O.4. Key areas for action for sustainable, inclusive and resilient growth of the C-GVC The Report discusses a wide range of actions that can be taken to increase participation of producing countries and coffee growers in the GVC through upgrading, in addition to policies to increase the sustainability, inclusivity, and resilience of the C-GVC. While some solutions may require joint stakeholders’ efforts to implement, they have the potential to contribute to the transformation of the coffee sector. There is significant potential for GVC upgrading. In particular, countries growing Robusta coffee can realize significant benefits by functional upgrading (e.g., soluble coffee). Arabica producers, on the other hand, can benefit largely from product upgrading e.g. value addition through higher quality, sustainability standards, geographical attributes. Coffee producers can also upgrade their processes (higher efficiency, lower per-unit costs), in particular by accessing knowledge, innovation and resources provided by lead firms/ buyers as part of closer supplier/buyer relationships. Upgrading efforts can be facilitated by the following instruments: introduce policies to attract FDI, increase the capital base by eliminating barriers to investment, diversify away from resource sectors to ensure competitively priced labour, improve institutional and governance quality, and invest in infrastructure. Trade liberalization must remain firmly on the political agenda. Remaining trade barriers, particularly, tariff escalation, significantly reduce producing countries’ opportunities to add value by engaging in coffee processing and manufacturing. Newly signed free trade agreements (Africa Continental Free Trade Agreement, Regional Comprehensive Economic Partnership (RCEP), Viet Nam/EU, Mercosur/EU...) are also expected to boost regional and international coffee trade. Accessing high-value export markets is also affected by quantity. To integrate smallholder farmers into the GVC lead firms (e.g., traders, roasters or retailers) require access to a larger supplier base with consistent quality so they can establish durable and close relationships. Smallholder farmers need to improve their skills and capacity and overcome market and infrastructure constraints. Strengthening both public extension services and government and buyer-driven extension programmes in the GVC can enable farmers to upgrade their products and processes. Participation in high-value markets depends on the ability to meet stricter and higher quality, safety and sustainability standards (mainly voluntary standards and labels) compared to requirements to access commoditygrade coffee markets (mainly mandatory standards and regulations). This may be a serious obstacle for smallholder farmers that may be excluded from the C-GVC. Formation of farmer groups and cooperatives (horizontal coordination) needs to be promoted and supported. Collective action can facilitate otherwise marginalized smallholder farmers’ participation in the GVC by reducing costs of entry to high-value markets for groups of farmers. Action and support programmes to cluster coffee farmers 20
COFFEE DEVELOPMENT REPORT 2020
through the creation of cooperatives and consortia would enhance their bargaining power, opportunities for process and product upgrading (e.g. Jamaica Blue mountain coffee...) and market access both regionally and internationally. The distribution of the C-GVC gains remains unequal. Participation in the C-GVC through inclusive value chain programs initiated by lead global firms creates surplus across the value chain. Yet, in most cases, a relatively small group of coffee growers participate in such programs. For a more equitable distribution of economic gains there is a need to expand and scale-up existing inclusive coffee value chain development activities and address concerns about value chain governance and distribution of gains. Lead firms can play a role in facilitating the adoption of certification of individual farmers, farmer groups or cooperatives for sustainable sourcing. Providing accurate information regarding costs and benefits of standards, lowering high audit costs for individuals through promotion of group certification (or at landscape level) and identification of funding sources to support certification for growers creates opportunities to enter high-end markets with higher prices and revenues. Facilitating private-sector-driven GVC expansion is key. Economic sustainability is essential for the lead firms in the GVC to carry out such activities. Enlarging the pool of suppliers (supported farmers) requires high levels of investment. This suggests a major role for development partners and finance institutions, as well as impact investors to provide matching funds (investment, grants and loans) to local governments and producers to implement supply chain programmes. Institutions and contract enforcement mechanisms should be in place along with financial support. Liberalization and structural reforms implemented by governments and coffee authorities. Expansion of the C-GVC and of buyer-driven programmes has been made possible in part due to domestic agricultural and market liberalization policies, including changes to the role and function of commodity marketing boards over the last few decades. These changes have allowed growers to supply private sector buyers directly, leading to the emergence of buyer-driven programmes at various scales. Incentives can be given in the form of tax advantages to both domestic and foreign investors to encourage FDI and local investments for expansion and modernization of coffee plantation and mills. Investment of lead firms in post-harvest processing capacity adds value. Attracting lead firms and both domestic and foreign investors can be a key driver in the transformation of a country’s coffee sector, as shown by the case study of Rwanda presented in this report. The expansion of the C-GVC is driven by the private sector, but governments need to provide an enabling environment. Introducing policies to ensure political stability and attract FDI to the coffee sector is important. Investments in connectivity and trade infrastructure are key to reducing trade costs and increasing the inclusiveness and resilience of the GVC.
