Industry self-regulation

[ By Oliver von Hagen and Stephan Manning ]

For many years, severe crises plagued the coffee industry. Deregulation and increased competition had led to over-production, plummeting prices and low quality. Working conditions became tougher, and many plantations were discontinued. The problems spawned initiatives to alleviate problems. One such initiative is the “Common Code for the Coffee Community” (“4C” for short). This voluntary code is based on a multi-stakeholder alliance between leading coffee producers, traders and civil-society organisations. The collective aim is to introduce a worldwide standard on the basis of socially, environmentally and economically sustainable ways of producing and processing coffee. German Technical Cooperation (GTZ), a government agency, was the decisive trailblazer. The initiative started in 2003 and was formally established as an independent body, the “4C Association”, in December last year.

The 4C Association aims to regulate a global industry with a set of rules for production and trade. This approach differs from the fair trade system, which usually tackles only one or two ethical dimensions. Fair trade guarantees producers fixed minimum prices, which tend to be above the world-market level, and the surcharges are paid by consumers. Fair-trade products are accordingly more expensive than conventional goods. Ultimately, they only serve a niche market of ecologically and socially committed consumers.

In contrast, 4C is targeting the mass market. The alliance hopes to cover 80 % of the world’s coffee industry, in order to make sustainability a baseline standard for the mainstream market. In the long term, all coffee is to be cultivated, processed and traded with due respect to social and environmental needs, as well as to economic viability. The private sector has an interest in this approach, because coffee yields suffer over the long run if some plantations are not maintained for several years. Whenever growers interrupt – or worse discontinue – production because of excessive price fluctuations, markets become even more volatile and unpredictable in the long term. In other words, any crisis tends to become self-propelling.

4C’s concept is geared towards business reality. Purchasers who participate in the network do not pay any surcharges. Rather, the idea is to stabilise coffee prices at a higher level by safeguarding and constantly improving the quality of the product. Coffee growers will be taught effective and sustainable agricultural practices, which boost efficiency. In return, they are expected to comply with international environmental and labour standards. In order to stay independent of Western consumers’ charitable notions, 4C will not introduce any new label for marketing purposes.

So far, three factors have been essential for 4C’s success:
– the networking of pilot projects,
– the sharing of experience throughout the sector and
– the transfer of responsibility to an association with a wide range of members.

Building on pilot projects

In the mid-1990s, various initiatives were set up to promote the cultivation and marketing of organic coffee in several countries, including Peru, Bolivia, Columbia, Mexico and Vietnam. In 1994, Kraft Foods showed an interest in marketing organic coffee beyond the fair-trade niche. It was not until 1998, however, that this multinational corporation and GTZ started a public-private partnership (PPP) to define and introduce quality standards for Peruvian coffee.

Eventually, a range of individual projects grew into an informal network. GTZ pressed ahead, by engaging major coffee roasters and various interest groups at national levels. However, there was a risk of such individual projects only leading to “islands” of good practices, which, sooner or later, would succumb to market pressures again. Finally, producer unions, major brand-owning companies (including Tchibo, Kraft Foods and Nestlé), the GTZ and other partners agreed to define a code of conduct for the entire industry. Initially, all partners put aside some vested interests, contributing their own special expertise to the code.

In 2006, the informal network was formally incorporated as a registered association. It has thus reached the maturity of a permanent institution. Members include industry leaders, traders, producer unions as well as non-governmental organisations (NGOs). An important supporter of the initiative is the European Coffee Federation, the precursor of which was the German Coffee Association.

From its very beginning, the “Common Code for the Coffee Community”-initiative operated at the associations level. This approach has made it easier to transfer responsibility from the GTZ to an organisation rooted in the coffee sector itself. Currently, the trailblazing German government agency is reducing its influence. The intention is to complete handing over the reins to the 4C association next year. However, as the GTZ was for a long time the hub of the initiative, the association may yet depend on it to some extent.

The Association is currently looking for new members, in order to make sustainability principles accepted by the entire coffee sector. A solid base is already in place thanks to the participation of well-known players. Thresholds for entry are low – at least compared with other coffee-sector initiatives, and this should facilitate widespread effectiveness. In the near future, the association, which is coordinated by a secretariat, will cover its own costs through membership fees.

As the number of members increases, however, the level of complexity does, too. It remains to be seen whether the 4C Association manages to implement changes which are economically, environmentally and socially sustainable, and if so, how it will achieve this objective. The greatest challenge will be to mediate between coffee growers, civil-society associations and brand-owners time and again. Solutions must, after all, be supported by all partners.

The 4C Association itself, moreover, is not above controversy. Influential NGOs have opted out of the negotiation process after conflicts of interest. The Food First Information and Action Network (FIAN) did so, complaining about a lack of transparency. According to FIAN, implementation of the code gave civil society and producers too little leverage for asserting their views. Greenpeace also walked away from the 4C process. Therefore, it is quite relevant that VENRO (The Association of German Development Non-Government Organisations) continues to represent civil society at 4C.

Thanks to the effective networking of individual projects, it has become possible to set a collective goal at the level of a global business sector. Networking was the building block on which this new kind of self-regulation of the coffee industry could be attempted. Its sustainability has yet to stand the test of time, of course, but in any case 4C has already shown that an alliance of the private and public sectors with civil society is not only possible in principle, but may indeed be quite promising. Once small, networked PPPs produce results, the interest of official development agencies, civil society and business in general can be aroused, eventually leading to a joint venture at sector level.

In this sense, 4C may become an appropriate model for other industries facing similar problems, for instance, the cotton and tea industries. In the long run, both may yet benefit from the experiences gathered by the “Common Code for the Coffee Community”.