One of the biggest challenges facing a company that manufactures goods out of an agricultural resource is the difficulty in delivering a consistent finished product year after year. For food and beverage makers, this challenge is amplified by the subjective nature of consumers’ sense of taste and smell.
These are challenges which a coffee company like Nespresso knows only too well. Despite the best research and development, state-of-the-art production facilities and sensory experts, there are many factors that are seemingly out of the control of the companies whose mission it is to put the highest quality products in the hands of consumers. Weather conditions, the timing of the harvest and the land on which the crop is grown will all have an impact on the quality, availability and taste and aroma profiles of the crop in question.
For coffee, the challenge is especially acute, as the large number of smallholder farms that produce the world’s coffee supply increases the variability and the complexity inherent in the process. These farmers are vulnerable to volatile market conditions and are exposed to broader social, economic and environmental factors endemic to many coffee growing regions. Poverty, labour shortages, high input costs, climate change and urbanisation make it incredibly difficult for these farmers to plan for and invest in the future.
Securing coffee quality and farmers' livelihoods
For a company like Nespresso that has built its brand reputation around product quality, there are certain expectations amongst consumers. Delivery against these expectations can engender a fierce sense of loyalty, but a failure to meet them can cause long-term damage to brand equity.
In 2003, Nespresso decided that it needed to do more to both protect the supply of the coffees required for its Grand Cru coffee blends and find a more sustainable and equitable outcome for its partner farmers.
There was a growing demand from Nespresso for the 1-2% of the global coffee supply that met the company’s quality standards. Coupled with an increase in competition for high quality coffee crops due to an emerging specialty coffee culture worldwide, there was a clear view that a major factor in driving future success for the company would be the ability to secure enough coffee of a specific quality and aroma profile to meet its growing needs. But there was also an understanding that attempting to achieve this without social and environmental progress would not produce a lasting or complete solution.
As the company spoke with its coffee partners and experts in the area of sustainability, one thing became extremely clear: quality and sustainability go hand in hand. A sustainable approach to coffee production – both socially and environmentally – is the key to preserving the ability to produce consistent quality far into the future. This dual approach is effective because it encourages the development of a structure that provides benefits to all those involved in the coffee value chain.
Building direct relationships with farmers
Considering the complexity of the coffee supply chain, the unique business model of Nespresso, which is based on direct relationships throughout the value chain from farmer to consumer, became an asset for the company as it prepared to engage partners to initiate a new coffee sourcing approach that would genuinely create shared value and ensure quality.
One of the pioneering partners for Nespresso was the leading environmental NGO, the Rainforest Alliance, who worked with the company to develop the Nespresso AAA Sustainable Quality™ Program. The AAA Program is unique today in the world of coffee sourcing as it specifically links quality and sustainability through a program of integrated coffee farm management practices. It is focused on building a future for partner farmers based on long term profitability, enhanced environmental and social outcomes, and genuine sustainability.
Many of the existing sustainability schemes in agricultural sourcing incorporate a number of standard practices that drive benefits to farmers, including farmers’ proximity to eventual buyers and prices that allow for fair labour practices. While the AAA Program incorporates these features, its unique aspect is the added focus on quality improvement. Tensie Whelan, President of the Rainforest Alliance has called the AAA Program "one of the most rigorous and comprehensive programs in the coffee industry…with real investment in the farmers."
While Nespresso is paying a premium of approximately 30% to 40% above the standard market price for coffee and 10% to 15% above the price of coffees of similar quality, the program is about more than paying a premium. It is about building long-lasting relationships with farming communities to produce mutually beneficial outcomes. Currently Nespresso is working with more than 63,000 farmers as part of the AAA Program in 11 coffee producing countries.
This direct, long-term relationship allows Nespresso to select individual crops by quality and aroma profile, instead of buying coffee through the commodity trading system used by the wider coffee industry. Simply put, the company knows what specific coffee it is buying and from whom. It also enables the company to provide farmers with support, training, financing and technical assistance to improve sustainability and productivity while maintaining quality.
Driving positive impact in producing countries
The company and its partners are also investing directly in programs in coffee growing communities. In 2010, Nespresso and its partners, including Expocafé and USAID, co-funded a community coffee processing centre in Jardìn, Colombia. The mill has enabled coffee farmers to double their volume of AAA coffee and secure a higher price premium, leading to real increases in farmer’s net income. It has also had a direct effect on the quality of the coffee received by Nespresso, with a decrease in rejects of green coffee beans coming from this cluster from around 50% to 0%. The mill also brought environmental benefits. It indeed resulted in a 63% reduction of water usage during the coffee process and in the elimination of water pollution thanks to a water treatment system.
Research conducted by the independent monitoring organisation CRECE (Centro de Estudios Regionales Cafeteros y Empresariales), and using the COSA methodology1 indicates that this integrated approach delivers tangible positive results for farming communities. It surveyed more than 1,000 Colombian coffee farmers to measure the impacts of the Nespresso AAA Program over three years. It found that the AAA farms surveyed demonstrated 22.6% better social conditions, 41% better economic conditions and 52% better environmental conditions than non-AAA farms. The study also highlighted the higher prices paid to AAA farmers for their green coffee in the form of premiums and the effect this had on coffee farmers. Net farmer income, economic stability and social conditions all improved for AAA farmers. On top of that, AAA farmers progressively increased the amount of green coffee they sold to Nespresso and net income levels were found to be 46% higher for AAA farmers than non-AAA farmers.The same study also showed that farmers were more satisfied with the AAA Program than other available schemes.
Nespresso had committed in 2009 to source 80% of its coffee from its AAA Sustainable Quality™ Program by 2013. This target was achieved and the company has now committed to reach 100% by 2020. Clearly, an approach that couples long term relationships with clear incentives to focus on quality and sustainability, can play a significant role in guaranteeing the long term livelihood of coffee growing communities and of the companies who depend on this precious natural resource.
1 The Committee on Sustainability Assessment (COSA™) is a consortium of institutions promoting sustainability in agriculture with credible and globally comparable information based on quantifiable evidence. COSA provides accurate measurement of recognized sustainability indicators along social, economic and environmental lines. thecosa.org
