Nestle’s $1bn plan to improve coffee farmers’ livelihoods and agricultural practices isn’t as altruistic as it might first appear.
Certainly, the company’s Nescafe Plan 2030 initiative stands to improve living standards for some coffee-farming families, of which 80% live at or below the poverty line, according to charity TechnoServe.
However, it will also bring benefits for the group itself, and other coffee roasters.
The move will provide Nestle with reputational protection.
Losing the argument over sustainability criteria such as environmental or social impacts can, at a time of more conscientious consumers, be a damaging affair.
Just ask the palm oil industry, which is on deforestation grounds being ostracised by the European Union, which will by 2030 phase out imports for use in making biodiesel.
This on top of the cold shoulder faced by individual palm producers deemed to have breached environmental or social standards, for example Malaysia’s Sime Darby, which has lost the likes of Cargill and Hershey as customers over allegations of using forced labour.
In coffee, Nestle, which supplies the world with one in seven of its cups of coffee, is in the front line for any attack on the industry’s ethics.
Doing more to ensure its coffee producers and their families have a “decent standard of living”, and are improving environmental standards, will offer the group defence.
The plan will bolster Nestle’s supply security too.
It is of concern in any commodity when a supply chain gets too concentrated, making it vulnerable to any kind of shock.
In coffee, the ability of some producers to exploit gentler terrains or larger plantations by introducing mechanisation has, in cutting output costs, accelerated a focus of supplies on a handful of growing countries.
Brazil and Vietnam, the top two producers, will in 2022-23 account for 54% of world coffee output and 47% of global exports, according to the US Department of Agriculture – twice the levels of 30 years ago.
By supporting coffee growers in a broad range of countries, as it has already been doing for a decade, Nestle is at least doing something to help the industry negotiate what looks like a huge challenge from climate change.
According to the Inter-American Development bank, rising global temperatures will by 2050 slash the area suitable for growing coffee by up to 50%.
The question is whether a company which earned $17bn last year can do more.
After all, Nestle’s $1bn – welcome though it is – will be spent over eight years, and will not all represent additional spending on top of historic programmes.
And it will take a lot more than that to fix the industry’s problems.
Less than $100 per farm per month
In fact, doing more for coffee farmers should involve not just hand-outs, but getting the boot in – to the taxes, long trading networks and logistical inefficiencies fouling the supply chain.
Thanks to the likes of middlemen and tax collectors growers receive only a small proportion of the international trading price of beans – let alone of the value that coffee attracts in supermarkets. (On GrainPriceNews calculations, a big pack of Nescafe costs in the UK some 15 times as much as the value of coffee it contains, as measured by robusta futures.)
According to Carlos Brando, chair of the Global Coffee Platform, out of the $200bn or so that consumers pay for coffee a year, only $20bn reaches producing countries, and only $14bn of that is split between the world’s 12.5m growers – equivalent to less than $100 per farm per month.
That really isn’t much to play with for producers faced by climate change with bills for replanting, or resettlement, on top of the tests of day-to-day living.