Coffee sourcing: Linking quality and sustainability
Posted: 1 May 2014 | Karsten Ranitzsch, Head of Coffee, Nestlé Nespresso SA | No comments yet
One of the biggest challenges facing a company that manufactures goods from an agricultural resource is delivering a consistent, finished product year after year. For food and beverage manufacturers, this challenge is amplified by the subjective nature of a consumer’s sense of taste and smell. Nespresso knows these challenges only too well. Despite leading research and development resources, 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.
Karsten Ranitzsch, Head of Coffee, Nestlé Nespresso SA
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 small holder 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.
For a company like Nespresso, which built its brand reputation around product quality, there are certain expectations among 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 coffee required for its Grand Cru coffee blends and to find a more sustainable and equitable outcome for its partner farmers.
There was a growing demand from Nespresso for the one to two per cent 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.
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 Nespresso’s pioneering partners was leading environmental NGO Rainforest Alliance, which worked with the company to develop the Nespresso AAA Sustainable Quality™ Program. The AAA Program is unique in today’s world of coffee sourcing as it specifically links quality and sustainability through a programme 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. “The AAA Program is one of the most rigorous and comprehensive programs in the coffee industry… with real investment in the farmers,” said Tensie Whelan, President of the Rainforest Alliance.
While Nespresso is paying a premium of approximately 30 to 40 per cent above the standard market price for coffee and 10 to 15 per cent above the price of coffee 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. Nespresso currently works with more than 45,000 farmers as part of the AAA Program in seven 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 coffee it is buying specifically, 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.
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 new community coffee processing centre in Jardín, 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 the farmers’ net income. It has also had a direct effect on the quality of the coffee received by Nespresso, with green coffee bean rejects coming from this cluster decreasing from 50 to around six per cent.
Research by the International Finance Corporation (IFC), a member of the World Bank Group and a Nespresso partner in projects in Central America, indicates that this integrated approach is working. It observed that farms with sustainable practices had higher productivity, and importantly, that these improvements in farm productivity and sustainability were accompanied by higher farm incomes. On average, net income for AAA farms was 27 per cent higher than those farms that were not part of the Nespresso AAA Program.
Nespresso has committed to source 80 per cent of its coffee from its AAA Sustainable Quality™ Program by 2013, and at the end of 2011, over 60 per cent of Nespresso coffee was sourced from the Program. 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.
About the author
Karsten Ranitzsch is Head of Coffee at Nestlé Nespresso SA, a pioneer in premium portioned coffee. He oversees the entire Nespresso coffee journey, from tree to cup. He is in charge of creating new Grand Cru and Limited Edition coffees and working with his team of specialists to decide which sources a blend requires. Alongside this work he exchanges information with Nespresso agronomists to ensure coffee is grown under the best possible conditions maintaining the highest standards of sustainability. Mr Ranitzsch is deeply involved in the development of the Nespresso AAA Sustainable Quality Program, developed in collaboration with the Rainforest Alliance, and based on Nespresso’s direct relationship with over 60,000 farmers. In his 20 years with the Nestlé Research Group, Mr Ranitzsch has held a variety of strategic and operational management positions, mainly operating out of Germany and Switzerland.