Stage: 4
2018
Instructions for Learners
This assignment is worth 40% of the Supply Chain Management module.
In writing the assignment you should rely on material presented during the lectures, material
from the module reading lists, and other relevant research and material. All research should
be referenced fully. Your assignment should clearly outline any positions you take on key
issues, and include a discussion of the significance of your findings. Your assignment
should conclude with any recommendations and conclusions you deem appropriate.
Please do not use any actual organisations or individuals names. These can be changed to
“Supervisor 1” or “XYZ Aviation Ltd” for example.
Assignment length 2,000 words. Please answer 1 of the questions below.
Assignment Format The assignment should be word processed in 12pt font size,
with 1.5 line spacing. Marks will be awarded for
presentation and layout.
General Students are advised to retain a soft copy of their project.
Students are encouraged to upload draft documents on
TURNITIN.
Blackboard Upload Please upload one copy by the deadline below in word
format to FINAL TURNITIN. Insert a picture of the
plagiarism sheet as the first page of your assignent. There is
not a requirement to include your name in the assignment
document – your student number will suffice.
Submission Deadlines January 26th 20182
Assignment Questions
Question 1
Evaluate the factors that a coffee retailer should consider, at each stage of the sourcing
process, for its supplies of coffee.
OR
Question 2
Explain, using material from the case study, the potential sources of differential advantage
that a coffee retailer may identify and apply to achieve competitive advantage in its Supply
Chain over its market rivals.3
A BETTER CUP OF COFFEE
The Coffee Market
PERUVIAN GROUND COFFEE – Intense and velvety with chocolate and almond notes.
Expertly selected by: (signed) ……. Specialist coffee buyer. 100% Arabica Coffee
The small farms dotting the slopes of the Peruvian Andes boast high altitudes, even
temperatures and plenty of rain – perfect growing conditions for coffee. It gives this coffee
an exquisite flavour profile with notes of almond, walnut and bittersweet chocolate, making
a velvety, intense and beautifully balanced cup. Packed in UK with coffee from Peru
FAIRTRADE certified and sourced from FAIRTRADE producers. Visit
www.info.fairtrade.net Fairtrade means fairer trading conditions and opportunities for
producers in developing countries to invest in their businesses and communities for a
sustainable future.
The above information was taken from a pack of Peruvian ground coffee purchased from a
leading UK retailer whose entire sourcing of beverages such as coffee and tea is Fairtrade™
certified. This retailer brand has a very high reputation and level of trust within the UK, so
in a sense, the coffee has two levels of certification; one is the Fairtrade™ logo and the other
is the brand of this particular retailer, known for stringent quality standards and sustainable
supply management policies. This Peruvian coffee is sold at a premium price above that of
other coffees, even though it is a retailer own-brand. Normally, such own-branded products
retail at a discount compared to pricing of recognised manufacturer brands in the same way
that a bottle of Coca-Cola sells at a much higher price than retailer own-brand cola, for
example.
Professional coffee tasting is referred to as coffee ‘cupping’ and this can be done informally
or professionally by ‘Master Tasters’ and is an attempt to:
measure aspects of the coffee’s taste, specifically the body (the texture or mouthfeel,
such as oiliness), sweetness, acidity (a sharp and tangy feeling, like when biting into
an orange), flavour (the characters in the cup), and aftertaste. Since coffee beans
embody tell-tale flavours from the region where they were grown, cuppers may
attempt to identify the coffee’s origin.
A significant market has developed and is growing for gourmet or speciality coffees such as
this; coffees often produced in a specific region by a specific grower or coffee cooperative.
An important and growing element of the coffee market is developing not only an
appreciation of fine quality coffee, but also concern for the way in which it is produced and
supplied to market. The rapid and sustained growth in markets for these ‘differentiated
coffees’ is of benefit to producers and producing countries, since a higher price for the
coffee can be obtained and a greater value retained. The more discerning consumer and
commercial buyers are primarily concerned about quality, consistency and provenance. A
report commissioned by the World Bank recognised the importance of consumers
understanding the ways in which the origin and particular nature of individual coffees can be
communicated and verified:
As markets for differentiated coffees grow, there is an increasing need for consumers
to understand the sometimes complex verification or certification processes that apply
to the standards-oriented coffees, such as organic, fair trade, eco-friendly, Utz Kapeh,4
and those using Geographic Indicators of Origin (GIO). The legitimacy of third-party
certification is a vital market mechanism that can prevent indiscriminate use of these
terms.
The consumer purchasing the above Peruvian coffee is generally seeking assurance not only
of the quality and the unique taste of the coffee, but also that it has been produced in an
environmentally sustainable manner and that the farmers who grow it have been paid a fair
price – often at a premium above the rate set by the commodity markets. The Fairtrade™
certification has become a very important element in providing that assurance. The growth
of Fairtrade™ and the fair trade movement is a direct manifestation of the desire of
consumers not just for a high quality beverage, but also for the assurance that the people
who are providing the product are being treated fairly and that the sources of supply are
sustainable.
A number of factors will influence the final price paid by the consumers:
Volatility in the producers’ share of the retail value will still be more influenced by
changes in the price level of green coffee than by changes in any other cost component
because the value-adding costs are independent of the price of green coffee. Green
coffee prices are the single most volatile expense incurred in putting roasted coffee on
the market shelf and, consequently one of the major determinants of changes in the
producing countries’ share of the retail value.
Fairtrade™ and Cafédirect
Fairtrade™ was founded in 1991 by a group of non-governmental alternative trading
organisations (ATOs) including Oxfam (whose mission is to ‘make poverty history’),
Traidcraft Exchange, Equal Exchange and Twin Trading. Cafédirect was also launched in
1991 and its first Fairtrade™ certified coffee was initially distributed via Oxfam, Traidcraft
and other ethical stores and charity shops (ibid). Equal Exchange’s original mission was:
to build long-term trade partnerships that are economically just and environmentally
sound, to foster mutually beneficial relations between farmers and consumers and to
demonstrate, through our success, the contribution of worker cooperatives and Fair
Trade to a more equitable, democratic, and sustainable world.
Original ownership of Cafédirect was:
• Equal Exchange 25%
• Twin Trading 25%
• Oxfam 25%
• Traidcraft 25%
The actual beginnings of Cafédirect and Fairtrade™ were a little earlier and followed the
coffee crisis in 1989, when an international agreement to set coffee quotas and prices
collapsed. Middlemen, coffee buyers, intermediaries and speculators moved in and were
able to secure coffee supplies at prices often well below the cost of production. This had a
dramatic impact upon the lives of the coffee producers who were mainly small farmers.
Cafédirect was created when a group of small coffee-growing communities in Peru, Mexico
and Costa Rica sent some container loads of coffee to the UK on loan – the coffee was
roasted and sold through charity shops, church halls and at local events such as village fetes.
This proved very successful, and by 1993 Cafédirect had gained national distribution in the5
UK with Safeway and the Co-operative. By the year 2000, Cafédirect had launched freezedried instant coffee, Tea Direct, other new products
(including gourmet and organic coffees)
and had entered into a partnership with Costa Coffee shops to distribute its espresso and tea
brands.
Ian Davies et al. identified three distinct stages in the evolution of Cafédirect’s business
development: solidarity launch stage (‘Fair Trade Solidarity’, 1993–1999); market
development growth phase (1999–2003); and mass market stage (‘Mass-Markets: Marketing
Uniqueness’, 2004 to present). In the initial stages of its growth, Cafédirect’s supply chain,
marketing and sales were managed mainly by ATOs and, in particular, by the founders. It
was important in the early stages of development to communicate the sustainable business
model and, above all, to ‘demonstrate solidarity’ with smaller-scale farmers and producers
in underdeveloped and developing economies throughout the world. According to Davies et
al., this was the real beginning of the marketing of sustainable products. This period lasted
from 1991 to 1999 with the main focus from Cafédirect on assisting farmers and
communities and communicating to a wider audience about how purchasing Cafédirect
could help them, with numerous testimonies to this effect from the grower communities and
cooperatives themselves.
However, one of the problems in driving the growth of Cafédirect and other fair trade
products was the poor quality charity image associated with them. The other was the extent
to which the ‘core ethics’ behind the way in which a consumer product is produced and
sourced can actually drive sales. This limit was considered to be around a 3% share of the
market for coffee and cocoa in Europe (ibid). Clearly a more market-focused approach that
incorporated and emphasised core ethical values, but also concentrated very strongly on
quality and speciality, was required in order to grow further.
This led to the second phase of development, where Cafédirect focused strongly on high
quality premium coffees and teas. The brand name of its instant coffee was changed to
‘5065’, the average height at which its coffee is grown, which reinforced the quality image
of high mountain Arabica. Marketing during this period also tended to place more focus on
the ‘coffee producing environments’ and regions and to limit the narratives from individual
farmers and cooperatives, with one famous poster featuring the mountain of Machu Pichu
(Peru) rising up at the aroma of fresh brewed coffee. The emphasis in marketing the coffee
became increasingly focused on the quality of the consumer experience.
From around 2002, Cafédirect has been competing very much in the mainstream against the
major coffee brands with a wide variety of qualities and brands at a range of price points,
and relying less and less on its original trading partners for distribution. In 2004 Cafédirect
floated on the London stock exchange, raising £5m in share equity. From this point, the
private ownership of Cafédirect increased to 60% of the company with the founding
members’ shares limited to 10% each. More traditional business partnerships were
developed with Bridge Thorne (retail sales and distribution), Coffee Fresh (vending
machines) and Suma (major warehouses and distribution centres). However, since 2005,
Cafédirect has underperformed relative to the growth of Fairtrade™, and this continued with
a sales decrease in 2013 of 7% and a significant loss of £596,000.
Mainstreaming Fair Trade
The fair trade movement and Fairtrade™ labelled products have grown substantially and
consistently since their inception in the early 1990s. However, from around 2002/3,6
Fairtrade™ labelled coffee started to become increasingly popular in the mass market.
Retailers such as the Co-operative Group and Marks and Spencer plc converted all their
purchasing of tea and coffee own-brands to Fairtrade™. Other major supermarkets followed
suit with their own-label products, not merely focusing on ethical sourcing with the
Fairtrade™ label, but also on quality as evidenced by the region, or even the named coffee
producer cooperative (e.g. ASDA’s Santa Rosa Guatemalan Arabica) and the nature of the
roasts and blends.
During this period, major roasters such as Nestlé (Nescafé), Kraft (Kenco), Sara Lee
(Douwe Egberts), Tchibo and Lavazza – which together accounted for a 45% share of the
global coffee market in 2008 – came under increasing advocacy pressure to be seen to be
sourcing coffee ethically and sustainably. In response to this pressure, Nestlé launched
Partners’ Blend instant coffee in 2005 with Fairtrade™ certification and carrying the
Fairtrade™ label. However, this line is the only Nestlé coffee to carry the Fairtrade™ label
and accounts for only 0.02% of its annual coffee trade, being sourced from cooperatives in
Ethiopia and El Salvador. According to Verdier-Stott, ‘the launch of the coffee was greeted
with outrage by many, who felt the move represented an undermining of the Fairtrade label
and a “cynical marketing exercise” on behalf of the multinational’.
Nestlé’s stated contention with regard to wider Fairtrade™ certified sourcing of coffee is
that the premiums paid by Fairtrade™ would encourage farmers to produce more coffee and
that there would be global oversupply, resulting eventually in a dramatic adjustment of
prices.
In 2004, after consultation with Oxfam, Kraft announced a sustainable development of its
Kenco and Maxwell House brands. These would be made with beans certified by the
Rainforest Alliance, a non-profit organisation, and would meet its sustainable development
standards. This did, however, prompt the following statement from the Fairtrade Foundation
of the UK:
Kraft’s commitment to develop more sustainable sourcing of coffee (Marketing, 6 July
2004) is welcome, but consumers should be in no doubt this is not fair trade.
Certification by the Rainforest Alliance does ensure that coffee production has met
certain social and environmental standards, but unlike Fairtrade certified coffee, it
does not provide any guarantee that farmers have received a fair and sustainable
price for their crop. Price volatility on the coffee market is legendary the current
world market price of 75 US cents per pound for arabica is a significant improvement
on the all-time lows of around 45–50 US cents in 2001–2. Throughout this period, the
Fairtrade price has held steady at $1.26 a pound, providing much needed stability for
farmers to sustain their livelihoods and plan for the future. Buying coffee with the
FAIRTRADE Mark remains the only way of guaranteeing that 100% of the coffee in
your cup is fair trade.
However, in 2011 Mondelez International (the parent company of Kraft Foods) announced a
new sustainability initiative, ‘Coffee Made Happy’, with a target to provide 100% of all of
its coffee in Western Europe from sustainable resources by the end of 2015. By the end of
2014 they had achieved 89%. The ‘Coffee Made Happy’ logo now appears on tins and jars
of Kenco. An impressive list of advisory partners includes the WWF (World Wildlife Fund)
and the 4C Association. Although the latter defines standards of conduct for its members
which are applicable to intermediary (importers, exporters, traders and agents) and final
buyers (roasters, manufacturers and retailers), this does not include the setting of a purchase
price for coffee or a coffee premium such as Fairtrade™ rules provide. Commitments are
required to transparency in market information and equity and economic viability at all7
stages of the supply chain. Members are required to employ third party auditors to report on
compliance and to ensure a real commitment to improving the quality of coffee, and the
final buyers have to commit to purchasing increasing quantities of 4C certified coffee over
time. The final buyers are also required to:
develop long-term relationships with sellers and will strive to improve the efficiency of
the supply chain. In this respect they will assist sellers by providing feedback on
marketing and other key market requirements such as just-in-time delivery, OTA
requirements, food and traceability legislation in consuming markets.
By comparison the key objectives of the Fairtrade™ standards are to:
• ensure that producers receive prices that cover their average costs of sustainable
production;
• provide an additional Fairtrade Premium which can be invested in projects that
enhance social, economic and environmental development;
• enable pre-financing for producers who require it;
• facilitate long-term trading partnerships and enable greater producer control over
the trading process;
• set clear core and development criteria to ensure that the conditions of production
and trade of all Fairtrade certified products are socially, economically fair and
environmentally responsible.
Key differences include the payment of a premium and the provision of pre-financing for
producers. The smallest-scale producers have a further set of standards reflecting their
particular vulnerabilities. From the above it is easy to see why the average coffee consumer
may be rather confused.
It is therefore hardly surprising that Cafédirect has found itself under pressure,
notwithstanding the fact of its high ‘triple Gold Standard’. This Gold Standard is a promise
to create long-term partnerships with smaller-scale producers, who may find it difficult to
market their product commercially, in order to improve the quality of the product at origin
and therefore increase value. The long-term partnership is also aimed at reducing or helping
them to manage the risks of dealing in a globalised commodity market. Cafédirect also gives
representatives of grower communities a direct voice in their own operations, and pays a
price for the coffee which they believe properly reflects the true costs to the farmers of
sustainable development and which is above the Fairtrade™ premium. The company also
invests one third of its profits into programmes that are led and managed by the growers
themselves in order to create a positive cycle of sustainable development. Above all,
Cafédirect is committed through its Gold Standard policy and KPIs (used to measure
adherence) to total transparency in all its dealings with its partners, and ensures at least two
seats on the board of directors are taken by members of the grower communities. It is
interesting to note that Cafédirect is measuring the levels of transparency, i.e. openness in
business dealings and willingness to share information, with grower communities whom it
surveys directly. Cafédirect also measures the number of defaults on coffee contracts with
growers and in 2013 recorded zero defaults on contracts in what is a very volatile market.
There may be many reasons for this exceptional level of reliability, and Cafédirect attributed
it directly to the strength of the relationship with its supply partners .
Raynolds, in her research into the mainstreaming of fair trade coffee, came to the conclusion
that ‘some coffee buyers are using fair trade labels largely as a vehicle to capture markets
and certification as a mechanism to enhance traceability’. However, this – and the
proliferation of other certification labelling – really also serves to create some consumer8
confusion regarding the nature of ethical sourcing and what is or is not ‘fair trade’. There is
no doubt that a new segment of ‘quality driven fair trade buyers’ has emerged for coffee and
these buyers see Fairtrade™ standards and requirements as one further method of ensuring
supplies of high quality ‘gourmet’ coffee. These quality-driven buyers create ‘new types of
partnerships via collaborative engagements in improving bean quality, capturing gourmet
flavours, protecting coffee origins and bolstering markets’ (ibid). This could work to the
benefit of the producers if it helps them to define the quality and originality of their
particular coffee and, in so doing, adjust the power balance between buyer and supplier.
However, there is evidence to suggest also that Fairtrade™ labelling may be used by some
buyers mainly as a means of improving traceability and that this may actually increase buyer
control over their suppliers.
Coffee Supply
The market and supply chain, or supply network, for coffee is rather complex and, as can be
seen from table 1, coffee is the second most heavily traded commodity in the world, after
petroleum products, with a retail value in excess of $70 bn. More than 100 million people in
50 or more coffee-producing countries depend on it for their livelihoods.
Other notable facts regarding coffee include:
Coffee is the most valuable and widely traded tropical agricultural product
7.9m tonnes of coffee was produced in 2011, of which 6.2m tonnes was exported
Coffee-producing countries earned $23.5bn from coffee exports in 2011
25 million smallholders produce 80% of the world’s coffee
Coffee provides a livelihood for a further 100 million people in coffee-producing countries
An estimated 1.6 billion cups of coffee are drunk worldwide every day
Global consumption has almost doubled in the last 40 years and is forecast to reach 9.09
million tonnes by 2019
Consumption growth in the last decade was led by producing countries (57%) and the
emerging markets of Eastern Europe and Asia
The global coffee market, including fresh and instant, was worth $70.86bn in 2011
The UK in-home coffee market was worth £831m in 2010
Five coffee companies control half the global retail coffee market – Kraft, Nestlé, Proctor &
Gamble, Sara Lee and Tchibo
Three coffee companies control nearly 70% of the UK retail coffee market – Kraft, Nestlé
and Sara Lee (Douwe Egberts)
Coffee growers receive 7%–10% of the retail price of coffee in supermarkets
Global sales of Fairtrade™ coffee reached 88,000 tonnes in 2010
UK sales of Fairtrade™ coffee increased in value from £15.5m in 2000 to £194m in 2011
More than 530,000 coffee farmers from 28 countries benefit from Fairtrade™ coffee
The coffee supply chain consists of the following stages in the cycle from cultivation to cup:
• farm production of unroasted or ‘green’ coffee
• the roasting of the coffee beans and production of roasted coffee
• further processing such as decaffeination and freeze-drying (production of instant
coffee)
• logistics and distribution
• consumption of the coffee
• waste management9
Production of Green Coffee – Farming
Arabica beans are considered to be the highest quality coffee and are grown at higher
altitude than the Robustas, which are in more plentiful supply. Compared with Arabica,
Robusta beans produce a coffee which has a distinctive taste and about 50–60% more
caffeine. Robusta is primarily used in blends and for instant coffees.
Production of green coffee can involve conventional use of pesticides or organic farming
methods and either hand or mechanical harvesting methods. Following the harvesting of the
coffee cherries a number of different methods of processing can be employed, either wet or
dry, or a combination of both. The aim is to get the undamaged or ‘green’ coffee bean from
the coffee cherry and to clean and sort out damaged fruit. The outer layers of the fruit need
to be removed and this can be done by either drying the cherries in the sun or with drying
machinery (at larger farms and cooperatives) for several weeks and then passing them
through a hulling machine where the outer parchment-like layers are removed mechanically
or by fermenting them in liquid. This later wet method requires substantial quantities of
water and is usually reserved for the higher quality Arabica coffees rather than the Robustas.
Production and Processing
Before the coffee beans can be roasted, any traces of dried fruit, mucilage or parchment
must be removed in the hulling process, which is carried out mechanically and, again,
carefully controlled to ensure the beans are not damaged. The beans are then sorted by
density and bean size and any foreign matter removed. The final step in the sorting process
is to sort the beans by colour and although computerised sorting is now being used, the most
common method is still by hand. This is clearly the most labour intensive part of the
process, especially when the step is repeated for the premium gourmet coffees where the
growers expect to receive a premium price for quality and rarity.
A further optional polishing process can be employed which improves the appearance of the
green bean, but is not favoured by some who regard it as having detrimental effects on the
flavour. The green beans are stored prior to shipment or further processing. Some coffees
are purposefully aged for a number of years (up to eight years), as it is believed that this
improves the flavour; but most green coffee is stored for a year or less, since experts agree
that the flavour of green beans will deteriorate after this point.
Further processing will include roasting and may also involve grinding, decaffeination and
production of soluble coffee in the form of instant granules, powder or liquid. A wide
variety of packaging is used such as jars, foil packs, aluminium cans and pods or sachets (a
rapidly growing market for use in coffee machines, both domestic and catering).
Intermediaries
Intermediaries, sometimes referred to as ‘coyotes’, can be involved in every element of the
supply chain for coffee, from coffee cherries to green beans. Intermediaries can be
responsible for primary processing, consolidating purchases from a number of small
farmers, and then selling or transporting to processors or to another intermediary or dealer.
Coffee intermediaries have gained rather a bad name for the exploitation of poor farmers,
who are usually poorly educated, live in remote locations and have little or no access to
market information. In the past many farmers were forced to deal only with such buyers10
because there were limited alternative opportunities to sell their produce. However, in some
cases today, the intermediaries are themselves quite poor and working on very low margins.
Farmers are still prepared to deal with these intermediaries because they are not as
concerned with compliance and will buy everything. Adhering or complying with the
standards set by Fairtrade™ and other certification bodies comes with a lot of hard work and
some farmers do not believe the rewards justify this when they can easily sell to the coyotes.
Some commentators believe that there is a role for the coyote in the coffee supply chain in
certain circumstances.
Processors
This involves the conversion of coffee cherries to green coffee beans ready to roast and is
often carried out by separate processors. If the farm or cooperative has the resources, then it
may have its own processing facilities. Ethical supply initiatives by Cafédirect, Vega, Equal
Exchange and other organisations seek to help farmers to join cooperatives where they can
afford to cut out some of the intermediaries and carry out important processes themselves.
Government Agencies
In some countries, e.g. Ethiopia, the coffee trade is regulated by the government; this may
involve the government purchasing coffee at a set price and selling for export through
auctions.
Exporters
Exporters purchase from cooperatives, processors and auctions using their own expert
knowledge of the market and region to ensure quality. Exporters will then sell on to dealers
or roasters.
Dealers and Brokers
Similar to agents, and often working on a commission basis, they ‘broker’ deals between the
buyers and the sellers of coffee beans (other intermediaries) and help to negotiate or find the
right price.
Roasters
Companies that roast and further process the coffee beans into the coffee products that are
purchased by consumers – ready ground, whole beans, instant, decaffeinated, capsules,
sachets, etc. These include companies such as Nestlé, Kraft, Sara Lee, Starbucks, and
Cafédirect. Here the coffee cuppers (tasters) will help to ensure the right roast and blend of
different coffee beans for the tastes of the target end consumers.
Retailers play a major role in the coffee market and these can range from the large
supermarkets and coffee shop chains, such as Tesco and Costa Coffee, who also buy their
own-label products, to vending machine distributors, mass catering organisations and small
independents.11
The Global Coffee Market
Some changes in supply and demand in the global market were identified in a report
commissioned by the World Bank:
1. Demand in the major importing countries is growing only slowly.
2. New markets are emerging and growing fast, driven by the availability of
cheap coffees in soluble form.
3. New channels for higher quality and differentiated markets are emerging
rapidly in many countries.
4. Roasters have learned to increase their use of natural and Robusta coffees
by processes, such as steaming to remove the harshness of taste.
5. Roasters have learned to work with lower working stocks, but this has
increased the logistical demands made on suppliers which favour the largest
trading companies. This has led to concentration of the supply chain in the
hands of fewer major traders.
6. Roasters have become more flexible and willing to make short-term switches
between coffee types in order to take advantage of lower prices.
7. The concentration of roasters, particularly in a period of oversupply,
demonstrates the fact that consumer coffee markets are ‘far from a model of
textbook economic efficiency’ with rapidly clearing markets and without
high-cost barriers to entry (Lindsey 2003). Instead, price responses can be
slow and lag well behind perceived changes in events. For instance,
reported retail price falls hardly reflect the changes in green coffee prices in
the world markets even though, as a report commissioned by the Dutch
government states, ‘At the supply chain down to the countries of origin,
there is no evidence of cartel behaviour of the roasting industry (RIAS
2002)’.
Clearly, the coffee farmer would be able to achieve the highest price by selling directly to
the roaster or manufacturer such as Nestlé. However, this is simply not possible for many
individual farmers, because they are too small. Nestlé, in its corporate communication,
maintains that it is committed to increasing the amount of direct purchasing from farmers in
countries where it also manufactures for export. In such markets, Nestlé asserts that it
widely advertises the price it will pay as well as a minimum base price in order to ensure
other traders are forced to keep prices competitive. In many markets such as the UK,
however, this is not the case and coffee is purchased from dealers on the international
market.
The Dilemma for Cafédirect
The rapidly changing nature of the global coffee supply and consumption market has clearly
created a problem for Cafédirect as evidenced by its stagnant or declining sales and net loss
of nearly £0.6m in 2013. Its strategy appears to be: to work closer with growers and supply
chain partners; to continue to focus strongly on the Gold Standard and triple bottom line;
and to innovate more aggressively. With regard to the latter, it has recently entered the
market for Nespresso Machine compatible coffee pods with a range of four varieties and has
also launched new single origin roast and ground coffees from Costa Rica and Colombia
(ibid). The company believes that this focus on innovation and new product development in
the growing market for gourmet coffees has improved relationships with key customers as
well as helping to fuel an improvement in sales.12
The majority of customers have difficulty in understanding multiple messages on ethical or
sustainability issues, so in order to survive and continue to provide support to grower
communities, Cafédirect will need to embrace the competition that is now growing within
ethical and sustainable supply networks. The Fairtrade™ approach to supply markets and
supply chain development could be considered a lean model which should, according to
theory, ensure the lowest costs. However, the Fairtrade™ premium may tend to counter this
to some extent.13
GLOSSARY
Term Explanation
Arabica coffee beans Originally from the high altitude, humid forests of Ethiopia and
South Sudan, where it still grows wild, Arabica coffee (Coffea
arabica) is considered to produce the finest coffee beans. Most
instant coffee is made from a mixture of Arabica and Robusta
(Coffea canephora), the latter having a less delicate flavour and
aroma and more caffeine. Generally, Arabica is grown in upland
plantations and Robusta in lowland plantations (Kew Royal
Botanic Gardens).
ATO – alternative trade
organisation
Organisations that made a commitment to work directly with
indigenous peoples and to market their products directly to
consumers. By cutting out middlemen, ATOs have been able to
pay farmers substantially more while offering a competitive
product.
Chain of custody These are requirements that prevent or regulate the mixing of
certified and non-certified product at every single participant in
the supply chain, ensuring that the certified product leaving the
company is the same certified product that entered the company.
It’s the rigor of that system that brings transparency to the
market.
Coyote A type of wild dog – a scavenger, and also a name commonly
given by coffee farmers in South America to certain common
types of intermediary in the coffee supply chain (Chavez, 2011).
They are called ‘coyotes’ because ‘they use their market position
to eat away much of the farmers’ earnings’ (McKone-Sweet,
2004).
Coffee cupping Professional coffee tasting – can be done informally or
professionally by ‘Master Tasters’ and is an attempt to ‘measure
aspects of the coffee’s taste, specifically the body (the texture or
mouthfeel, such as oiliness), sweetness, acidity (a sharp and
tangy feeling, like when biting into an orange), flavour (the
characters in the cup), and aftertaste. Since coffee beans embody
tell-tale flavours from the region where they were grown,
cuppers may attempt to identify the coffee’s origin’.
EMAF – Eco
Management For Food
Research project PRIN 2008, ‘Improving sustainability and
competitiveness of the Italian agri-food chain with innovative
environmental management tools’, is co-funded by the Italian
Ministry of Education, University and Research and is
specifically designed for improving the sustainability and
competitiveness of the agro-industrial food chains.
FLO – Fairtrade™
Labelling
Organizations
International
Develops and reviews Fairtrade™ standards and assists
producers in gaining and maintaining certification and in
capitalising on market opportunities in the fair trade market. To
ensure the transparency of the system, the standards are
developed and reviewed by the FLO Standards and Policy
Committee, in which FLO members, producer organisations,
traders and external experts participate (Investopedia).
FLOCERT –
www.flocert.net
A global certification and verification body first established in
2003 to independently certify Fairtrade™ products.14
4C Association The 4C Association is a platform that brings together
stakeholders in the coffee sector to address sustainability issues
in a pre-competitive manner. The 4C Association defines and
maintains the 4C Code of Conduct, a baseline standard for
sustainability in the coffee sector. The Code comprises 28 social,
environmental and economic principles for the sustainable
production, processing and trading of green coffee.
GIO – geographic
indication of origin
A geographical indication (GI) is a sign used on products that
have a specific geographical origin and possess qualities or a
reputation that are due to that origin. In order to function as a GI,
a sign must identify a product as originating in a given place. In
addition, the qualities, characteristics or reputation of the product
should be essentially due to the place of origin. Since the
qualities depend on the geographical place of production, there is
a clear link between the product and its original place of
production.
Green coffee Green coffee beans are coffee beans that have not yet been
roasted.
ICO – International
Coffee Organization
The International Coffee Organization (ICO) is the main
intergovernmental organisation for coffee, bringing together
exporting and importing governments to tackle the challenges
facing the world coffee sector through international cooperation.
Its member governments represent 95% of world coffee
production and 83% of world consumption. See more at:
www.ico.org/mission07_e.asp?section=About_Us#sthash.TtJkeL
VU.dpuf.
IDH – Indice de
Développement
Humaine (French:
Human Development
Index)
See www.idhsustainabletrade.com/about-idh: ‘IDH accelerates
and up-scales sustainable trade by building impact oriented
coalitions of front running companies, civil society
organizations, governments and other stakeholders that will
deliver impact on the Millennium Development Goals 1 (poverty
reduction), 7 (safeguarding the environment) and 8 (fair and
transparent trade).’
Mucilage A sticky gluey substance that surrounds the coffee bean and is
removed in processing mechanically, either by heat or use of
water. Combined methods are also used.
OTA Organic Trade Association
Parchment coffee Dried but unhulled coffee beans – still having a dry parchmentlike layer of fibres attached, which must be removed without
damage to the beans prior to roasting.
Robusta coffee beans Compared with Arabica, Robusta beans produce a coffee which
has a distinctive taste and about 50–60% more caffeine. Robusta
is primarily used in blends and for instant coffees (National
Coffee Association USA).
Soluble coffee More commonly known as ‘instant coffee’, soluble coffee is a
beverage derived from brewed coffee beans in the form of
crystals, powder, granules or concentrated liquid.15
Utz Kapeh This is the largest certification programme in the world for the
sustainable farming of coffee. Founded as a producer-industry
initiative, UTZ Certified is an independent organisation. By
setting a ‘decency standard’ for coffee production, and helping
growers to achieve it, UTZ recognises and supports responsible
producers. See more at: www.thecoffeeguide.org/coffeeguide/niche-markets-environment-and-social-aspects/utzcertified/#sthash.Dxni6ekO.dpuf.16
REFERENCES
1. Lewin, B, Giovannucci, D & Varangis, P, (March 2004) Coffee Markets: New
Paradigms in Global Supply and Demand, World Bank Agriculture and Rural
Development (discussion paper no. 3)
2. Vega, FE, ‘The rise of coffee’, American Scientist, 2008, downloaded on 03.09.15
from: www.americanscientist.org/issues/feature/2008/2/the-rise-of-coffee/1
3. Raynolds, RT, ‘Mainstreaming fair trade coffee: From partnership to traceability’,
World Development 2009, vol. 37, no. 6, pp. 1083–1093
4. Venkatesh T & Vasudha, A (2009) Cafédirect (b): ‘Fair’ Success, IBS Research
Centre (available from the case centre)
5. Davies, IA, Doherty, B & Knox, S, ‘The rise and stall of a fair trade pioneer: The
Cafédirect story’, Journal of Business Ethics, March 2010, vol. 92, no. 1, pp. 127–
147
6. Cafédirect plc, Annual Review and Accounts 2013
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vol. 1 www.go.warwick.ac.uk/elj/lgd/2009_1/verdier-stott
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2004, downloaded on 01.10.15 from:
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BusinessGreen.com, 17 November 2014, downloaded on 02.10.15 from:
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12. Fairtrade Standards, www.Fairtrade.net
13. Natural Resources Institute, ‘A review of the impact of Fairtrade over the last ten
years’, March 2010.17
BIBLIOGRAPHY OF ADDITIONAL MATERIAL
Anon., ‘Guidelines for the Fairtrade-labelling of composite food products’, Fairtrade
Labelling Organizations International, downloaded on 05.09.15 from:
www.fairtrade.org.uk/~/media/fairtradeuk/what%20is%20fairtrade/documents/2_comp.ashx
Beverage Industry, ‘State of the industry 2015: Shrinking up, cooling down’, July 2015,
downloaded on 03.09.15 from: www.bevindustry.com
Blinch, R, ‘Oddly sustainable: Can vanity coffee give farmers a boost?’ Guardian
Sustainable Business, 29 August 2014
Business Case Studies LLB, ‘Nestlé coffee – the supply chain’, downloaded on 03.09.15
from: www.businesscasestudies.co.uk
Caulkin, J, ‘There is no sustainability without traceability’, CoffeeTalk, December 2011,
downloaded on 03.09.15 from: http://magazine.coffeetalk.com/december11-traceability/
Chavez, LC, ‘Co-operative or coyote? Choice of sales channel for small scale coffee
producers in Central America’, 2011, Norwegian Latin American research network
NORLARNET, downloaded on 05.09.15 from: www.norlarnet.uio.no/research-innorway/featured-research/2011/fairtrade-coffee.html
Confino, J, ‘Café Direct seeks to push the frontiers of the Fairtrade movement’, Guardian
Professional, 9 March 2013, downloaded on 23.03.2015 from:
www.theguardian.com/sustainable-business/cafe-direct-fairtrade-movement-coffeecompetition
Cook, JA, ‘From bean to cup: How Starbucks transformed its supply chain’, CSCMP’s
Supply Chain Quarterly, 10 September 2015, downloaded on 02.09.2015 from:
www.supplychainquarterly.com/print/scq201004starbucks/
Durevall, D, (2015) Are Fairtrade Prices Fair? An Analysis of the Distribution of Returns in
the Swedish Coffee Market, HUI Research and Department of Economics, University of
Gothenburg
Emanagement for Food, ‘The coffee supply chain’, downloaded on 02.09.15 from:
http://ww2.unime.it/emaf/index.php?option=com_content&view=article&id=57&Itemid=45
&lang=en
Equal Exchange Inc., http://equalexchange.coop
Equal Exchange Trading Ltd., www.equalexchange.co.uk
Fairtrade Foundation (2012) Fairtrade and Coffee: Commodity Briefing, London
Fairtrade Labelling Organizations International (FLO), Guidelines for the Labelling of
Composite Food Products, July 2003
Fairtrade USA, ‘Special price and premium terms’, downloaded on 06.09.15 from:
www.fairtradeusa.org/sites/all/files/wysiwyg/filemanager/FTUSA_SpecialPriceTerms_EN_
102413.pdf18
Fairtrade USA, www.fairtradeusa.org
Field, A, ‘A supply chain overhaul to boost coffee farmers’ income 400%’, Forbes, 16 July
2014, downloaded on 02.09.15 from: www.forbes.com/sites/annefield/2014/07/16/a-supplychain-overhaul-to-boost-coffee-farmers-income-400/
ICO – International Coffee Organisation, ‘Trade stats’, downloaded on 03.09.15 from:
www.ico.org/coffee-trade-statistics-infographics.asp?section=Statistics
Investopedia, www.investopedia.com
Investorguide.com
Kew Royal Botanic Gardens, www.kew.org/science-conservation/plants-fungi/coffeaarabica-arabica-coffee
McKone-Sweet, KE, ‘Lessons from a coffee supply chain’, Supply Chain Management
Review, October 2004
Murekezi A, Jin, S & Loveridge, S (2012) ‘Do organisational forms of the coffee supply
chain matter in poverty reduction?’ Development in Practice, vol. 22, no. 7, pp. 962-977:
DOI: 10.1080/09614524.2012.697127
National Coffee Association USA, www.ncausa.org/i4a/pages/index.cfm?pageid=67
Siegel, P & Ahlwang JR (2004), Export Commodity Production and Broad-based Rural
Development: Coffee and Cocoa in the Dominican Republic, World Bank Publications
Valkila, J & Nygren, A, ‘Impacts of Fair Trade certification on coffee farmers, cooperatives,
and laborers in Nicaragua’, Springer Science+Business Media B.V., 5 January 2009
Vasudha, M (2014) Cafédirect: Return of the Fairtrade Pioneer, Amity Research Centre
Headquarters, Bangalore
