The following essay will discuss the drastic evaluation of the governance structure of the global supply chain of coffee around the ICA. Therefore, in order to provide efficient information regarding the sustainable global supply chain of coffee the following essay will also discuss the liberalisation within the global supply chain of coffee. Furthermore, the sustainability regimes related to the global supply chain of coffee will also be discussed in the following essay. Further, the following essay will provide the effective strategies and frameworks for the coffee growers to develop a sustainable global supply chain for coffee.
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Question 1. - Analysis of the governance structure within the global supply chain of coffee across the ICA
Coffee is one of the most popular beverages worldwide with an estimated 400 million cups consumed every year around the world (Howstuffworks, 2008). Besides that, the International Coffee Organization has also declared that coffee ranks as one of the highly traded agricultural products around the world. Additionally, coffee also provides livelihoods for numerous small-scale farmers, especially in developing nations (Naegele, 2020). Furthermore, the leading countries in coffee production have been including Brazil, Vietnam, Colombia, Indonesia, Ethiopia, Honduras, India, Uganda, Mexico, and Peru during the years 2018-2019 (Utrilla-Catalan et al., 2022).
The overall size of the coffee market has encountered significant growth with global demand flowing by over 60% since the year of 1990s. Furthermore, it has also led the coffee industry to an increase in both the production and export processes of the coffee. Besides that, in terms of coffee accounts for over 70% of all coffee production for the exportation process of the coffee (Ico.org, 2022). Furthermore, the international coffee market has also evolved into a more intricate landscape involving more countries in trade, increased exports by non-producing countries, and a rise in the trade of processed coffee among different countries (Ico.org, 2022). On the other hand, the growing focus on the study of coffee production has also enhanced the techniques to be more eco-friendly.
By a majority of coffee-producing and consuming nations the first “International Coffee Agreement (ICA)” was established in 1962. Additionally, the agreement of the “International Coffee Agreement (ICA) lasted until 1989 to set target prices for coffee and to manage the export quotas to producers (Pichop and Kemegue, 2005). The “International Coffee Agreement (ICA)” was also involved in adjusting projections based on market fluctuations. On that account, the ICA has aimed to stabilize and raise coffee prices and to set a goal for the analysts to believe was achieved despite its challenges in the production of the coffee (PETIT, 2007).
However, in 1989 the dissolution of ICA's has led to significant changes in the coffee market. Furthermore, the control over the international coffee trade transitioned from producing and consuming countries to a market driven by buyers, traders, and roasters has also been affected. Moreover, in line with structural adjustment policies, national coffee boards were dismantled, and coffee marketing systems were liberalized to develop a drastic decrease in average real coffee prices in comparison to the ICA's active years.
The liberalisation within the global supply chain of coffee
In the years of 1990s and 2000s, the “Structural Adjustment Programs (SAPs)” were initiated to develop significant changes in coffee production policies, leading to a liberalized global market of coffee. However, this process has opened up markets and it has also led to increased price volatility of the coffee. Besides that, the local governments initially tried to regulate and control the coffee sector to support local producers (Grabs, 2017). However, over time, large multinational corporations started to dominate the coffee industry during post-liberalization.
On the other hand, with liberalization, coffee growers gained a significant amount of ability to sell their beans through various channels in both domestic and international markets of the coffee (Ponte, 2002). Additionally, it also includes areas such as auctions, local traders, and direct exports. Furthermore, this open market system has provided more selling options with the ability to sell immediately after harvest (OECD, 2001). However, there are various challenges occurred during the implementation of these changes such as Uganda's coffee industryin Africa has faced fluctuating prices, limited market access and significant barriers within the information. Therefore, these issues have become particularly pronounced in the year 1970s. On that account, in 1991 Uganda Coffee Development Authority was established to enhance quality control of the coffee and to develop the sector and manage prices of the coffee to improve market access for the coffee growers (OPTN, 2015).
On the contrary, the coffee value chain encountered a significant amount of alterations following the deregulation of the coffee trade at the end of the 20th century. Besides that researchers have indicated the examination of the global coffee chain to offer insights into the presence or absence of economic development in producing countries. Besides that, coffee exports are crucial within many developing nations as the main source of income source for countless small-scale producers. Therefore, the innovation and research are key to enhancing the benefits of these local producers and it is also crucial for the liberalisation process of the global coffee supply chain (OPTN, 2015). Therefore, the local governments have attempted to manage and regulate the industry to support their local economies of the coffee industry. However, the liberalization of the coffee market has shifted the control towards large multinational corporations.
Over the past few years, the institutional landscape governing the coffee industry has encountered a radical shift. Besides that, the market dynamics have also replaced political negotiations such as quota setting as the primary driving force for the coffee industry. Furthermore, with the exception of some inadequate efforts to maintain influence under the now obsolete Association of Coffee Producing Countries, the producing nations have largely receded as active participants in market interactions of the coffee market. On the other hand, the regulatory influence of the “International Coffee Organization” has also diminished significantly. Furthermore, the role of domestic regulation in coffee markets has been progressively weakened also. Therefore, these changes have suggested a transition from a formal and stable system for producers to hold a significant "voice" to a more informal, unstable, and buyer-centric framework for the coffee industry.
Sustainability regimes of the global supply chain of coffee
In the year 1987, the World Commission on Environment and Development report "Our Common Future" introduced the concept of sustainable development by defining it as meeting present needs without compromising the ability of future generations to meet their needs (Krishnan, 2017). On the contrary, this sustainable growth demanded a dynamic interplay between technology and social organization to emphasize a continual evolution over a static state. However, the State of Supply Chain Sustainability 2020 report indicates a notable disparity in the sustainable supply chain efforts. It also indicates while companies prioritize social sustainability in theory in terms of practice more investments are channelled towards environmental sustainability.
Additionally, the rapid increase in coffee consumption in emerging and producing markets has also outpaced traditional markets and opened up new opportunities for the coffee industry. Besides that, emerging coffee-producing countries account for 46% of global coffee demand has also significantly risen from 29% in the early 1990s (Gmatclub, 2019). Therefore, with the global population growth and the narrowing gap in per-capita consumption rates between traditional and emerging markets the substantial potential for further expansion in the global coffee market.
On the other hand, with a sequence of five global consultation events, drawing insights from over 80 experts in the coffee and development sectors and involving more than 2,000 stakeholders (McKinsey, 2017). Additionally, the dependence on coffee as a primary economic driver places countries at considerable risk from the fluctuations of commodity markets. On the contrary, these price changes within the coffee industry can impact the national balance of payments and public finances. It also can influence the fiscal stability of governments and their capacity for public expenditure. Therefore, this volatility represents the need for economic diversification to mitigate risks associated with reliance on commodities of coffee.
Additionally, the coffee industry has also encountered a significant amount of growth in value generation. Besides that, the revenues of coffee roasters and retailers have also experienced a significant rise over the last twenty years. On that account, the international price for green coffee did not increase with real prices in some areas of the country. Therefore, this disparity also reveals that between 1994 and 2017 the sales value of roasted ground coffee including other essentials such as packets, pods, and capsules, nearly doubled from 1.26 billion Euros to over 2.437 billion Euros. However, during this same period, the value of imported coffee has also increased from 397 million to 461 million euros.
On the other hand, Brazil's coffee industry is characterized by its diversity from large-scale mechanized farms in the Cerrado Mineiro region to smaller family-run operations in the Matas de Minas area. Furthermore, in Cerrado Mineiro, technological advancements and investments have significantly boosted productivity among coffee growers working together to enhance marketing strategies and establish direct relationships with roasters (PETIT, 2007). On the other hand, in the mountainous Matas de Minas, the terrain hinders mechanization, and farms depend more on intensive labour and traditional farming methods for the growing process of the coffee.
On the other hand, the vast majority of coffee growers are smallholders in the coffee cultivation is significantly high and profitable due to the country's leading position in yield and cost-efficiency compared to other countries. Therefore, this competitive advantage has attributed the farmers to intensive farming practices for the growing process of the coffee. However, methods such as the overuse of fertilizers, pose a risk of diminishing future production due to soil degradation and other environmental impacts.
Question 2. - Recommendations and strategies for coffee growers to upgrade within the sustainable coffee global supply chain
Adopt Sustainable Agricultural Practices
Transitioning towards sustainable agricultural practices is imperative. It has been embracing methods related to improvement of the yield and quality of coffee. Techniques such as shade-grown coffee has been growing coffee plants under the canopy of trees not only help preserve local biodiversity but also improve the quality of the coffee beans. Organic farming practices that forego chemical pesticides and fertilizers in favor of natural alternatives can lead to healthier soil and ecosystems. Moreover, obtaining sustainability certifications such as Fair Trade, Rainforest Alliance, or Organic is crucial (Munasinghe, Cuckston and Rowbottom, 2021). These certifications are not just labels but are indicative of the producer's commitment to maintaining high environmental and social standards. They can open up access to niche markets and often allow producers to command higher prices. Besides that, the ecological benefits of these practices also align with the increasing consumer demand for ethically produced goods. Therefore, enhancing market access and potentially leading to premium pricing.
Enhance Direct Market Access and Relationships
Establishment of the direct relationships with buyers have been adequately enhancing the profitability and stability of coffee producers. By engaging directly with roasters and retailers, producers can avoid the traditional layers of middlemen. It has also been leading to better prices and more stable, long-term contracts. Moreover, forming or joining cooperatives have been enhancing this effect by gathering resources, and strengthening bargaining power. Cooperatives have also been facilitating access to international markets and offering support in obtaining certifications.
Invest in Quality and Diversification
In order to remain competitive and resilient the producers of the coffee need to focus on improving the quality of their coffee and diversifying their income sources. Quality improvement might involve investing in better farm management techniques, selecting high-quality coffee varieties, or training in post-harvest processing methods. High-quality beans often fetch higher prices and can open up specialty markets. Diversification is equally important; it might involve intercropping with other marketable crops, venturing into different stages of the coffee processing chain, or even tourism if the farm's location permits. Diversification helps mitigate the risks associated with coffee price volatility and can provide a more stable income.
Conclusion
It can be concluded that the coffee growers can navigate the perspectives related to the global coffee market through the adoption of sustainability perspectives. By the implementation of sustainable agricularal practices to meet global demand in terms of promoting the long term health. Furthermore, it can also be stated that through ensuring the perspectives related to the sustainable future. As such, for the sustainable future of coffee, the integration of these strategies by growers, supported by policy makers, industry stakeholders, and consumers is essential.
References
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