourage compliant

farmers to use these channels and to develop

branding and messaging to communicate the

environmental, economic, and social beneﬁts

of producing coee that complies with VSSs

when engaging with buyers.

Reward farmers for managing risks (i.e.,

production, market, climate), applying

sustainable production practices

and environmental stewardship, and

achieving positive results. Governments

in producing countries have also started to

reward coee farmers for their actions and

positive results obtained in protecting the

environment. For instance, the Indonesian

government, with the support of a large coee

buyer, partnered with the non-governmental

organization Rikolto to create a payment for

ecosystem services model in Jambi, one of

the most deforested regions of Indonesia. It

is seen as a cost-eective way to compensate

farmers and Indigenous communities for their

environmental maintenance and provision of

IISD.org/ssi 22

Global Market Report

ecosystem services. These payments can be

monetary or in-kind through the provision of

training, investments in infrastructure, and

others (Goossens, 2020).

Governments can also reward coee farmers

for reducing and capturing carbon emissions,

as they contribute to achieving nationally

determined contributions as part of the

Paris Agreement. For instance, the European

Commission plans to reward farmers in

its jurisdiction for removing carbon by

implementing sustainable agricultural

practices, such as forest conservation,

agroforestry, or restoration of peatlands,

that are veriﬁed with a given methodology

(Climate Action, n.d.; Taylor, 2022).

Governments from other jurisdictions can

also adopt these types of measures as a way

to create value for using more sustainable

agricultural practices in coee production.

Private sector actors also have a responsibility

to reward farmers for adopting sustainable

agricultural practices that yield positive

results and share the cost of using and

maintaining these practices. Some companies

(i.e., Indigo Agriculture) are working to oer

farmers ﬁnancial incentives to implement

regenerative practices to capture atmospheric

carbon dioxide (CO

) from agricultural

soil and using digital innovations such as

software imagery analysis to measure and

verify data related to carbon sequestered

in farms (Indigo Ag, n.d.; Ioannou, 2019).

Along this line, Rainforest Alliance has

deﬁned the concept of sustainability

investments in its new Sustainable

Agricultural Standard Certiﬁcation Program.

These are mandatory or in-kind investments

that buyers of compliant goods must give to

certiﬁed producers to help them meet the

farm requirements of the standard. These

kinds of initiatives can also help private

sector actors comply with reporting and due

diligence requirements such as those the EU

or the Supply Chain Act in Germany deﬁnes.

These requirements impose obligations on

companies that source their products from

developing and emerging economies to

comply with human rights and environmental

standards (Sharma & Kaps, 2021).

VSSs would need to align with these

approaches, including by integrating

performance metrics in their scheme, which

can help value chain actors comply with the

speciﬁcs of these regulations. Furthermore,

VSSs can also help farmers use technology

to facilitate the collection and reporting of

related data (i.e., volume of CO

emissions

reduced, removed; reforested area in a given

period), provide supporting evidence, and

implement more robust veriﬁcation and

assurance systems of VSS-compliant practices.

Oering ﬁnancing such as loans and blended

ﬁnance linked to sustainability performance

can be a way to reward farmers and promote

access to ﬁnance in coee-producing

communities (Voora et al., 2022, p. 208).

Some leading businesses already implement

such mechanisms. For example, BNP Paribas

teamed with Neumann Kae Gruppe in 2019

to establish a EUR 25 million loan facility to

support more than 100,000 coee farmers

Private sector actors also have a

responsibility to reward farmers for

adopting sustainable agricultural

practices that yield positive results and

share the cost of using and maintaining

these practices.

IISD.org/ssi 23

Coffee prices and sustainability

in 10 countries and oer them sustainability

training and resources (BusinessGreen, 2019).

Another example is the Mercon Group, which

oers coee farmers sustainability-linked

loans coupled with technical assistance. Loan

interest rates are linked to sustainability

results, which are measured using an index

aligned with Rainforest Alliance criteria

(Voora et al., 2022). VSSs can collaborate

with governments and ﬁnancial service

providers to deﬁne these measures and

inform the performance indicators used to

monitor the progress of farmers in achieving

positive environmental results (Voora

et al., 2022).

Promote an enabling institutional

environment. The better the institutional

environment, the fairer the prices paid to

coee farmers (Lerner et al., 2021). This

includes governments of producing countries

investing in infrastructure and better access

to ports and roads, as well as electricity and

communications. Countries with organized

coee associations can better protect farmers

from volatile prices in the global market. For

instance, the Coee Institute of Costa Rica

(ICAFE) has the authority to reject a coee

transaction between a buyer and a seller

when, for example, it considers the price

to be too low.

Require price transparency in coee

transactions. Encouraging transparency

in prices and coee transactions is vital.

Roasters and buyers can ask for or invest in

mechanisms that can trace the coee back

to its origin and disclose the prices paid to

the farmer. This will help coee roasters

understand the destination of the premiums

they pay and act to ensure that farmers

receive those premiums. VSSs can also help to

make coee prices transparent. One example

is Fairtrade’s pricing table, which shows the

minimum prices of conventional, Organic,

and Fairtrade prices as well as the premium

(Fairtrade International, n.d.). Governments

can also use mechanisms to better map

and analyze production costs. Knowing

these costs will give buyers and roasters an

objective way to determine the FOB prices,

guaranteeing a minimum level of proﬁtability

for their farmer partners (Cadena, 2019, p.

13) and ensuring long-term viability.

Building sustainable and resilient coee

production systems is critical. It requires

industry actors to coordinate to ensure that

farmers have the conditions needed to adopt

more sustainable practices and that they

are rewarded fairly. The measures that VSSs

implement can help to boost coee prices

and farmers’ incomes. However, many others

are needed to ensure that dierent aspects

of farming operations, value chain dynamics,

market demand, and an institutional

environment are favourable to support the

continued expansion of sustainable coee

production and consumption by rewarding

farmers fairly.

IISD.org/ssi 24

Global Market Report

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The Sustainable Commodities Marketplace Series provides a market performance overview

and outlook for key agricultural commodities that comply with a number of voluntary

sustainability standards (VSSs), focusing on global sustainable consumption and production.

Each year, the series focuses on a different overarching theme, with individual reports for

that year devoted to providing a market update for a chosen commodity. These reports

are designed to be accessible and relevant for a range of audiences, including supply chain

decision makers, procurement ofﬁcers, policy-makers and producers. The series builds on

The State of Sustainable Markets 2021, a joint publication from IISD, the International Trade

Center (ITC), and the Research Institute of Organic Agriculture (FiBL), which examines over a

dozen sustainability standards for various commodities.

The Global Market Report analyzes trends in coffee production, consumption, trade ﬂows,

and other relevant areas. It uses 2019 data for coffee production that is VSS-compliant,

given that this was the most current data available when we conducted the analysis.

The report also examines prices and margins in the coffee sector, looking at how VSSs

contribute to increasing farm prices. It also provides recommendations to VSSs and other

actors to increase the price and income that farmers obtain for their coffee and build

sustainable and resilient coffee systems.

IISD's State of Sustainability Initiatives (SSI) is an international research project that aims to

advance sustainable and inclusive value chains. For over a decade, the SSI has been providing

credible and solution-oriented analysis and dialogue on voluntary sustainability standards

(VSSs) and their potential to contribute to sustainable development outcomes.

Published by the International Institute for Sustainable Development.

Head Ofﬁce

111 Lombard Avenue, Suite 325

Winnipeg, Manitoba

Canada R3B 0T4

Tel: +1 (204) 958-7700

Website: www.iisd.org

Twitter: @IISD_news

iisd.org

In collaboration with ITC and Fibl

With the support of the Swedish government

Steffany Bermudez and Vivek Voora are both ﬁrst authors of this report. Steffany Bermudez worked on

coffee prices and examining sustainable consumption preferences in developing countries in the market

overview section. Vivek Voora worked on the market overview section examining supply and demand

dynamics, production trends and forecasting, yields and climate resilience in sustainable coffee production.

Peer reviewers: Judith Ganes, Niels Haak, and Aimee Russillo

Acknowledgements

We would like to acknowledge the contributions of Audrey Wagner, Alix Albright and Jennah Landgraf

in conducting research on sustainable consumption preferences in developing countries and collecting

sustainable sourcing information from coffee buyers.