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This newsletter contains technical and other information on the origins and supply chains of Fairtrade coffee. We hope this will be of interest to coffee buyers and coffee specialists in retail and out of home, together with Fairtrade coffee roasters and traders.

For more information concerning this newsletter, please contact Anna Kiemen (a.kiemen@fairtrade-deutschland.de) or Jos Harmsen (harmsen@maxhavelaar.nl).

NEWSLETTERFor the Coffee Professional

ISSUE 4 MARCH 2017

FOCUS ON ORIGIN‘Higher productivity and yield of coffee after joining Fairtrade’

At Fairtrade, we believe in good quality coffee, and we work closely with coffee farmers to enable them to improve the quality and productivity of their coffee. In addition to Fairtrade offering security from the minimum price that coffee farmers will receive, the Fairtrade Premium (the additional money that farmers receive), enables farmers to invest in increasing the quality and productivity of their product. At least 25% of the Fairtrade Premium is allocated to improvement in coffee farming practices to increase the quality of coffee. This is becoming more important as demand increases and supplies of quality beans are increasingly affected by issues such as climate change.

Leonard stressed that Fairtrade is important for the future of his coffee cooperative. He believes in the need of Fairtrade to support the farmers to work towards battling the effects of climate change. Impacts of climate change on coffee farming are becoming increasingly unpredictable and with Fairtrade, KPD are able to support farmers to be less vulnerable. KPD have, for example, improved their water management capabilities by creating new small scale irrigation systems.

‘Before gaining Fairtrade certification, my coffee community faced many challenges, including low quality of coffee production, poor knowledge of farmers on best agricultural practices and low yields. Since gaining Fairtrade certification, productivity and yield of coffee have increased. KPD coffee farmers have, since Fairtrade, improved many aspects of their operations. These include processing activities, such as drying coffee more effectively (on sheeting rather than the ground directly to avoid contamination) and handpicking ripe cherries when ready (rather than stripping cherries which are not yet ripe in the harvesting process). Additionally, the Fairtrade Premium has been spent on a variety of projects including demonstration farms; which enable farmers to learn and be trained in good agricultural practices.’

The above information was shared by Leonard Zimbehya in Tanzania. He is a coffee farmer, as well as Founder and Managing Director of the Fairtrade coffee cooperative Kaderes Peasants Development (KPD). KPD has been Fairtrade certified since 2011 and has approximately 4,000 members. Leonard spoke to us about the importance he and KPD place on the quality and productivity of their coffee since joining Fairtrade.

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‘Through Fairtrade and the Fairtrade Premium, the KPD community has received support to invest in a range of development projects as well. We have built schools and diversified crops, which increased our incomes’, Leonard added. ‘Through the implementation of the Fairtrade standards, the KPD farmers have become aware that it is important to work on the sustainability of their coffee.

STANDARDS & AUDIT NEWSBehind the scene of the Fairtrade Coffee Helpdesk Review on 2016 coffee market situation and impact on Fairtrade coffee sales

In 2015 the price for coffee in the New York futures exchange had fallen from 180 cts to 110-130 cts/lb range. During the first two months of 2016 the price continued in this range and it wasn’t until early March when the price started slowly recovering. Worries about the lack of supply from Brazil and of Robusta in 2017, due to abnormal weather conditions in Brazil, Vietnam and Indonesia, as well as from India and Uganda made the world market prices surge in October – November 2016. Prices in London rose 40% and in New York 30% during the year until reaching 180 cts/lb for Washed Arabica. The aftermath of the elections in the USA and the “Trump effect” introduced another turn-around and the price fell back to the 140-145 cts/lb range in mid-December.

Differentials to New York market price, in US$/lb:

At the beginning of the year the differentials for washed Arabica rose considerably for many origins, compensating the low New York price. Apart from Costa Rica, particularly the differentials in Guatemala and Mexico rose steeply, due to a lack of supply and the very high local prices, and to a lesser extent in Nicaragua. The coffee leaf rust was still affecting a lot of coffee production in Mexico. The high local prices and differentials affect the competitiveness of these origins on the world market and to a larger extent the producer organisations that sell most coffee on Fairtrade conditions.

Buyers do not always recognise the quality differential and only pay the Fairtrade premium and organic differential. This makes Fairtrade less attractive and in particular, conventional

Fairtrade. In the second half of the year the situation started correcting and by Nov ‘16 differentials dropped steeply, reflecting the expectation of a larger crop in 2016/17, which should bring some relief next season.

The low prices in New York at the beginning of the year caused many buyers pushing producers to sell Fairtrade coffee at fixed prices. After prices started rising above the Fairtrade minimum, this caused serious problems for producer organisations, particularly in Peru, where producers had just started the harvest season. Some assistance was provided to producer organisations in managing the risk, but the majority are not prepared to manage the risk through hedging tools.

The situation got worse due to discounts that were granted on Fairtrade premiums and high FOB deductions by traders. These actions are not in line with Fairtrade standards. They undermine the competitiveness of the producer organizations and reduce farmer income meant to be invested in social and economic activities. The topic of unfair practices and solutions to be developed were addressed in two workshops in Peru (Feb ‘16) and Honduras (Nov ‘16), the main suppliers of Fairtrade coffee. A large number of producer organizations and private exporters attended. A rollout in other countries will follow and additional measures are being taken along the Fairtrade coffee supply chains. Topics that have been addressed in those workshops, and that are currently being looked at in more detail are:

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- guidance on deductions to FOB export prices in some key origins (see consultation regarding Colombia, Brazil, Peru and Honduras)- enhanced traceability tool to increase transparency and map Fairtrade supply chains (in development with FLO-CERT)- extended auditing of green coffee purchase up to the roaster of Fairtrade coffee- definition of entry requirements for producer organizations in Fairtrade application process as part of standard revision for small producer organization (planned in 2017)- extended audit duration on site and frequency of audits in defined areas- training of Fairtrade staff about coffee market and contract topics for enhanced advisory support to Fairtrade producer organizations and traders

Fragmentation of cooperative movement

Another complicating factor is the high level of fragmentation of the cooperative movement. Though understandable because of the problems that occurred in some of the larger producer organisations, this trend undermines the competitiveness of the producer organizations in the market. In Peru 10 years ago, 26 producer organisations exported directly, but in 2015 the number had risen to almost 90, with more or less the same number of farmers and total export volume. In Feb 2016, as many as 120 producer organisations had been Fairtrade certified.

FOB export Fairtrade coffee in average volume and number of producer organizations

For the first time, in 2015 private exporters exported more Fairtrade coffee than producer organisations themselves, underlining the fading control of producers on the coffee export business. Even though only approximately 30% of

the coffee that certified organisations produce is sold under Fairtrade conditions (in Colombia this is only 10-15%, versus 40% in Peru and more than 75% in Honduras), many producer organisations are almost exclusively focused on Fairtrade sales, thus increasing the overheads per unit and further reducing their competitiveness. Sitting on unsold stocks for months considerably increases the risk and organisations may end up giving away (in part) the premiums in order to sell the coffee. Cost control, monitoring the break-even point, position management, etc. are main topics in the workshops and consultancies.

Coffee Help Desk activities in 2016

The Coffee Help Desk of Fairtrade International provides free of charge facilitation and advice services upon request to Fairtrade producers and their business partners in areas related to coffee contracts, price risk management, as well as a training and advice program for producer organizations. It is operational since 2011. The email contact address is: coffeehelp@fairtrade.net.The training & advice programme has evolved from a series of price risk management workshops for a limited number of cooperatives to 200 organisations that participate in the workshops and/or use the online advice service.

The Coffee Help Desk serves as a platform for producer organizations, buyers, producer networks, ethical lenders and Fairtrade staff, where they can submit their queries and look for support to improve the performance of the Fairtrade system. It focuses in the first place on the operational level, but it also provides input for strategies and standard setting.

In 2016, a total of 112 producer organisations of 7 countries participated once or twice in one of the 9 workshops. A wide range of topics are dealt with, depending on the requirements of the participants: the fundamentals of supply and demand, the technical analysis of the speculative character of the futures market, trends in the niche markets of differentiated coffees, Fairtrade standards & pricing, contract clauses and basic business skills, such as position management, costing, cash flows, break-even points, etc.

In addition to the workshops, more than 30 organisations were visited to assess their performance and provide direct assistance. The time invested per organisation varies from less than a day to more than a week. The main topics that are normally covered during a visit are: performance during the previous season and particular issues that may have come up, strategy review, develop and improve new management tools, sales, finance and organisational issues.

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Almost 70 organisations have requested online advice. The online support is used to follow up on tools and strategies that had been discussed during a visit or to request advice on current market price movements and suitable price fixation moments. Contracts are also submitted frequently to see if certain clauses are acceptable and to determine what the possible consequences might be. Many producer organizations ask for support to access buyers or finance as well. Additionally, around a dozen buyers and ethical lenders have sought support, particularly after a default on shipments or payments by producers. Troubleshooting for producers is often about defaults.

Finally, we have bi-weekly blogs that are published on the Progreso Network website, with a more in-depth analysis of what is happening in the coffee market.

Outlook 2017 activities and scope

The Coffee Help Desk will continue its service this year with the following key priorities:

-broaden the number of producer organisations that participate in the training & advice services -create a team of specialised trainers & consultants to support producer organizations-expand the topics of the training workshops to coffee quality/cupping and marketing, to use them as tools for promoting the Fairtrade business -more proactively collect feedback on the performance of Fairtrade

We look forward to your comments and questions around the Fairtrade support function and the above mentioned topics on the market situation for Fairtrade coffee.

EVENTSFairtrade Asia Pacific Coffee Forum, Medan Indonesia 11/2016Coffee producers from Asia and the Pacific work on strengthening supply chain linkages and coffee quality

Despite a diverse offer and significant number of certified producer organizations, the Asia Pacific region supplies less than 10% of the overall Fairtrade coffee. Therefore, the Fairtrade producers invited supply chain actors to

• build mutual understanding and strengthen trade linkages along the Fairtrade supply chain,• facilitate promotion of Fairtrade certified Arabica and Robusta from the Asia Pacific Region,• establish the Fairtrade Asia Pacific Coffee Producer Network.

The 2nd Fairtrade Asia Pacific Coffee Forum was organized by Network of Asia and Pacific (NAPP) with support from Indonesia Fairtrade Network (NAPP Indonesia). 130 participants from Fairtrade certified small producer organizations (SPO), Fairtrade certified traders and roasters and Fairtrade staff from different countries participated.

On the first day producer representatives presented their achievements and challenges facing smallholder coffee farming. Key challenges are the increasing competition, productivity and quality due to climate change, lack of adequate working capital and low prices. The Fairtrade minimum price has been perceived as relevant in those circumstances as it is in most cases higher compared to the regular market price.

Staff from National Fairtrade Organizations and Fairtrade certified coffee traders contributed with their experiences in Fairtrade, trends in the consumer markets and recent developments in Fairtrade coffee. It was highlighted that certification should be further linked to quality in order to support market development.

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Fairtrade at African Fine Coffee Association - Annual Event, 02/2017Fairtrade presented recent study on farmers’ income

During this year’s event of AFCA (Ethiopia Feb. 15th – 17th), Fairtrade Africa was welcomed by the African coffee sector as a new member of AFCA. Throughout the event, Fairtrade Africa further participated in networking meetings with global and Africa based traders, roasters and other stakeholders in the coffee sector. Fairtrade producer organizations presented their product offer in a Fairtrade coffee cupping session. In addition to that, Fairtrade Africa together with Fairtrade International, co-hosted a panel sharing a recent study on farmers’ income, which was conducted in cooperation with True Price. Representatives from producer organizations, traders, NGOs and multistakeholder coffee platforms participated in the meeting. Fairtrade is on a journey towards assessing methodologies and baseline data for current levels of individual farmers’ household income in the different coffee growing regions. A pilot study has been conducted in 7

The second day started with parallel workshop sessions. One focused on Fairtrade governance, mainly the election for the Fairtrade Asia Pacific coffee network representatives and the Fairtrade coffee program. The second workshop was based on a panel discussion with market representatives about building stronger Fairtrade supply chains. Participants discussed the need to improve interaction and connection between producers and roasters, including feedback on quality.

The day closed with a coffee tasting of 20 samples from Fairtrade producers in the region.

The event has shown that there is a strong need from the highly diverse coffee offer from the Asia Pacific region to improve linkages with supply chain partners, improve market access and transparency in the supply chains. Fairtrade networks need to continue to effectively support certified producer organizations. Quality and productivity are key areas to be further worked on, while local and international markets are to be explored further.

Please refer to the event webpage for further information.

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countries (Rwanda, Uganda, Tanzania, Kenya, India, Indonesia and Vietnam) with the participation of 12 small producer organizations, and 465 individual farmers. The results show a diverse picture in terms of coffee production, coffee production intensity (proportion of land dedicated to coffee production), productivity per hectare, main sources of income, and costs of coffee production. The results highlight the need to have country specific interventions to improve farmers’ income. Fairtrade International, together with the producer networks, is working on assessing the next steps to enable the achievement of sustainable livelihoods for coffee farmers. Fairtrade is now working on the remaining questions that have emerged from the baseline data and looking into opportunities to extend the research to Latin America.

If you are interested in the study details and outcomes, please do not hesitate to contact us: Alina Amador, Fairtrade International, a.amador@fairtrade.net.

Fairtrade Africa and the international Fairtrade system are looking forward to the upcoming event in Uganda Feb. 14th - 17th 2018. For global and continental strategic topics on Fairtrade Africa coffee, please consider contacting f.olok@fairtradeafrica.net.