Celebrate International Coffee Day with a cup of sustainable coffee!

This article is based on information provided by Jose Augusto Cordón, Oikocredit’s Senior Investment Officer in Central America, based in Guatemala City.

Coffee is said to have originated in ancient forests in the Ethiopian highlands, where its energising properties were first discovered by a local goat herder. Coffee cultivation and drinking spread throughout North Africa and the Middle East in the 15th and 16th centuries and from there to South and Southeast Asia and to Central and South America. In the 17th century, Europeans took to the joys of coffee drinking as coffee shops became popular among the urban middle classes. Regrettably, the worldwide expansion of coffee production was often linked to colonialism and slavery, and poor conditions persist today in some coffee supply chains.

Fortunately, there are many initiatives with the goal of improving working conditions for smallholder coffee farmers. Oikocredit finances coffee cooperatives that are committed to fair pricing for their members, and especially those that pay premiums for high quality and certification.

The coffee value chain

Coffee is made from the seeds of bushes of the Coffea family, which are nowadays grown widely in tropical regions of Africa, Asia, and Latin America and the Caribbean – the ‘coffee bean belt’. The commonest and best-known varieties are Arabica (Coffea arabica) and Robusta (C. canephora). Arabica, usually cultivated at higher and cooler altitudes, is widely considered to be of better quality and more complex in terms of aroma and taste, but it is a more delicate plant and harder to grow than Robusta. Latin American countries such as Brazil, Colombia, Costa Rica and Guatemala are well known for their good quality coffee.

Coffee production starts with cultivation of the coffee bushes and harvesting of the cherry beans, which are the fruits of the plant. Next comes processing to remove the outer husk or pulp, the mucilage (a sticky and sugary layer surrounding the seed), the inner protective cellulose ‘parchment’ layer, and finally the innermost skin known as silver skin or chaff. Four different methods of processing are used. Traditional processing involves leaving the cherries to dry in the sun and ferment naturally, and then milling them to remove the outer layers. Wet processing, the commonest method used today, separates the husk from the bean, soaks and ferments the beans in water, and then washes the beans and dries them. Semi-washing and ‘honey processing’ combine elements of the other two methods.

Some small-scale coffee growers undertake processing using artisanal machinery. But many farmers are organised as cooperatives and deliver their cherries or parchment coffee to the cooperative, which uses more sophisticated machinery to process the beans on a larger scale. After initial processing, coffee beans are roasted to concentrate the natural sugars for flavour.  

Beyond the farm gate, the coffee value chain extends through processors, roasters, traders and exporters, to importers, coffee brands, and sales outlets such as coffee shops, specialist retailers, supermarkets, hospitality venues and solidarity networks. Most coffee beans are sold internationally either directly to roasters or to intermediaries that purchase to resell to roasteries. At national level, a small number of producer cooperatives have their own brands or roast their coffee for local markets.

As in much commodity production, the farmers who grow the coffee are mainly smallholders. This makes them ‘price takers’, unable to influence markets and usually obliged to accept a small share of the final retail sale value of the product. Other actors who add value at later stages in the supply chain, such as roasters, wholesalers and large retailers, take a greater share of profits.

In 2019 the International Coffee Organization (ICO) reported a dramatic decline in coffee prices to their lowest in 15 years, with millions of coffee farmers struggling to make a living and support their families. To highlight the plight of coffee growers and the need for collective action, the ICO has been running a #coffeepledge movement and social media appeal.

Oikocredit’s support

Price, as noted above, is one of several areas where coffee producers in the Global South are disadvantaged. Smaller rural coffee growers face additional challenges. These include lack of access to finance, especially in the pre-harvest period before farmers sell their crop, which can make it hard for them to invest to maintain and improve farm yields. Arabica bushes, for example, need careful maintenance and must be renewed after some years when their fruiting yield decreases. Small-scale farmers are also vulnerable to price fluctuations resulting from seasonal weather events such as storms or droughts, intensified by climate change, and from political or economic shocks in the wider society. Many coffee farms in poor soils are affected by coffee leaf rust, a fungal disease that reduces flowering and fruiting and is hard to eradicate.

For Oikocredit, coffee is a key sector, representing three-quarters of our agriculture portfolio in Central America and much of our work with agriculture partners in other parts of the world. We support our producer partner organisations – mainly coffee cooperatives and farmer associations – with loans, equity and capacity building. Our lending enables partners to make advance payments to their member coffee growers, helping to fund plantation maintenance, renovation and harvesting costs, and to invest in better systems and processing equipment.

As part of Oikocredit’s most recent approach to capacity building, we assist smallholder coffee producer organisations in dealing with price volatility. Our price risk management programme works with coffee cooperatives and associations in Latin America to strengthen their capability to deal with price risk, such as through technical advice, improved information and management systems, financial hedging strategies and peer-to-peer learning. To date, coffee partners in Central America and Peru have participated in the programme, and a further programme stage is planned to start in late 2021 with other Central American partners.

The Covid-19 pandemic has affected the livelihoods of many smallholder coffee farmers. Local restrictions on movement have made it difficult for growers to obtain the extra hands for harvesting that many rely on beyond family members. The need for biosafety measures has imposed new costs on farmer organisations for masks and other sanitation and protective equipment. In some cases transportation and exporting have become more difficult, including a lack of containers available to ship coffee abroad. Oikocredit has used its coronavirus solidarity fund since 2020 to help some coffee partners maintain production and meet expenses resulting from the pandemic.

Sustainable coffee

Sustainability is important in the coffee supply chain. Focusing on sustainable production helps reduce risks for smallholder farmers, because poorly managed coffee production can lead to destructive forest clearance, biodiversity loss, heavy use of chemical inputs, soil exhaustion and wasteful water consumption. Low farmgate prices and unreliable business partnerships can harm the livelihoods of smallholders and destabilise their families and communities. By contrast, sustainable approaches in the coffee sector assure better lives for farmers and careful stewardship of natural ecosystems.

When consumers choose to pay a little more for fair trade and sustainable coffee, this can make a big difference to producers and the environment. Sustainability certification schemes such as Flocert (applying standards set by Fairtrade International) and Rainforest Alliance ensure that farmers and buyers follow agreed rules. Certification labels mean that production methods and farmer well-being have been checked and verified. Payment of premiums to producer organisations gives coffee farming communities a better chance to thrive today and tomorrow. Even so, coffee from smallholder farmers may still be responsibly produced without certification, which can be a challenge for farmers and their organisations to obtain in terms of time and resources.

A passion for coffee

Jose Augusto Cordón is Oikocredit’s Senior Investment Officer in Central America, based in Guatemala City. He brings many years of experience and enthusiasm to his work supporting our partner coffee producer organisations in the region. José Augusto loves the intense flavour of Guatemalan coffee and says:

“Coffee is a fascinating subject and so much more than just a business. There are so many varieties, aromas and tastes. Cultivation and processing methods vary enormously. I never tire of visiting coffee farmers and producer organisations in different countries and regions. With Oikocredit’s help, growers and their communities live better lives, and consumers can be confident that their coffee is not just delicious but also sustainably produced and fairly traded.”