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Fair-trade, Fair and Equitable Trade and Relationship Coffee in Indonesia- a Merdeka Coffee view:

1/. Internal (Indonesian specific) Barriers- Indonesia is a country with a huge potential internal consumer base. However at this stage the consumers we target are based in Jakarta, Medan, Surabaya, Yogyakarta, Bali and Bandung. Outside of these cities, the market is very small. The cities mentioned have a combined population of close to perhaps 40 million inhabitants. However our target market is middle to upper-class Indonesians and expatriates- making up perhaps a market as small as 1.5 million potential consumers. Of this number those interested or those whose buying decisions are based solely on our efforts to trade fairly with our partners is probably as little as 10,000 people or less.

Fair trade, relationship coffee and organic partnerships play an important part in the retail coffee market overseas. As much as 38% of the coffee market in the USA is engaged in some form of certified or direct relationship with growers (fair-trade, organic, shade-grown, bird-friendly etc). In the Indonesian market understanding of relationship coffee and/or fair-trade is weak. This is for a number of reasons- lack of education and understanding of the coffee market is perhaps one major reason. However apathy towards the agricultural sectors of the economy is also a very important reason. Most urban Indonesians view the agricultural sector as being both remote and removed from their lives. The closest many modern Indonesians come to being in contact with farmers is buying produce in Supermarkets. Wet markets are these days mainly the domain of the modern Indonesians house staff, where produce is purchased. This separation means that an out of mind-out of sight attitude is taken to farming. This dislocation affects all sectors of the agricultural community but most directly effects sectors where fair trade pricing could be easily implemented- coffee, chocolate, tobacco etc. While there is a general acceptance that organic, chemical free product has a place in the Indonesian market, the bridge to a fair trade product is harder to cross. Organic coffee is perceived as being good for the consumer (drinker). Shade grown coffee is seen as being good for the environment. Fairly trade coffee is actually good for the drinker, environment and community… so really the focus should be on fair trade. Paying the farmers a decent return for their product results in-

- farmers staying on their land instead of migrating to the cities. In the cities their skill sets are not suited to urban living- thus they end up un/underemployed.

- Great coffee. A problem in Indonesia is a lot of the coffee harvested ends up as poorly graded stock. This is because farmers are paid not enough to cover the time they should put into crop maintenance. As a result coffee is picked green or let on the trees until over ripe. It is then dried in a haphazard fashion. This means the taste is poor. With decent returns this cycle can be broken. Great coffee= higher demand= better returns to the farmer.

- Economic and social stability. Farmers staying on the land means skills are put back into agricultural practices. Best practices means using natural means to maintain quality crop in harmony with the village. Natural sprays for pest control (such as tobacco) are used to minimize damage to the cherries. Decent returns means the village can build facilities and diversify economic systems (introduce other crops, livestock etc)

- Also maintaining coffee crops, especially in a water catchment area, can help to reduce flooding damage further down on the flat, alluvial plains. In many areas Coffee can be grown under primary or even secondary forest canopy.

The Indonesian domestic market also has a topsy turvy view of local product vs. imported product. A survey we undertook (1) amongst Indonesian customers showed that nearly 85% of Indonesians preferred “coffee grown in Italy” to “coffee grown in Indonesia”. Italy grows no coffee. They import green coffee from producing countries such as Indonesia, India, Vietnam etc, roast and then re-export the finished product. When questioned what is important to them as buyers of coffee, “fair-trade” rated 9th out of 10th in regards to importance (10th and of least importance was type of package- tin, box or sachet). In fact when asked about buying “espresso blend” coffee, 90% of all respondents said they would only buy Espresso blended in Italy. A further 9% said they would consider buying “Espresso” blended/roasted in Australia, New Zealand, Japan or China. Less than 1% said they would consider buying/using “any Espresso blended/roasted” in Indonesia. When asked to elaborate on the decision, it came back almost entirely to the fact that “the Italians grow the best coffee”!!! To most respondents important was flavor, followed by aroma, packaging, design. In a country where the minimal wage in rural areas may be as low as 300,000idr a month, it is difficult for Indonesians to see that fairly trading coffee is indeed a means to an end. It offers opportunities that benefit everyone through a complex supply chain- including of course the Jakarta based buyer of a cappuccino in Starbucks or Merdeka Coffee.

2/. Eternal Factors:. Fair trade is a principle of great importance for the present and future of coffee in Indonesia. From very positive beginning, in recent years the certification systems have become quite complex, as well as expensive to obtain. Certification itself has become more of a business rather than a service being offered to the developing countries that need it most. Certification through Transfair and similar organizations in the USA and Europe can be very, if not prohibitively expensive for small growers and small cooperatives. Fair trade (as well as ‘organic’ and ‘shade grown’) is actually monitored in the large USA market via the FDA. Unless certification is obtained through a FDA approved agency, the words “fair-trade” etc can not be printed on the packaging. In theory this is great, it keeps scalpers out of the system. However in reality it can prevent a small roaster or US broker from setting up a direct trade system which indeed pays recognized fair-trade prices directly to a grower. In the 15 or so years since fair-trade was established, only 3 Indonesian growers have obtained certification. This is an amazingly low number considering Indonesia is the world’s 4th biggest coffee producer. Conversely Costa Rica, the worlds 14th biggest producer, has 75 certified FTL (Fair-trade Label) producers! The reasons for this are that fair-trade is not ideally suited to small-hold or even small cooperative growing groups. The Indonesian certified growers (such as PKGO in Aceh and Gayo Mountain in Aceh) have over 10,000 growers. The number of growers needed to obtain leverage for certification means that coffee ends up being ‘pooled’ or sourced from large growing areas. Instead of allowing the specific characteristics of coffee grown in a very small growing area to shine through, the big coop system dilutes the real perfection of small-holder grown coffee. This is a flaw with the current approach to fair-trade, one which was designed perhaps to work best with the Finca, or estate growing systems in Central and South America.

While the demands for Arabica coffee grow year on year, the ability of roasters in countries such as the USA to reach growers directly in countries such as Indonesia remain limited. Many growers in Indonesia are located in remote mountain areas. Many do not have telephone access, let alone internet connectivity and/or the ability to communicate in English. As a result most coffee exporters are located in the big port cities- Jakarta, Surabaya, Medan and Semarang. These exporters are not growers but brokers and/or finishers and packagers of raw green bean product. Buyers by default will often go through the contacts that they have in these export cities, not realizing often that thes
e contacts are only exporter/brokers. Ultimately the growers never have a direct interface with the buyers. Currently even if they did, they would struggle to meet the quality demands of many of the overseas roasters. Most Indonesian coffee growers are producing anywhere from 1000-8000kg a year- in a cooperative/village situation. One container of coffee is 18,000kg of coffee. The coffee must be dried to a minimal moisture content, finished (can include being polished) and of course be packed free of stones, sticks, faulty beans by a pre-agreed screen size into 60kg sacks. While growing and preliminary drying can be achieved at village level, the additional finishing can not- as machinery, technology etc is not available to many communities. If the remote villages did have a direct access to the market and if the machinery to finish and ultimately ship from the growing location was available, then a direct for of fair-trade would for sure be more than a possibility. There are cases in Central America where small-holders can make excellent returns from coffee- due to its rarity, quality and appeal to specialty roasters is Europe, America and Japan.

Summary:

Overall the domestic market in Indonesia is driven by branding. Branding itself can be split into two segments- the international and the local brand names. Premium branding is seen as being the foreign coffee labels and cafes (Illy, Maxwell House and Lavazza for coffee and Starbucks, Coffee Bean and Tea Leaf etc for cafes). These big brand operators globally roast extremely high volumes of coffee. The volumes they deal in often makes direct procurement using certified fair-trade systems impractical. This is not to say these brands do not have their own internal fair/equitable trade systems, however the volumes in question means that often they can not have a direct purchasing system from small hold growers in place, and they need to operate purchasing through a number of local partners and brokers. Therefore it is fairly rare to see retailers in Jakarta selling and educating their clients about fair and equitable trade with brokers. Also as the roasting industry in Indonesia is still mainly focused on producing bulk for the lower end/instant market, there are few roasters who are seen as being educators such as those who are found in specialty markets such as the US and NZ. Ultimately the specialty market in Indonesia is still in its infancy, the move to drinkers buying coffee product based on social issues rather than brand awareness is perhaps still at least 4-5 years away, if not longer!

Local Brand operators such as Excelso, Regal, Kopi Luwak, Brew and Co etc are appealing to a different segment of the market. This segment is very price conscious, and perhaps less well educated, less well paid than those who frequent the international brands. The local segment here is large, growing, but very competitive and perhaps less brand loyal than that found in the Premium Branding segment. Here as mentioned in the first paragraph, there is little concern about the welfare of the farmer and the growing community. The consumers want to enjoy a coffee, cake, meal and socialize. The local caf? brands also produce locally sourced coffee, so in theory they would be in the best position to champion fair-trade. However the bulk of the coffee blends sold by local producers are Robusta rich, mirroring the taste requirements of the local client base (mainly based on the finely ground Robusta kopi tobruk found in most Indonesian kitchens!). Robusta is still the main coffee type produced in Indonesia, and it certainly is an area where fair-trade struggles to make any impact. The historically flat prices for Robusta, combined with the lack of interest in the coffee from the more political active specialty coffee sector, means that Robusta remains a low price commodity, rather than a product that has value added by roasters skill. The squeeze on pricing for the local caf? chains, as well as Robusta’s role in the equation, means that any concept of fair-trade would struggle in the local sector of the caf? market in Indonesia.

(1)- Merdeka Coffee- Market Survey. Respondents 500 questioned- Jakarta, Bandung, Yogyakarta, Bali. 2006.

In a time and age when ‘environmentally responsible’ has become the latest buzzword in marketing for many corporations, Green Mountain Coffee Roasters of Vermont is refreshingly different and sincere. For Green Mountain, social and environmental responsibility is not a trendy marketing move. It is a key concept that has been part of the company’s core commitment and values from the time when it was housed in a tiny storefront café. The company considers itself a steward, responsible for helping to preserve the Earth’s natural resources for future generations and their history of socially responsible business and corporate decisions reflect their commitment to making the world a better place for us all.

For 25 years, we have been on a deliberate journey to create and sustain a values-driven company that views profit as a means to achieve a higher purpose.

Thus begins Green Mountain Coffee Roaster’s statement of corporate responsibility. That higher purpose is, simply stated, to leave the world a better place for having been here. Green Mountain has taken that commitment seriously, starting small and growing their responsibility to the planet as the company has grown. In an open letter written in 2006, Green Mountain president Bob Stiller talked about the evolution of that commitment, starting as early as 1983, when the little café in Rutland, Vermont decided that composting was a socially conscious decision – and the right thing to do. In 1984, the employees – less than ten at the time – began informally taking on environmental projects, including a recycling program. In 1986, Green Mountain introduced its first Organic coffee, and in 1989, the company’s Environmental Committee developed Earth-Friendly coffee filters that are dioxin free.

Fair Trade and Sustainable Coffee

Over the years, Green Mountain and their corporate officers have made decisions in keeping with the company’s overall mission. Each step on the path may have seemed small at the time, but each step has built on the ones that came before to make Green Mountain Coffee Roasters one of the most socially responsible companies in the world. In fact, Green Mountain has been named one of the Top 100 Most Socially Conscious Corporations by Business, Inc. for two years running. The company’s production plant has been certified organic since 1997, and they remain committed to offering high quality, completely organically grown coffee as a major part of their offerings.

In addition to their commitment to organically grown coffee, Green Mountain supports sustainable coffee production methods as a member of Fair Trade associations. Currently, Green Mountain offers 45 different Fair Trade certified coffees, accounting for over 20% of their sales. By contrast, Green Mountain’s largest competitor in the specialty coffee business, Starbucks, called itself Fair Trade friendly in 2001, when only 1% of the coffees that the company bought were Fair Trade certified. Five years later, Starbucks had only managed to increase the Fair Trade percentage of their coffee sales to 6%.

Fair Trade is important in the discussion of environmental responsibility because coffee growers who are certified with the Fair Trade label have made a commitment to using environmentally friendly and sustainable growing methods, despite the fact that those methods yield less coffee per acre. In return, they are guaranteed a price for their coffee beans that provides a fair wage for their labor. By committing their resources to buying Fair Trade certified coffees, Green Mountain essentially has put their money where their mouth is to support the most viable method of encouraging global change in the coffee market.

Responsible Energy Use, and More

Green Mountain does not confine its stewardship policies to coffee sourcing and production, though. The company’s earliest efforts at being environmentally responsible were decisions to compost waste and recycle materials, and over the years, the corporation has continued to make responsible energy and conservation decisions. Green Mountain tries to use renewable energy sources when possible, and offsets their use of carbon fossil fuels by buying renewable energy credits from a variety of sources. Their efforts and purchases help support the development of alternative energy sources like the wind power technology being developed by Vermont’s Native Energy company.

In a similar manner, Green Mountain’s recognition that disposable coffee cups lead to increased solid waste led to the company’s development of an eco-friendly disposable paper coffee cup. Unlike most coffee cups, which use petroleum products for water-proofing, the Green Mountain cups are made entirely of natural and renewable materials. Green Mountain estimates that their new cups have kept over half a million pounds of petrochemicals out of landfills so far. The accomplishment has been recognized by the Specialty Coffee Association of America, who awarded the 2007 Sustainability Award to Green Mountain Coffee Roasters.

Buy a pair of jeans, and the chances are they’ll have travelled further across the globe in their short life than you.

The clothing and apparel industry is a complex one. It is now common for a piece of clothing – let’s take that pair of jeans, for example – to be made up of components from five or more countries, often thousands of miles away, before they end up in our high street store where you buy them.

Fair trade fashion aims to create clothing and accessories that take into account their impact on the producers who make the goods at all the different stages of its production. Ethical fashion companies are not engaged in a ‘race to the bottom’ in pursuit of the very cheapest products at the expense of producers’ livelihoods and their environment. Ultimately, this is an international trading system built on equitable relations and fair dealings.

So far, so good. But how do you define the notion of ‘fair’?

Although there is no universally accepted benchmark for what a fair price is, it is generally accepted that producers earning a fair wage are able to live relatively comfortable lives within the context of their local area. This means enough money for housing, a generous amount of food, health care, education for children, and some disposable income.

Commodities such as coffee, tea and fruits offer a very simple economic model. They are traded in commodity markets daily, resulting in a global market price. Importers can simply pay a premium above that market price and they are following the rules set down by the major certification schemes.

Manufactured, of ‘finished’, goods like clothing or jewellery or accessories are much more complicated because components often come from literally dozens of sources. Also, wages, labour laws, and factory conditions are much more difficult to monitor compared to commodity prices. So for example, it becomes very difficult to define what constitutes an ethically-sourced pair of jeans.

That’s why fair trade fashion items are not all certified and stamped yet. It’s not that they are trying to con you. It’s just that the companies are ahead of the certification bodies.

However, as a consumer you can easily identify some key practices and attributes that an fair trade fashion company should pursue if it is genuinely working in an ethical way.

Firstly, the very fact that enterprises are working with value-added goods, like jeans or necklaces, is positive. Although the trade in coffee is fantastic, coffee is just a raw material, the real value of which is gained when you use those beans to make a cappuccino. When you buy a fair trade coffee in London or New York or Paris, the farmer obviously benefits, but the great majority of the price you pay goes to the coffee company, not the farmer in coffee farmer in Ethiopia or Colombia. The value-added element, which is a posh way of explaining how some beans and hot water and milk can be sold for ?2.50 or $4, goes into the pockets of European or US companies.

With fair trade fashion, producers are essentially exporting finished products, for which there is a higher added-value, rather than just raw materials. Continuing with the example of the pair of jeans, the producers are exporting a finished pair with pockets, a zipper and button, not just reams of denim in a roll. So they are benefiting by earning more money and gaining more skills. This is a huge benefit to producers in developing countries.

In addition, in the world of fair trade fashion, companies tend to work with eco-friendly products such as organic cotton, organic wool, recycled fabrics and natural dyes. This has huge environmental benefits.

Ethics in fashion is growing, and with more and more top designers becoming involved in the movement, and sustainability growing in importance, this is an issue that isn’t going to disappear. The certification bodies are likely to catch up with the leading companies to introduce some kind of labelling system. And when the storm clouds of the global economy start to move away, this movement will still be there.

Because the bottom line is that the low-cost-at-any-cost global economy just isn’t sustainable.