Standards Trade and Equity Lessons From

CDR Working Paper 02.
13 Centre for Development Research • Copenhagen
Standards,
Trade and
Equity: Lessons
from the Specialty
Coffee Industry
Stefano Ponte
Working Paper Subseries on
Globalisation and Economic
Restructuring in Africa
no. xxi
CDR Working Paper 02.13 November 2002
I am thankful to Mike Ferguson, Niels Fold, Peter

Gibbon, Kathrine Fjendbo, Alberto Hesse, Paul
Katzeff, Michael Friis Jensen, Alf Kramer, Marianne
Nylandsted Larsen, Anders Riel Müller and Poul
Ove Pedersen for useful comments on earlier ver-
sions of this paper. All mistakes and imperfections
are my own. The research project under which this
paper was written was funded by the Danish Social
Science Research Foundation and the Centre for
Development Research. I am also grateful to the
Specialty Coffee Association of America (SCAA) for
allowing me to attend their 2002 annual conference
and exhibition in Anaheim, California, and for the
instructive presentations and discussions that took
place there.
CDR Working Paper 02.13 Centre for Development Research • Copenhagen
 The author and Centre for Development Research, 2002

Published and distributed by Centre for Development Research
Printed in Denmark by Centre for Development Research
ISSN 0904-4701
ISSN 1399-3402
Keywords:
Agroindustry
Agricultural markets
Coffee
International trade
Standards
The CDR Working Paper Subseries on Globalisation and Economic Restructuring in Africa are published
within the framework of CDR Working Papers (green series). The papers are draft works
produced as part of the research programme under this title, based jointly at the Centre for
Development Research and the Institute of Geography, Copenhagen University. The programme
started in 1998. From 1999 the programme will enjoy support from the Danish Social Science
Research Council and the Danish Council for Development Research. It studies local, national
and international dimensions of current changes in a series of global commodity chains
emanating, in part at least, from Africa. For further information on the programme, please
contact Peter Gibbon (e-mail address pgi@cdr.dk).
CDR Working Papers are available on an exchange basis and individual titles are supplied free of
charge.
Contents
Abstract ...................................................................................................................................... 1
1. Introduction ............................................................................................................................ 1
2. The role of standards in the coordination of value chains...................................................... 3
Theoretical background..................................................................................................... 3
A typology of standards .................................................................................................... 9
3. What is specialty coffee?...................................................................................................... 11
4. Addressing the problem of quality ....................................................................................... 13
The coffee market paradox.............................................................................................. 13
Paying for quality? .......................................................................................................... 15
Responses from the specialty industry ............................................................................ 17
5. Sustainable coffees............................................................................................................... 21
Organic coffee ................................................................................................................. 22
Shade-grown coffee......................................................................................................... 23
Fair trade coffee .............................................................................................................. 23
“Super labels”.................................................................................................................. 24
Enterprise initiatives on sustainability ............................................................................ 25
6. Standards, entry barriers, and equity in the specialty coffee industry: past lessons and
future prospects .................................................................................................................. 27
7. Theoretical implications....................................................................................................... 33
8. Conclusion: is specialty coffee “SEC-C” or just “sexy”? .................................................... 37
References ................................................................................................................................ 41
Tables
Table 1: Coffee standards relating to quality ........................................................................... 39
Table 2: Coffee standards relating to environmental protection and socio-economic issues .. 40
Abstract
Through the case study of specialty coffee, this paper examines the role of different kinds of
standards in determining the governance features of international trade. The specialty coffee
industry is the most vibrant and fast growing segment of a global coffee market that is
otherwise marred in a deep crisis. Has this growth been beneficial to coffee farmers? To what
extent? For which groups of farmers and in what countries? What has been the role of
standards in this process? What kinds of specialty coffees have more potential to promote a
more equal distribution of value added along the marketing chain?
1. Introduction
One of the most striking features of the global economy in the last two decades has been the
expansion of international trade. Between 1983 and 2000, the value of world merchandise
exports has almost quadrupled. Trade is an important revenue base for developing countries,
which are estimated to generate more than thirty times revenue per capita from exports than
they receive in aid (Oxfam 2002a, 47). This is particularly relevant as aid flows decreased by
almost one quarter between 1990 and 2000.1 Some middle-income countries, such as South
Korea, Mexico and China, have been able to increase their export flows of not only labor-
intensive goods, but also high-technology. Yet, most low-income countries still depend
heavily on exports of primary commodities and manufactures, which have lagged behind the
growth of global income (UNCTAD 2002). As a result, low-income countries still account for
only three per cent of income generated through exports in the global economy. Even within
the category of commodity exports, success in increasing export of value added products –
such as “specialty coffee” – has been uneven among countries and groups of producers within
countries. Through the case study of specialty coffee, this paper examines the role of
different kinds of standards in determining entry barriers to trade for producers, processors
and exporters based in developing countries. It analyzes which regions or countries benefit
and which ones lose as new standards are set, and the distributional effects among different
groups of actors within these countries.
The specialty coffee industry was born in North America as a reaction to the post-World War
II decline in the quality of coffee offered by commercial roasters and has expanded
dramatically in the 1980s and 1990s. Specialty coffee focuses on perceptions of high-quality
and uniqueness. It is defined by some industry actors as “good preparation from unique origin
and distinctive taste.” The original concept behind specialty coffee is that special geographic
microclimates produce coffee beans with unique flavor profiles, which should be preserved in
1
See OECD/DAC statistical database, available at www.oecd.org.
1
their identity. In recent years, in addition to high quality, the term specialty has come to
include “sustainable” coffees, which are characterized by production and trade practices that
are supposed to protect the environment and improve the socio-economic conditions of
farmers and farm-workers. The North American specialty coffee industry is the most vibrant
and fast growing segment of a global coffee market that is otherwise marred in a deep crisis
(Oxfam 2002b; Ponte 2002a). In the United States, it has grown on average by 30 per cent
per year between 1999 and 2001. In 2001, specialty coffee accounted for 17 per cent of total
green coffee imports by volume into the US, and its sales represented approximately 40 per
cent of the total US coffee market (Giovannucci 2001, 7). Has this growth been beneficial to
coffee farmers? To what extent? For which groups of farmers and in what countries? What
has been the role of standards in this process? What kinds of specialty coffees have more
potential to promote a fair distribution of value added along the marketing chain? What is the
track record of the specialty coffee industry in this realm?
The material presented in this paper arises from a three-year research project entitled
“Globalisation and African Agriculture: The Restructuring of Coffee Marketing Systems in
East Africa” (COMASEA). This project is part of the research program “Globalisation and
Economic Restructuring in Africa” (GLAF), which is being carried out by a team of
researchers at the Centre for Development Research, Copenhagen and the Institute of
Geography, University of Copenhagen. The objective of the GLAF program is to give an
account of the redefinition of Africa’s role in the global economy, based on analyses of a
selected group of commodities (coffee, cocoa, fresh fruit and vegetables, citrus, clothing, and
cotton). These projects are based on a common set of methodological and theoretical
guidelines, borrowing broadly from Global Value Chain (or Global Commodity Chain)
analysis.2 The COMASEA project aims at mapping the historical development of the global
coffee value chain from the producer to the consumer. This entails an analysis of the structure
and the characteristics of each “node” of the value chain in terms of what kind of activities
and functions are performed, how these activities and functions are carried out, how
regulation modifies them, who are the actors involved, and how value added is distributed
along the chain (see Ponte 2002b; 2002c).
This research project involved work in both producing and consuming countries. In producing
countries, a detailed case study methodology including substantial fieldwork (ten months in
total) was carried out in Ethiopia, Kenya, Tanzania and Uganda. Fieldwork involved
collection of secondary material and statistics, focus group discussions and surveys with
coffee farmers, and interviews in relevant coffee regulatory agencies, institutions and industry
actors. In consuming countries, interviews were carried out with importers, brokers and
roasters – both in the commercial and specialty coffee sectors. Some of the material
presented in this paper was retrieved from internet sources and coffee trade journals, or was
2
On the essential features of global commodity/value chain analysis see, among others, Gereffi (1994; 1995;
1999; 2001), Gibbon (2001; 2002; forthcoming); Humphrey and Schmitz (2001); Raikes et al. (2000), and
Sturgeon (2001).
2
gathered at the 2002 conference and exhibition of the Specialty Coffee Association of
America (SCAA).
The paper is structured as follows: in Section 2, I discuss merits and limitations of several
theoretical approaches dealing (directly or indirectly) with standards and trade. I also provide
a general typology of standards that will inform the case study of specialty coffee. In Section
3, I discuss the essential features of specialty coffee. In Section 4, I show how the failure to
pay producers with higher prices for higher quality is undermining the very foundations of
specialty coffee, and how the industry is trying to respond to this challenge. In Section 5, I
analyze coffee standards that address environmental and socio-economic concerns. In Section
6, I examine the impact of standards on different actors and geographical areas along the
specialty coffee value chain. In Section 7, I assess the contribution of the specialty coffee case
study to the theoretical understanding of governance in global value chains. In Section 8, I
draw some general conclusions.
2. The role of standards in the coordination of value chains

Theoretical background
This paper takes the meaning of standards in a broad sense. Some authors refer to standards as
“rules of measurement established by regulation or authority” (Jones and Hill 1994), entailing
that standards embed a mandatory trait. Here, standards are understood as rules of
measurement that can be established by regulation or authority (mandatory standards),
through formal coordinated processes in which key participants in a market or sector seek
consensus (voluntary standards) or by individual enterprises (private standards).
Standards communicate information about the attributes of a product. These attributes can be
classified depending on the ease with which they can be measured. Search attributes are those
that can be verified at the time of the transaction (the color of a coffee bean). Experience
attributes can be assessed only after the transaction has taken place (the taste of brewed
coffee). Credence attributes can not be objectively verified and are based on trust (whether
coffee has been grown organically) (Jensen 2002; Reardon et al. 2001). These attributes can
pertain to the product itself (coffee appearance, taste, cleanliness, absence of taints) or to
production and process methods, which include aspects related to the authenticity of origin
(geographic appellation), safety (pesticide residues, levels of toxins) and environmental and
socio-economic conditions (organic, fair trade, shade-grown coffees).
In agro-food industries, the evolution of the role of standards in shaping access to

international trade should be understood in relation the changing features of consumption.
Food consumption is increasingly characterized by food safety awareness, focus on health and
diet, globalization of consumer tastes, and social and environmental concerns. This, together
with market saturation for goods with “commodity” traits, has led to product proliferation and
3
differentiation. It has also been accompanied by an increased importance of issues of quality

control, “field-to-fork” custodial tracking, and certification.3 In the world of “mass
consumption” of relatively homogeneous commodities, standards created economies of scale
and facilitated the creation of futures markets (Daviron 2002). In the current situation,
standards are proliferating and becoming more specific. They also tend to focus (sometimes
exclusively) on production and process methods rather than on the product itself
(Giovannucci and Reardon n.d.; Reardon et al. 2001).
Contemporary food consumers in high-income economies demand complete information on a

product so that they can make individual choices in relation to personal beliefs (on food safety
and environmental protection, for example) and taste preferences. In this situation, consumer
protection is not uniquely a matter of food safety, but also of supplying reliable information to
facilitate consumer choices (Valceschini and Nicholas 1995, 18). Therefore, the management
of quality may be seen as a question of competition and/or cooperation between the actors of
a value chain, each one having only partial access to – and control of – information on the
product and its related production and process methods. This implies that actors choose
specific forms of coordination in relation to the available standards that embed information
about quality. Choices aimed at solving quality information problems by key actors will then
determine the way a certain value chain (or segment of a chain) is governed.
Market coordination may be expected to arise when quality information is not too important
in a transaction, or where it is readily available through a standard that is understood and
easily verifiable by both parties. As information on quality becomes more complex
(pertaining to experience and/or credence attributes rather than search attributes, and/or
referring to production and process methods rather than the product), forms of coordination
also tend to be more complex. Whether they take the form of repeated interactions among
actors with no long-term contractual obligations, long-term contracts, or vertical integration
will depend on the nature of the product and on how well standards can alleviate the problem
of asymmetric information. In general, the harder the attributes of a product are to measure,
the higher is the problem of asymmetric information between buyer and seller (Stiglitz 1986).
This is particularly important for coffee, as some of its intrinsic characteristics (related to taste
and aroma) can only be assessed after roasting, grinding and brewing. A transaction cost
economics take on coffee marketing systems would therefore focus on which institutional
arrangements and contractual forms minimize transactions costs in searching information (see
Williamson 1979; Williamson and Masten 1995).4 It is not my aim here to cover the evolution
3
Daniele Giovannucci, ‘Producing Countries and the Flight to Specialty Coffee’, presentation at the SCAA 14th
Annual Conference & Exhibition, Anaheim, California, 5 May 2002.
4
According to Williamson (1979), different governance structures and contracting forms arise depending on the
frequency of transactions, the level of uncertainty to which transactions are subject to, and asset specificity.
Market governance (characterized by classical contracting) arises in both occasional and recurrent transactions
when investment characteristics are non-specific and the specific identity of the parties is not important.
Trilateral governance (characterized by neo-classical contracting) arises from occasional frequency with the
presence of mixed or idiosyncratic assets and requires third party assistance in solving disputes and evaluating
4
of transaction cost economics and the large debate that addresses its limitations. For the
purpose of this paper, it will suffice to say that transaction cost economics does not
adequately explain issues of opportunism in the handling of information, and related issues of
power and authority. As argued by Barzel (1997), the higher the asymmetry of information in
a transaction, the more likely is that a party will try to exploit the situation by appropriating
some value from the product that is not measured accurately. Therefore, institutions will not
necessarily arise with the purpose of minimizing transaction costs. As North (1990)
suggested, “inefficient institutions” may be maintained for relatively long periods of time
because they fit the interests of powerful groups.
Setting standards is one of the ways of addressing information asymmetry in a transaction.

Yet, standards are not free from manipulation, power struggles and opportunistic behavior.
They empower the institutions or actors that decide their criteria and control their
administration, monitoring and/or certification. They confer power because (in trying to solve
problems of asymmetrical information) they create situations of asymmetrical access. Those
who control quality standards have power over users. Users of a standard may have been in
the position of participating in the setting of it. However, not all users have the same influence
in the process of standard determination or administration. Standards are therefore political
spheres of action because they shut out some interests while serving others. They contribute
to the determination of the distribution of value added along a value chain and set
inclusion/exclusion thresholds. Rather than simply being a technical instrument to decrease
transaction costs associated with asymmetry of information, they should viewed as a strategic
instrument of value chain coordination. This entails that the technical approaches currently
used in understanding the impact of standards on developing country trade need to be
integrated by political economy approaches, which are more historically-minded and power-
sensitive. In this paper, this is attempted through the combination of elements of convention
theory and global value chain analysis.
Convention theory is formulated on the basis of the assumption that for markets to function a
common “language” between participants must exist (Salais and Thévenot 1986; Boltanski
and Thévenot 1989). Convention theory suggests that – over time – different markets come to
embody a succession of different criteria under which the goods traded on them become
qualified for trade, and according to which trade is subsequently managed.5 One of its main
performance. Bilateral governance (characterized by relational contracting) arises from recurrent frequency and
the presence of mixed assets (both non-specific and idiosyncratic); in this case, a relative autonomy of the parties
is maintained. Finally, unified governance/vertical integration (also characterized by relational contracting)
arises from recurrent frequency and the overwhelming importance of idiosyncratic assets. The transaction is then
organized within the firm. The main argument of this school of thought is that (under neo-classical assumptions
of efficiency and competition) the choice of governance structure is made in order to minimize transaction costs.
5
Initially, convention theory developed around the theme of the specificity of ‘labor’, and analyzed the rules,
norms and conventions that formed the basis of the ‘labor qualifications’ (Salais and Thévenot 1986). Later, this
approach was extended to other commodities and to the analysis of economic exchange in general. See
Boltanski and Thévenot (1989), Valceschini (1993), Valceschini and Nicholas (1995), Sylvander (1995) and
Sylvander and Biencourt (1999).
5
tenets is the observation that until the early 1970s, quantification was the main criteria for
characterizing exchange of relatively homogeneous products, while the current economic
dynamic is based on “an obsession with quality”. Convention theory argues that price is the
main management form of a particular market only if there is no uncertainty about quality. If
this is the case, differences in price are equated with quality. This characterizes what
convention theory calls “market coordination”. When price alone cannot evaluate quality,
economic actors set up “quality conventions” that lead to other “forms of coordination”:
(1) In domestic coordination, uncertainty about quality is solved through trust

(long-term relationships between actors or use of private brands which increase
the quality reputation of products). In this case, the definition of quality is
resolved internally, and the identity of a product is guaranteed or
“institutionalized in the repetition of history” by its region or country of origin
(100% Colombian coffee) or by a brand-name (Starbucks).
(2) In industrial coordination, uncertainty about quality is solved through the

actions of an external party which determines common norms or standards and
enforces them via instrument-based testing, inspection and certification (AA
coffee grade).
(3) In civic coordination, there is collective commitment to avoid conflicts, and the
identity of a product is often related to its impact upon society or the
environment (organic and fair trade coffees).
Each of these forms of coordination implies asymmetries of information which benefit certain
groups of participants over others. Different forms may exist side by side at the same time,
even for the same product. According to Allaire and Boyer (1995), these forms of
coordination may exist in a state of tension where one is trying either to resist or to encroach
on other modes. When different criteria come to characterize the process of qualification of
products for trade, a change in the dominant mode of coordination occurs.
A key implication of convention theory is that there is no “universal” understanding of

quality. Therefore, even with perfect information, there are differences among various forms
of coordination in value chains depending on which set of conventions determine the
“content” of quality. Quality is then based on opinion, rather than on perfect information. An
interesting example of different ways of managing information flows on quality is the
contemporary tension between countries such as France and Italy, which favor guaranteeing
quality via geographic appellation (the French Appellation d’Origine Controlée for wine, for
example) and Anglo-Saxon countries which favor branding. The first approach is based on the
management of quality through regulation and certification processes that protect the specific
regional or local characteristics giving a product its particular profile. This approach is based
on the idea that it is not sufficient to provide product information to consumers through a list
of ingredients. It is necessary to signal the specificity and/or superior quality of the product.
6
Branding, on the other hand, is based on the concept that consumers can achieve perfect
information through ingredient labeling, and that competition itself can ensure the
maintenance of high degrees of quality. Therefore, brands rather than regulation are the
legitimate “signaling devices” to be used in transmitting information on quality to consumers
(Valceschini and Nicholas 1995). This example underlines that quality management is one of
the determining factors in the governance of a value chain. Yet, placing such different ways of
managing information on quality in the same category of “domestic” coordination undermines
the explanatory power of the convention theory classification system. I will come back to this
issue when I evaluate the theoretical contribution of the specialty coffee case study in Section
7.
The explicit link between convention theory and the analysis of value chain structure and/or
restructuring can be made in two ways. Firstly, value chains may be considered to be more or
less coherent or articulated, depending upon the extent to which a single quality convention
reigns along their whole length. Secondly, for each quality convention there is held to be a
corresponding “form of enterprise”, which will constitute the dominant type of economic
agent within specific value chains.6
In global value chain (GVC) analysis, the international structure of production, trade, and
consumption of commodities is disaggregated into stages that are embedded in a network of
activities controlled by firms and enterprises. Gereffi identifies three key dimensions of value
chains: (1) their input-output structure and geographical coverage; (2) their institutional
framework; and (3) their governance structures (Gereffi 1994; 1995).
(1) The input-output structure and the geographical coverage of value chains are
used mainly descriptively to outline their configuration.
(2) The institutional framework surrounding the chain delineates the conditions
under which key (or “lead”) agents incorporate subordinate agents through their
control of market access and information – both technological and regarding
markets. Under the rubric of institutional framework Gereffi also discusses how
subordinate participation in a global value chain can provide indirect access to
markets at lower costs than individual small-scale producers would face, and
how technological information and learning-by-doing allow (the more favored)
producers to move up the chain hierarchy (also known as “upgrading”). This
suggests that participation in a global value chain is a necessary, but not
6
These actors are distinguished by dependence on different clusters of resources. Market-based conventions
emerge when the dominant form of enterprise is based on cash reserves and resources with variable costs.
Industrial-based conventions are linked to the presence of enterprises based on major accumulation of fixed
capital. Domestic conventions arise in relation to dominant enterprises based on ownership of so-called
‘specific’ resources (echoing the concept of ‘asset specificity’ in transaction cost economics). ‘Specific’
resources may be reputational (brand names, business contacts) or related to augmented efficiency (the adoption
of specific business practices like just-in-time supply management). Unfortunately, convention theory does not
indicate a specific form of enterprise in relation to civic conventions.
7
sufficient, condition for subordinate agents to upgrade. Participation also

involves acceptance of terms defined by key agents or institutions, especially for
those aiming to progress towards “higher” (technology, value-added) positions
in the chain (see Gereffi 1999; Gibbon 2001; Humphrey and Schmitz 2000).
Standards can then be said to play a relevant role in shaping the institutional
framework of a value chain because they help setting both the language and the
thresholds of participation. Yet, the GVC literature has made little explicit
reference on standards so far.
(3) The governance structure of global value chains introduces the key notions of
entry barriers and chain coordination. The GVC literature distinguishes broadly
between “producer-driven” and “buyer-driven” value chain governance.
“Producer-driven” chains are said to be found usually in sectors with high
technological and capital requirements, where capital and proprietary know-how
constitute the main entry barriers (automobiles, aircrafts, computers). In these
chains, producers tend to keep control of capital-intensive operations and sub-
contract more labor-intensive functions, often in the form of vertically-
integrated networks. “Buyer-driven” chains are found in generally more labor-
intensive sectors, where information costs, product design, advertising, and
advanced supply management systems set the entry barriers (garments,
footwear). In these chains, production functions are usually out-sourced and
key actors concentrate on branding, design, and marketing functions.7
Through the insights of convention theory and global value chain analysis, this paper assesses
whether (and to what extent) standards affect the institutional framework and the governance
structures of the global coffee value chain. Are they important in the process of
exclusion/inclusion patterns? How do they shape forms of coordination? Do they affect
possible upgrading trajectories? Who benefits and who loses from the establishment of certain
standards instead of others?
7
This dichotomy, while useful as a point of departure, should not be strictly and statically interpreted (see
Gereffi 2001; Raikes et al. 2000). In different primary commodity ‘buyer-driven’ chains, different types of
buyers (retailers, branded marketers, industrial processors, international traders) may be the lead actors. Forms
of coordination (therefore, the level of ‘drivenness’) tend to be tighter in chains led by retailers and branded
marketers (apparel, footwear, bananas, other fresh fruit and vegetables) than in chains led by industrial
processors (coffee, cocoa/chocolate). Chains led by international traders tend to have even looser forms of
coordination (cotton, fish, cashew nuts) (see Fold 2001, 2002; Gibbon 2001; Ponte 2002c). Secondly, some
commodity chains may exhibit the tendency to move from one category to the other. In some ‘producer-driven’
chains such as automobile, computer, and consumer electronics, producers are increasingly out-sourcing portions
of component manufacture. Sometimes, they even out-source supply-chain logistics and final assembly, and
keep control of promotion and marketing of the brand names on which market access is based – a peculiar trait
of ‘buyer-driven’ chains.
8
A typology of standards
Standards can be classified in three broad categories: mandatory, voluntary and private.
Standards are mandatory when they are set by governments in the form of regulation. These
may affect trade flows by placing technical requirements, testing, certification and labeling
procedures on imported goods (Wilson 2001). Governments can rely on standard enforcement
through ex post liability rules that allow punitive damages to be awarded to the buyer in case
of non-compliance, or they can adopt ex ante measures – such as requiring information or
banning a product not matching technical standards from being imported (Caswell and
Henson 1997). Voluntary standards arise from a formal coordinated process in which key
participants in a market or sector seek consensus. The International Standardization
Organization (ISO) has established over 7,000 voluntary standards. Some of these are also
introduced as a response to consumer requests (such as eco-labels) (Grote and Kirchhoff
2001, 6), or as a result of NGO initiatives (such as fair trade labeling). Sectoral organizations
can also establish voluntary standards that apply to their members. Voluntary standards are
usually verified through third-party auditing. Private standards are developed and monitored
internally by individual enterprises. What distinguishes them from mandatory and voluntary
standards is their lack of third party verification, and a lower degree of transparency and
participation of affected stakeholders.
The distinction between mandatory, voluntary and private standards, however, is becoming
increasingly blurred. Although voluntary standards are not mandatory by rule, some of them
(such as the ISO 9000 standards on quality management) have become de facto standards,
meaning that they are required for producers if they want to compete globally. The distinction
between private and voluntary standards is also to some extent arbitrary, as many private
enterprises borrow parts of voluntary standards. Adherence to voluntary and/or private
standards is often a pre-condition for the acceptability of products by consumers and/or
distributors. Moreover, insurance companies may request compliance with standards to
reduce product liability exposure. Finally, mandatory standards may be incorporated in
regulation (Zarrilli 1999). A cumulative reading of these changes may suggest that “private”
regulation is if not de jure – at least de facto – substituting public regulation in determining
what characteristics products and production/process methods need to match to be fit for
trade.
Standards can be set up to specify technical characteristics of a product, specific production

and process methods, quality traits, and safety. Increasingly, they include specifications
relating to environmental impact, animal welfare concerns, and worker conditions. This is
most evident when one analyses certifications and labels used in so-called “ethical trade”
(also known as “sustainable” trade in the specialty coffee industry). Ethical trade can be
defined as “any form of trade that consciously seeks to be socially and environmentally, as
well as economically, responsible” (Tallontire et al. 2001). Ethical consumerism is a growing
phenomenon that has motivated ethical business practice, together with the increasing
vulnerability of brands to reputation problems, which may lead to stock value losses. Many
9
businesses adopt ethical practices because they think that is what consumers want. The
globalization of food sourcing and foreign travel have resulted in more adventurous
consumers, and also consumers who ask more questions about the source of the products they
buy. This has led to the proliferation of ethical trade schemes and of standards that define
them. Examples of these schemes are: fair trade, codes of practice of enterprises, eco-labels,
forest and fisheries certification, and ethical sourcing initiatives of major retailers and brand
owners. Unfortunately, many ethical trade schemes are driven by developed country
consumers and business, rather than producer opinions or priorities.
Ethical trade can be usefully distinguished in two broad categories: (1) certification and
labeling procedures; and (2) enterprise initiatives. These broadly follow the overall categories
of voluntary and private standards provided above. Certification and labeling procedures are
used as a means of communicating information about the social or environmental conditions
surrounding the production of goods or the provision of services. Examples of these are the
fair trade label, organic certification, and the Forest Stewardship Council initiative, which
certifies landowners matching a series of criteria for sustainable forest management. Labels
can help setting common standards for certain sectors and help prevent confusion among
consumers. They generally ensure better stakeholder representation in the negotiation of
standards than enterprise initiatives. However, participation to the setting of criteria may not
amount to much (see du Toit 2002) – especially when the label is controlled by an industry
association or by an organization with close links to a particular company (Blowfield 1999).
While ethical trade schemes have created new opportunities for their beneficiaries, there is
evidence that there have been negative impacts among those who are unable or unwilling to
participate. In some cases, consumer concerns have even had negative consequences on their
“beneficiaries”.8 It is also clear that these schemes have been weak in targeting certain
disadvantaged groups. Finally, stakeholders have rarely been able to influence certification
and labeling criteria, with the result that they do not address all of the priority issues for
workers and smallholders (Blowfield and Jones 1999).
Among enterprise initiatives, the most common instrument for showing ethical responsibility
is the adoption of “codes of practice”, which define the criteria for measuring company
performance against a set of ethical objectives. These codes may be developed by individual
companies or draw from model codes. Unfortunately, as Blowfield (1999, 758) argues, “too
many codes are launched with a fanfare of publicity in the West, yet are ‘unknown,
unavailable or untranslated’ in the developing country sites of operation.” Compliance is
rarely reported upon, and independent verification is the exception rather than the rule. Too
often, these initiatives are cases of “a launch, a lunch and a logo” (ibid.). Furthermore,
companies that develop their own code can pick and choose which standards to adopt without
consulting the so-called beneficiaries. Finally, if enterprise initiatives do not earn a premium
8
For example, King and Marcus (2000) show how consumer concerns on child labor in East Asian clothing
factories led to many children losing their jobs and ending up in more dangerous occupations on the street.
10
to suppliers or higher wages to workers, they simply become a further requirement to access a
market segment (du Toit 2002, 371).
3. What is specialty coffee?

The term “specialty coffee” is attributed to Norwegian coffee connoisseur and roaster Erna
Knutsen, who first used it in a speech to the delegates of an international coffee conference in
Montreuil (France) in 1978.9 The concept she introduced is that special geographic
microclimates produce coffee beans with unique flavor profiles, which should be preserved in
their identity. Specialty coffee should always be well prepared, freshly roasted, and properly
brewed. When the Specialty Coffee Association of America (SCAA) was created in 1982, its
founding members defined specialty coffee as “good preparation from unique origin and
distinctive taste.”10 The SCAA became the repository of high quality coffee and promoted its
expansion. It is now the world’s largest trade association with almost 2,500 members and
provides a “common forum for the development and promotion of coffee excellence and
sustainability.”11 It establishes coffee quality standards, certifies professional skills, conducts
research on coffee through the Specialty Coffee Institute, and coordinates or sponsors
educational and networking events – including the SCAA annual conference, the largest
annual gathering of coffee professionals worldwide.
Specialty coffee in Europe is more difficult to define, as consumption practices and quality
profiles range enormously from country to country. The Specialty Coffee Association of
Europe (SCAE), broadly inspired by the SCAA, was founded only in 1998 and is a much
smaller organization. North American definitions of specialty can not apply across the board
in Europe. If espresso-based drinks were all to fall in the specialty category (as is the case in
North America), the entire Italian market would qualify as such.12 While the North American
specialty industry was born as a reaction to the supply of large quantities of relatively
homogeneous and undifferentiated blends of mediocre to poor quality by commercial roasters,
much good coffee has always been available in Europe.13 For this reason, in this paper I
focus on the North American coffee specialty industry.
Another take on the definition of specialty coffee that may apply across continents is to
describe what it is not. As a SCAA member stated “commercial buyers want the cheapest
9
Don Holly, ‘The Definition of Specialty Coffee’, www.scaa.org/specialty.cfm
10
Presentation at the SCAA 14th Annual Conference & Exhibition, panel ‘Certified quality – An industry-wide
initiative’, Anaheim, California, 6 May 2002.
11
SCAA, http://www.scaa.org/about_scaa.cfm
12
Interview No. I0310011, Trieste, Italy, 3 October 2001.
13
An exception is the UK, which has had a historically high proportion of soluble coffee consumption. The UK
specialty industry is the one in Europe that resembles the most to the US.
11
price possible and perhaps a certain bean size and crop date. Cup quality only enters the
picture commercially if the coffee is pronouncedly tainted. . . The vast majority of coffee
buyers believe that coffee is for selling not for drinking.”14 The specialty coffee industry
accounts for 17 per cent of total green coffee imports into the US by volume. Its sales
represent approximately 40 per cent of the US coffee market (Giovannucci 2001, 7). In 2000,
US retail sales of specialty coffee beans were $2.5 billion, while sales of specialty coffee
beverages were $5.4 billion (ibid.). The latter figure masks the fact that the “coffee content”
of these sales is a minor proportion of the total, the rest being added value in flavoring,
mixing with milk products, and providing a specific “consumption ambience”. Yet, specialty
operators argue that they are the ones bringing in new coffee drinkers, not commercial
operators. They also argue that new drinkers are first attracted by milk-based coffee drinks
(latte, cappuccino), iced/cold coffee and ready-to-drink coffee beverages. Then, they tend to
switch to straight hot coffee (first, sweetened and creamed; later, black), espresso and finally
single-origin coffees (SCAA 1999, 7). As they move in this trajectory, the relative content of
coffee in the specialty beverage increases, together with the consumer’s level of interest in the
peculiar characteristics and origin of a coffee.
According to specialty operators, it is becoming increasingly clear to consumers of

commercial coffees that high quality rewards, and that there is a point in paying a premium
for quality and freshness.15 They also point out that, while current US coffee consumption is
flat, consumers are purchasing more value-added products through the specialty coffee
industry. “Coffee consumers have been moving away from price-based purchasing to a
purchasing trend that focuses on product variety and quality. . . [This] has evolved coffee
from a beverage of pseudo-commodity characteristics to one with cultural and sensory ties”
(SCAA 1999, 4).
However, the term “specialty” is under increased pressure. As an industry actor states, “when
every major roaster in America is a member of the Specialty Coffee Association, even if the
coffee in their cans consists largely of Robusta and twigs, we need to move beyond a word
that has become a little more than a cliché.”16 Furthermore, the specialty industry is under
pressure from some commercial suppliers, who have started to offer “high quality” or
“specialty” coffee roasted on the spot by computerized roasters in large discount stores. In
this case, it is not quality that makes the coffee “better”. These coffees are mediocre and are
bought in bulk. Their selling point is that they are freshly roasted. They also sell at much
cheaper prices than in specialty stores (ICO, ITC & CFC 2000, 7). Parts of the specialty
industry are also drifting from a strict insistence on quality towards the supply of more
14
Hellen Nicholas, Royal Coffee, presentation at the ‘Presidential Conference on Poverty Alleviation through
Export Competitiveness,’ Kampala, Uganda, 15 February 2002.
15
The rule of thumb for specialty roasters and wholesalers is to deliver to their clients every week. The shelf-
life of roasted coffee sold in cans in the commercial market varies between 12 and 24 months.
16
12
“manipulated” products in which the quality of the underlying coffee sometimes takes second
place. Increasing sales of espresso-based drinks (which have higher profit margins) entail a
relatively more important presence of cheaper Hard Arabicas and Robusta coffees at the
expense of more expensive Mild Arabicas (ibid., 6). Furthermore, as café chains (such as
Starbucks) consolidate and expand, quality per se may not be as important in the future in
some segments of the specialty industry in the US. When chains get bigger, they tend to
simplify sourcing practices. Higher sales entail more centralized buying requirements and
more difficult relations with smaller suppliers. They are usually accompanied by more
prominence for blends rather than single origins.
Specialty purists feel that they need to adopt technical standards so that commercial roasters
and/or specialty free riders do not use it to their advantage. As a result, the SCAA board is
developing standards for a “SCAA certified” mark of integrity. This will lead to an industry-
wide product quality standard. A green Arabica coffee classification system has already been
adopted, while a cupping procedure and description is under fine-tuning. Discreet single lots
from an origin will be certified individually by local and/or international certifying judges.
SCAA will administer the movement and storage of samples, and lots will be tracked all the
way to the roaster. In this way, the roaster will be able to apply the SCAA label to the final
product.17 Yet, defending the concept of specialty is not the only challenge faced by the
specialty coffee industry. Supply scarcity of high quality coffee is another major challenge. In
the next section, I analyze the factors behind this problem and the solutions offered by the
International Coffee Organization (ICO) and the specialty industry.
4. Addressing the problem of quality

The coffee market paradox
The world coffee market is experiencing a paradox. The “commercial” market, plagued by
sluggish growth of consumption, is awash in low quality coffee with international prices at
record-setting lows. Estimated production for the 2001/2002 season is about 115 million
bags, while consumption is predicted at 106 million bags.18 The International Coffee
Organization (ICO) composite price indicator fell from a peak of $1.80/lb in May 1997 to
17
Certification of roasted beans will cover purity (measured according to ISO standards), taste (green beans
approved by a certified panel as above), freshness (package needs to display the ‘roasted’ date), and authenticity
(100 per cent of the product in the package needs to come from the origin(s), region(s) or geographic
appellation(s) designated in the label). In this section, I focus on product quality certification. The SCAA has
also initiated a coffee brewer certification program, which is designed to evaluate coffee brewing devices on the
basis of technical parameters. It also certifies brewing operators through its ‘Golden Cup Award Standards’.
Source: presentations and handout at the SCAA 14th Annual Conference & Exhibition, panel ‘Certified quality –
An industry-wide initiative’, Anaheim, California, 6 May 2002.
18
Alberto Hesse, ‘A Historic Decision: Resolution 407 Is a Milestone in the Progress of International Agree-
ments,’ Planet Coffee, No. 32, April 2002, p.12.
13
$0.82 in January 2000 and then to $0.48 in September 2002.19 This is bad news for producers,
but not necessarily for the large corporations who dominate the roasted coffee trade, which
have been posting record profits. At the same time, the specialty coffee industry is in dire
shortage of high quality coffee. In other words, there is a coffee crisis in producing countries
due to low international prices, which is affecting the livelihoods of millions of farming
households, while specialty roasters scramble to find good quality coffee at any price.
The ICO and the specialty industry are attempting to address the coffee crisis in general, and
the supply deficiency of high quality coffee in particular. In September 2001, the ICO
established a Quality Committee with a mandate of recommending standards and procedures
for the withdrawal from the market of “low quality” coffee. The committee, comprising
twelve experts from exporting and importing members, and private sector representatives
formulated recommendations that were agreed by the ICO in February 2002 under Resolution
407. This resolution established the Coffee Quality-Improvement Program and spelled out
the minimum standards for exportable coffee based on defect count and maximum moisture
content. A higher defect count is allowed for Robusta than for Arabica.20 This implies that
each exporting member will have to develop and implement national measures ensuring the
compliance of these standards. This is a particularly important change in those countries that
do not have certification procedures for coffee exports. The coffee that is not exportable will
have to be used for non-human consumption purposes.
The overall goal of the program is, in the short term, to reduce the supply of exportable
coffee, therefore rising prices. In the longer-term, the program aims at raising the overall
quality of coffee exports. It is not clear what mechanisms will be used to compensate those
countries and farmers that are more likely to be affected by the program. The success of the
program will to large extent depend on cooperation from importing countries. The main
problem in this realm is that the largest consuming country (the US) is not presently a
member of ICO. The Food and Drug Administration of the US has very permissive import
rules, which allow the import of an average 10-12 million bags of coffee of very low quality
per year – what the industry calls “triage”.21 Without cooperation from the USA, it is unlikely
that the initiative succeeds. Rumors have also circulated that Brazil (the top producer and
exporter) is considering withdrawal, which would explain why for the first time the ICO has
elected a Colombian (Nestor Osorio) as Executive Director, rather than a Brazilian. The ICO
quality program, however, has found some support from consuming country governments and
private sector operators. It is more likely to make a difference in the global coffee market
than retention schemes that were attempted through the now-defunct Association of Coffee
Producing Countries (ACPC).
19
International Coffee Organization, http://www.ico.org/frameset/priset.htm
20
For details, see http://www.ico.org/frameset/activset.htm
21
Alberto Hesse, personal communication, 4 October 2002.
14
Paying for quality?
There is a shortage of high quality coffee in the specialty market. The New York price
[the main futures market reference price for Arabica coffee] has no relation to the
specialty sector now. Most traders do not even consider it as a benchmark. My clients
want specific coffees, and they would pay anything to have it. Sometimes, price is not
even discussed. Specialty roasters are so desperate for good quality that they are now
22
buying coffee at fair trade prices without the certification.
The majority of specialty coffee (along with all commercial coffee), is bought on the basis of
the futures price quoted at the New York Coffee, Sugar and Cocoa Exchange (CSCE). If the
coffee is Robusta, then the reference price is the London LIFFE market price. Quality
differences are priced on the basis of differentials above or below the market price. For lower
quality coffees (Robusta and Hard Arabica), quality differences are mainly related to the size
of the beans and the number of defects in a sample, both of which can be easily assessed
through visual inspection or screen retention evaluation. Coffee of this kind is shipped from
exporting countries “on description”. Most Mild Arabica coffee, on the contrary, needs to be
brewed and tasted by professional cuppers to determine the intrinsic quality of the bean.
Therefore, in addition to the visual parameters, these coffees need to match standards on
aroma and taste. In some cases, especially if buying large quantities of a relatively
undifferentiated product, Mild Arabicas can also be shipped “on description”. However, high
quality coffee is almost always sold “subject to approval of sample” (SAS). The exporter
supplies a sample of a lot of coffee that is thought to fit the buyer’s description. The buyer
analyses it, and then decides whether to buy it or not (see also Ponte 2002b). In a transaction
that is subject to approval of sample, there is complete disclosure of information about the
intrinsic quality of the coffee. This provides a marketing system where the buyer (importer,
broker, or roaster) and the exporter can fully evaluate information on quality, and where the
buyer can reward higher quality with higher prices. The main problem is that this
transmission mechanism rarely goes all the way to the farmer, unless the exporter is also a
producer.
Before market liberalization, many coffee producing countries had single-channel marketing
systems that allowed pricing on the basis of quality. Cooperatives paid a fixed advance
payment per kg of coffee delivered, and then paid another one or two installments after
having delivered the coffee to a curing plant or exported it. Usually, the last payment was
proportional to the overall quality of coffee sold by the cooperative to the marketing board,
sometimes also to the quality of coffee delivered by the farmer to the cooperative. These
handling and payment systems were fairly laborious and slowed down the flow of coffee from
the farmer to the importer. Overhead costs associated with these procedures were high,
meaning that farmers received a lower proportion of the export price than they would have in
a more efficient system (quality considerations being equal). Payments to farmers were often
late and resources were siphoned out of the system at various levels. However, price
22
Interview No. U1502021, Kampala, Uganda, 15 February 2002.
15
stabilization was ensured within one season. Most important, the system provided quality
incentives to cooperative societies and (less directly) to farmers.
One of the results of market liberalization in producing countries has been high levels of
buyer competition. This means that the proportion of the export price going to the farmer has
generally increased and that farmers are paid promptly. On the other hand, domestic traders
have to move coffee quickly to minimize capital costs. They can not afford to spend too
much time evaluating small batches of coffee, nor can they preserve the identity of these
batches for a future payment in relation to quality. Therefore, they buy all coffee at one price,
performing only perfunctory checks to ensure that the coffee is not too wet or full of stones
and sticks. As a result, farmers have no direct incentive to produce high quality coffee. This
has led to deteriorating export crop quality in several countries and, in some cases, to price
discounting in international markets and loss of reputation for certain origins.23
Another result of market liberalization has been the weakening of cooperatives. Cooperatives
now have to compete with private traders on the basis of their first payment. If they pay a
lower price than traders, they fail to get coffee from farmers. If they pay a high price, they
risk losing money if the market price goes down, plus fail to make a second or third payment
in relation to quality. As a result, they have either gone bankrupt, or have competed on the
same basis as commercial traders – but without their speed and flexibility. The combined
result is that good and bad coffee is all mixed together and exporters can only perform a
partial selection process to re-separate high quality for specialty exports. In any case,
exporters pocket the value added while the farmer gets no premium. In the long term, the
supply of high quality coffee dwindles, and traders/exporters tend to source high quality
coffee increasingly from estates, with which they can apply different quality checks and
contractual forms (Ponte 2002b).
The failure to pay higher prices for quality at the farm level is threatening the supply base of
the specialty coffee industry, or what is known as the “economic viability” of high quality
coffee producers. This problem is finally being addressed by some industry actors. As stated
by one of the prominent SCAA members, “we need to put our money where out mouths are,
as an industry, by supporting coffees of high intrinsic value with prices which make their
continued existence possible.”24
23
For recent contributions on market liberalization in the coffee sector (with specific focus on selected African
producing countries), see Akiyama (2001), Common Fund for Commodities (2000), Losch (1999), Love (2001,
2002), Ndjeunde et al. (2002), Pelupessy (1999), Ponte (2002b), Temu (2001), and Winter-Nelson and Temu
(2002).
24
Kevin Knox, Allegro Coffee, quoted by David Griswold in ‘Relationship Coffees,’
www.scaa.org/stories.cfm?st2=stories/ 110100.cfm
16
Responses from the specialty industry
The specialty industry is experimenting with at least three combinations of standards and
forms of coordination to ensure that the value added of high quality coffee is transmitted all
the way to producers: (1) “relationship coffees”; (2) competition-auction events; and (3)
geographic appellation systems.
Relationship coffees
“Exceptional single-origin coffees create a connection to far-away locations. . . [They] are

stories in a cup (blends are stories, too, but they share their narrative with the art of the
roaster/blender).”25 Single origin coffees have been one of the fundamental elements of the
specialty coffee industry, whether they come from a large region or from a single farm. Yet,
any of these coffees can be bought through a maze of intermediaries, or directly at the source.
The increased tendency in the specialty industry to “sell a story” together with the coffee has
prompted a number of operators to get involved in direct relationships with producers. The
marketing literature in companies that do so are rich with references to traveling and
exoticism.
This has led to the formulation of a form of coordination called “relationship coffees”, which
is based on a direct connection between the end buyer and the primary supplier. An
increasingly common view in the specialty industry is that prices should be based on
considerations of quality and costs of production, therefore completely de-linked from the
New York futures market price. This is accompanied by the idea that specialty buyers (be
they importers, wholesalers or roasters) should formulate multi-year fixed price contracts with
their suppliers. These contracts allow small roasters to know the price at the beginning of the
year, so that they can concentrate on roasting instead of dedicating too much time and energy
on sourcing. They have obvious advantages for producers as well: they can minimize risk,
upgrade their production and processing methods, and invest into achieving supply reliability.
Finally, bankers on both sides are more likely to provide finance.26
The philosophy behind relationship coffees is clearly illustrated in the marketing literature of
coffee companies that are involved in these contractual forms. The following is an example:
Roasters often buy their beans from brokers who buy from other brokers who “mix” beans of
varying quality from different regions. This non-selective way of buying beans saves
considerable money for coffee roasters, but compromises flavor dramatically for the coffee
lover. Ironically, these “palatable” hybrids are often sold to unwitting consumers for a gourmet
price! . . . We believe that it is only through intimate knowledge of the growing process, close
involvement with the farmer’s operation, and careful selection of the raw product that a roaster
can be assured of top quality. Also, buying directly from the farmer cuts out broker fees, nicely
25
Mike Ferguson, ‘Uncharted Territory: Exploring the Possibility of Specialty Coffee Appellations,’
www.scaa.org/stories.cfm?st2=stories/110501.cfm
26
Presentations at the SCAA 14th Annual Conference & Exhibition, panel ‘Economic viability for farmers: The
roaster/retailer role’, Anaheim, California, 3 May 2002.
17
trimming the price for you, the consumer. Best of all, you are assured of getting a 100%
27
gourmet roast, crafted by coffee lovers, not mixed by coffee brokers.
Only a small number of companies in the specialty industry are currently involved in
relationship coffees. However, this form of coordination is slowly spreading. For example,
San Francisco Bay Gourmet Coffee is estimated to buy approximately 100,000 bags of high
quality coffee each year, and to source directly for about 70 per cent of the total. Green
Mountain Coffee Roasters, a Vermont-based company, buys about 35 per cent of its
approximate need of 100,000 bags of green coffee a year through relationship coffees on the
basis of long-term fixed-price contracts. The company pays above the market price,
sometimes close to fair trade levels. An estate owner declared to have been paid $1.30/lb fob,
when the market price for “Other Milds” in the NY futures market hovered at around $0.55-
0.65/lb.28 The relationship coffee purchases of these two companies alone are the equivalent
of eight per cent of total exports from a high quality producing country like Kenya. It is a
small proportion, but not exactly a drop in the ocean either.
Competition-auction processes
A second way of rewarding quality is through “competition-auction processes”. These are

exemplified by the “Cup of Excellence” program, which is organized by the Alliance of
Coffee Excellence (ACE), an organization cooperating with SCAA in some areas of the
program. The Cup of Excellence program is based on country-level competitions selecting the
highest quality coffees that are then sold through internet auctions. The goal of the Cup of
Excellence program is to find the best coffees of a harvest season and reward the farmers who
produced them, not only with a trophy but also with an increased premium. Competitions
started in 1999, and have taken place in Brazil, Guatemala, Nicaragua, Panama and Costa
Rica.29 Any coffee farmer in one of the countries where the competition takes place can
submit samples, although it is obvious that more politically connected and financially able
farmers are more likely to submit samples that poorer and more isolated ones. The entrants
are first screened to ensure that they meet minimum standards. The coffees are then blind-
cupped by a national jury to select the top group. Finally, after a 3-day competition, an
international jury awards the best coffees. These coffees are then sold through an open
internet auction. The winner of a bid can use the Cup of Excellence logo to market the coffee,
but only for the exact number of purchased bags. The buyer may also use the logo to indicate
that the company was a successful buyer in the Cup of Excellence program for a particular
year.
27
San Francisco Bay Gourmet Coffee, http://www.gourmet-coffee.com/coffee/coffee_green_2.html
28
Presentations and handout at the SCAA 14th Annual Conference & Exhibition, panel ‘Economic viability for
farmers: The roaster/retailer role’, Anaheim, California, 3 May 2002.
29
A similar system, but independent from the Cup of Excellence program, is being implemented in Uganda
through the East Africa Fine Coffees Association (EAFCA) and with the support of USAID.
18
This program has provided high premia directly to producers for quality coffee, and
recognition in the marketplace for coffee regions and origins that were not necessarily known
as “specialty”. It provides a bridge between producers and quality buyers, saving time and
expenses to buyers in the search for top quality coffees. It is costly for small roasters to find
the right quality of coffee year after year. The higher the difficulty, the larger the cost, the
lower the price will be paid to the producer. The more information is available on quality
(through pre-auction samples), the lower the degree of quality-related risk a buyer incurs, the
higher the price that will be paid for a certain level of quality. Furthermore, the competition
side of this marketing system allows quality training in producing countries. It can also
facilitate the process of establishing geographic appellation systems (see below). Producer-
winners of the awards gain market recognition which can be followed by the building of long-
term relationships with buyers. Buyers winning coffee lots at the auction gain image and an
additional marketing tool. They may also distribute brochures with information on the Cup of
Excellence coffee lot they bought; therefore, they help educating consumers. Through the
auction, quality information and prices are transmitted directly between producer and roaster.
This may lead to future direct contacts and two-way feedback on quality. Most of these
aspects, as we have seen above, are missing in the commercial coffee market and even in
lower-end specialty coffee market. In these markets, quality is not paid with higher prices at
the farm level, there are many intermediaries between producer and roaster, and little or no
information on quality is fed back to producers.30
Appellation of origin
Appellation of origin refers to a designated geographical region known to supply a product

whose characteristics and quality are essentially due to the environment within that region.
The main goals of an appellation system are to: (1) facilitate the enforcement of the
intellectual property rights in relation to geographic indications of origin and truth in labeling;
(2) promote regional or country-specific recognition; (3) build consumer trust and loyalty; and
(4) improve and maintain quality.
The appellation area may be defined by pre-existing boundaries, such as a town or district, or
it may be created specifically for a new appellation designation. Appellation systems in coffee
have been developed for “Jamaica Blue Mountain” and “100% Colombian Coffee”, and are
under formulation in Kona (Hawaii),31 Antigua (Guatemala), Veracruz (Mexico), Peru and
Uganda. There are two basic ways of developing an appellation system. A more exclusive one
30
Presentations at the SCAA 14th Annual Conference & Exhibition, panel ‘Search & Reward for Quality:
Competition-auction Process’, Anaheim, California, 4 May 2002.
31
Efforts in developing appellation programs, together with certification and trademark registration in
consuming countries, gained momentum in the coffee industry following the so-called ‘Kona scandal’. In 2000,
Michael L. Norton of Berkeley (California) was indicted by a US federal grand jury on account of fraud. He sold
coffee as ‘100% pure Kona’ (from Hawaii), while about 87 per cent was found to be much cheaper coffee from
Central America (see Stuart Adelson, ‘Justice for Java: An Update on the Kona Coffee Fraud’,
http://www.scaa.org/stories.cfm?st2=stories/032001.cfm
19
is to require a set of minimum standards for inclusion. This means that even through a farm is
physically located within the appellation boundaries, it may qualify for appellation only if it
matches a certain plant variety, a certain processing method, or a minimum quality standard.
Examples of this system are the French “Appellation d’Origine Controlée” (AOC) for wine
and the “Jamaica Blue Mountain” for coffee. A second, and more inclusive, system is one
that simply defines and legally recognizes areas, such as the American Viticulture Area
(AVA) system. However, there are also hybrid situations, where within a generic appellation
(i.e. Napa Valley in California), there may be stricter sub-appellations.32 The general rule of
thumb is the greater the detail, the more interesting the story, the higher the exclusion barrier.
The process of appellation development usually starts with the registration of an institution or
trade/grower association in the producing country. The first key steps are the definition of the
appellation geography (which often involves GIS mapping and field data collection) and the
development of certification parameters. Other steps are training cuppers for coffee
evaluation purposes (if minimum quality standards are required), choosing the certification
and/or trade marks, identifying target markets (demographically and geographically) and
carrying out promotional activities internationally. Usually, the institution in charge of the
system also monitors and enforces the rules of appellation, and (if funds are available for the
purpose) seeks protection of its mark in consuming countries through certification and/or
trademark registration.33 All these steps (especially promotion and registration of marks in
consuming countries) are expensive, and require technical assistance and/or financial aid at
various points. However, the gains for producers can be substantial. Specialty buyers are
likely to pay higher prices in exchange for the warranty that a particular coffee comes from a
specific geographical origin. Because appellation systems are often run by producer
organizations, they also make for good “stories” of cooperation. These stories, and the
exoticism they are embedded in, help the roaster/retailer to add value to the coffee and to
channel part of this value back to the producer.
32
Mike Ferguson, ‘Uncharted Territory: Exploring the Possibility of Specialty Coffee Appellations,’
33
Presentations at the planning meeting of the ‘EAFCA Regional Coffee Appellation Programme & Cupping
Competition,’ Kampala, Uganda, 17-18 January 2002
20
5. Sustainable coffees34
I do not want to be waddling about in a suit while my suppliers are starving to death … It
doesn’t take a rocket scientist to figure out that social responsibility and profitability are not in
35
conflict
Sustainability has become a hot topic in the specialty coffee industry. Part of the discourse on
sustainability touches issues that are identified as “economic viability for farmers”, as we
have seen in the previous section. These narratives are generally nested in a market-oriented
parlance, and focus on organizational and contractual forms that allow producers to be paid
the highest price for a certain level of quality. In other cases, however, sustainability encloses
not only the question of economic viability but also issues of “fairness”, “environmental
conservation” and “social responsibility”.
The most common view on sustainable coffees is that they are grown in relation to criteria of
environmental protection and socio-economic fairness. These are known as certified
“organic”, “shade-grown”, and “fair trade” coffees.36 Organic coffee is produced with
methods that ensure a viable and sustainable agro-ecosystem. Shade-grown coffee is grown
under forest cover, thus preserving biodiversity and providing an appropriate habitat to
migratory birds. Fair trade coffee is based on a trading relationship between stakeholders that
has both market-based and ethical elements and aims to be sustainable in the long term. Non-
profit organizations have devised standards and certification processes for all three kinds of
coffee. However, not all coffee sold using these sustainability labels is certified.
The estimated size of certified organic, fair trade, and shade-grown coffees sales in North
America is still only one percent of the $20.7 billion North American coffee market, and
approximately two percent of the specialty coffee market. Globally, sustainable coffee sales
represent slightly less than one percent of the global coffee market (Giovannucci 2001, 25).
34
In this paper, I use the terms ‘ethical’ and ‘sustainable’ interchangeably. Ethical is the term normally used in
the literature covering issues of environmental protection and socio-economic fairness in trade. Sustainable is an
equivalent term used in the specialty coffee industry.
35
36
The specialty coffee industry has also evaluated its vulnerability to the issue of child slave labor, following
press reports in May 2001 on the use of child slave labor in cocoa plantations in Côte d’Ivoire. The industry
asserted that no specialty beans are sourced from that country. However, as argued in a special feature of a
distinguished coffee trade journal (Tea and Coffee Trade Journal, ‘The Plight of Coffee’s Children’, Vol. 176,
No. 1-2), this may not be enough to convince consumers. The industry may have to examine the situation more
in depth. The article suggested various opportunities for the specialty industry in this realm: (1) support fair
trade, since FT certification includes relevant ILO conventions concerning child labor; furthermore, paying
higher prices means a lower probability that a family needs to send children to work for wages; (2) get involved
in ‘relationship coffees’, which offer opportunities to verify child labor employment directly; (3) participate in
development projects focusing on education, such as Coffee Kids (see below); (4) institute codes of conduct that
are enforceable and independently monitored; and (5) carry out lobbying and advocacy in international policy
discussions through the SCAA.
21
According to a survey of 2,098 North American coffee firms (importers, distributors,

wholesalers, roasters and retailers) carried out in 2001, there is a relatively high level of
awareness of sustainable coffees in the industry (98.7 per cent for organic, 76.4 per cent for
shade-grown, and 82.5 per cent for fair trade), although the proportion of operators offering
them is lower (78.6 per cent offer organic, 51.8 per cent shade-grown, and 54 per cent fair
trade) (ibid., 9). Even more problematic is the fact that “many firms indicate or believe that
they are selling sustainable coffee although they lack independent certification or verification”
(ibid., 13).
Sustainable coffees pay off for consumer-based operators. They fetch average premia of
$0.59 per pound for organic, $0.62 for fair trade, and $0.53 for shade-grown (ibid., 11). These
are average premia paid by various operators to their suppliers. It does not necessarily mean
that these premia are transferred all the way to producers in their entirety – or at all. The
survey also suggests that “sustainability” and “quality” can not be kept in isolation. The most
important factor in making sustainable coffee valued to businesses was the “specialty quality
of taste” (indicated in almost 92 per cent of cases), followed by personal ethics and beliefs
about fair trade and the environment. Interestingly, sustainable coffees do not seem to be
customer-driven. Customer demand was rated as an important factor only in 50.9 per cent of
responses (ibid., 18).
Organic coffee
Organic agriculture is a production management system promoting and enhancing

biodiversity and soil activity. It is based on minimal use of off-farm inputs and on
management practices that restore, maintain and enhance ecological harmony. Organic
standards are devised by the International Federation of Organic Agriculture Movements
(IFOAM) and its affiliated associations. Accredited certification agencies monitor organic
standards on production, processing and handling. A grower or processor of organic coffee
may be certified by a public or private certification company if, among others, the following
standards and procedures are met: (1) the coffee has to be grown without the use of synthetic
agro-chemicals for three years prior to certification; (2) farmers and processors must keep
detailed records of methods and materials used in coffee production; (3) a third-party certifier
annually inspects all methods and materials; and (4) all farmers and handlers are required to
maintain written organic plans detailing management practices.
Global certified organic coffee exports in 1999/2000 were in the range of 15-18 million
pounds, with an estimated retail value of $223 million. A further 20 per cent of this figure is
likely to be sold as organic, but not certified. Most organic coffee originates from Latin
America, especially Mexico. In North America, organic coffee is sold through health food
stores rather than through specialty coffee retailers (Giovannucci 2001, 23).
22
Shade-grown coffee
Shade-grown coffee (also known as “bird-friendly” coffee) is the lesser known of the
sustainable coffee family. Shade-grown refers to the way coffee has been traditionally
farmed, that is under the shade of various layers of trees. Advocates of shade-grown coffee
argue that the conversion from shade-grown to “sun coffee” that has taken place in Latin
America in the last 20 years is threatening the habitat for migratory birds. Shade-grown
coffee provides an excellent eco-system for birds and other forest-dwelling wildlife. The
layers of vegetation also replenish soil nutrients through natural mulching and protect from
soil erosion and water runoff. Yet, there are very different types of shade. Coffee can be
grown in a range of situations, from a monoculture shade system (with only one type of shade
tree) to a multi-layered system with a high diversity of species.
The main shade-grown coffee certification is provided by the Smithsonian Migratory Bird
Center (SMBC), which certifies farms on the basis of strict guidelines focused exclusively on
shade and rewards the use of the label “bird-friendly”. To obtain this certification, a farm
needs to be already certified as organic.37 These guidelines have been developed in relation to
the optimal environment for birds migrating between North and Latin America. No such
effort has yet been formalized in relation to migratory birds that travel between Europe and
Africa.
Fair trade coffee
Fair trade (FT) in the coffee sector was pioneered by the Max Haavelar Foundation in the
Netherlands in the 1980s. Fair trade is based on partnerships between so-called Alternative
Trade Organizations (ATOs) – such as Twin Trading, Oxfam Trading, Equal Exchange – and
producers. This partnership is defined as a “trading relationship between stakeholders that
has both market-based and ethical elements and that aims to be sustainable in the long term”
(Tallontire 1999, 109).
The relationships between ATOs and producers are mediated by Fair Trade Guarantee
Organizations (FGOs) such as Max Haavelar and the Fairtrade Foundation. These
organizations certify products, select, verify and monitor fair trade coffee producers, and
promote fair trade products to retailers and consumers. Umbrella organizations have also
been set up to coordinate FGO activity and to draft general guidelines (European Fair Trade
Association, Fair Trade Labeling Organizations International – FTO). ATOs operate under
the principle that coffee farmers are paid fairly for their product. This means that registered
producer organizations and cooperatives receive a minimum floor price for the coffee they
sell to ATOs. Currently, the minimum prices are $1.06 per pound for unwashed Robusta
37
April Pojman, ‘Shade-Grown Coffee,’ Fresh Cup, May 2002. Smithsonian Migratory Bird Center, ‘Norms
for the Production, Processing and Marketing of “Bird-Friendly” Coffee,’ Washington, DC.
23
coffee, $1.20 for Hard Arabica and $1.26 for Mild Arabica. An extra premium is added if the
coffee is also certified organic.38 These are noticeable premia if we think that between July
2001 and June 2002 Robusta traded at an average of $0.26 per pound and Colombian Milds
(the most expensive Mild Arabicas in the ICO classification) at $0.66 per pound.39 If the
international price goes over the minimum price level (it has not happened very often in the
1990s), producers receive a five per cent premium above the market price for regular coffee,
and 15 per cent for organic one. ATOs also provide financial and technical support to
producer organizations and play an advocacy role for producers in national and international
fora.
Fair trade coffee can be bought only from small farmers’ organizations. To sell coffee in the
fair trade market these organizations need to qualify for registration in the FTO register. FTO
defines a series of standards to be met in terms of democracy, participation and transparency,
use of the fair trade premium, environmental protection and labor conditions.40 In 2000, 29.1
million pounds of coffee were sold as fair trade globally, for a retail value of $393 million.
The estimated production capacity of the 300 cooperatives in the fair trade register is 165
million pounds. Much fair trade coffee is also sold as organic (36 per cent of the total in
2000). The majority of fair trade coffee is sold in Europe. North American fair trade coffee
sales in 2000 amounted to only 4.7 million pounds, for a retail value of $64.4 million
(Giovannucci 2001, 24).
“Super labels”
The specialty industry is also starting efforts to conceive a “super label” combining organic,
fair trade and shade-grown criteria. Unlike the “SCAA certified” initiative on minimum
quality standards, there is still no sectoral agreement on such a sustainability label. Still, two
initiatives have attempted to combine some elements of the three sustainability “traditions”.
One is Eco-OK certification, developed by the Rainforest Alliance, which covers several
aspects of the farming system, agro-chemical use, soil and water management, and labor
conditions. So far, only farms in six Latin American countries have been certified, most of
them estates.41 Another is the Utz Kapeh code of conduct. Utz Kapeh (meaning “a good cup
of coffee” in one of the Mayan languages) is the name of a foundation based in Guatemala
and the Netherlands. It has developed a code of conduct for growing sustainable coffee on the
basis of the “good agricultural practices” of the European Retailer Group (EUREP). This
38
Fairtrade Labelling Organizations International (FLO), ‘Fairtrade Standards for Coffee,’ Bonn, 25 April
2002.
39
ICO, http://www.ico.org/frameset/priset.htm
40
Fairtrade Labelling Organizations International (FLO), ‘Fairtrade Standards for Coffee,’ Bonn, 25 April
2002.
41
Rainforest Alliance, http://www.rainforest-alliance.org/programs/cap/index.html
24
code contains criteria on soil management, fertilizer use, integrated pest management, waste
pollution management, worker health, safety and welfare, and other socio-economic and
cultural aspects. Utz Kapeh’s goals are to guarantee access to basic social services, guide
producers to match standards for growing sustainable coffee, and provide assistance in
implementing these standards.42
Enterprise initiatives on sustainability
Specialty coffee operators in consuming countries are involved in sustainability issues in three
ways: (1) they may buy and/or sell third-party certified coffees, such as organic, fair trade and
shade-grown; (2) they may contribute to projects in favor of coffee growing communities;43
and (3) they may develop their own systems of guidelines or standards that include
environmental and/or social parameters.
Coffee companies in the specialty industry that are involved in sustainability efforts adopt a
mix of these approaches. Green Mountain Coffee Roasters, in addition to its “farm-direct”
program, buys 16 per cent of its total needs in the fair trade market. It also invests part of its
“social responsibility fund” in producer projects, and is involved in some pre-paying and
financing of producers. Since 1992, Green Mountain’s “Stewardship Program” is geared to
identify those growers who have made measurable commitments in the areas of coffee
quality, environmental protection and labor conditions.44
Thanksgiving Coffee Company, a California-based roaster/wholesaler selling an estimated $5

million worth of coffee in 2001, is known for its slogan “Not Just a Cup, But a Just Cup.” The
company has been running a rating system for buying coffee from growers based on social
and environmental criteria since 1995.45 Thanksgiving Coffee also markets “Song Bird
Coffee” in joint venture between the American Birding Association (ABA). This line of
shade-grown coffees is “verified” by the coffee company owner (therefore, it does not qualify
42
Presentations and handout at the SCAA 14th Annual Conference & Exhibition, panel ‘Quality and
sustainability. Cause & Effect’, Anaheim, California, 6 May 2002. See also Utz Kapeh, http://www.
utzkapeh.org
43
There are several non-profit organizations that were born within the specialty industry and that are active in
educational, micro-credit and community development projects in coffee producing areas. The most famous is
Coffee Kids, which was founded by the owner of a coffee shop in Providence, Rhode Island. Coffee Kids is seen
by its founder ‘as a way for coffee drinkers and coffee related businesses to give something back to the families
who grow coffee’ (see http://www.coffeekids.org).
44
Interview No. S0505021, Anaheim, California, 5 May 2002. See also Green Mountain Coffee Roasters,
http://www.greenmountaincoffee.com/social_environmental/scripts/stewardship.asp
Green Mountain ranked 16th on the Forbes 200 Best Small Companies Ranking in 2001. Its coffee sales are
valued at $84 million in 2000 (see Luisa Kroll, ‘Entrepreneur of the Year: Java Man’, Forbes, 29 October 2001).
Since November 2000, it has been the sole supplier to all 1,100 ExxonMobil-owned stores, a company with a
not-so-clean environmental record.
45
Amy Satkofsky, ‘Sustainable Coffee Is for the Birds — and Everybody Else,’ Business Magazine,
September/October 2001.
25
as a third-party certified coffee). According to the company literature, this “enable[s] bird
lovers and coffee lovers and everyone to vote with their pocketbooks for the survival of bird
habitat while enjoying superb coffee.” The ABA endorses Song Bird Coffee, while
Thanksgiving markets the product. The company also returns 15 cents per package to the
ABA.46 A similar process is in act for the company’s “Bat Magic” coffee. This is also a
shade-grown coffee, and is marketed in relation to the preservation of bat habitat. A
percentage of each sale of Bat Magic coffee supports Bat Conservation International and the
Wildlife Trust, two nonprofit environmental groups that are collaborating on grassroots bat
conservation and public education projects around the world.47
Starbucks has also become involved in sustainability issues. In 2001/02, the $2.6 billion
company (net revenue in 2001) has provided $1 million to the Calvert Fund to make financing
available to small coffee farmers. Starbucks claims to be buying 40 per cent of its total coffee
demand as shade-grown, although it is not clear how much of this is certified.48 It has started
buying fair trade coffee and Eco-OK coffee. Fair trade certified coffee has been available at
Starbucks in the US since October 2000 and in the UK since March 2002. From May 2002,
fair trade coffee has been brewed and promoted as the “Coffee of the Day” once per month in
all Starbucks company-operated stores in North America, apparently at no additional cost for
the consumer. Starbucks was awarded the Humanitarian Award by the Coffee Quality
Institute at the SCAA conference in May 2002. It was also included in Business Ethics “100
Best Corporate Citizens” list in 2002 (in 23rd position).49
The most important among Starbucks’ initiatives is the development of a pilot program for the
establishment of a “preferred supplier system” (PSS) of green coffee purchasing. This
constitutes a set of standards and verification procedures for the “improvement in sustainable
coffee production.” Starbucks defines sustainability as “an economically viable model that
addresses the social and environmental needs of all the participants in the coffee supply chain,
from producer to consumer.”50 This system is superimposed to the already existing quality
standards developed and applied by Starbucks to their suppliers.51 The PSS is a flexible point
46
Thanksgiving Coffee Company, http://www.songbirdcoffee.com/sb-home.html
47
Thanksgiving Coffee Company, http://www.thanksgivingcoffee.com/bats_pr.html
48
Presentations and handout at the SCAA 14th Annual Conference & Exhibition, panel ‘Economic viability for
farmers: The roaster/retailer role’, Anaheim, California, 3 May 2002
49
Whether this means anything positive for coffee farmers is unclear. Procter & Gamble, one of the largest
corporations involved in commercial coffee roasting, ranks 5th in the same list.
50
Sources: Starbucks, press release, 12 November 2001; ‘Starbucks Green Coffee Purchasing Program. Pilot
Program for Preferred Suppliers,’ mimeo; and Interview No. S0305022, Anaheim, California, 3 May 2002.
51
Starbucks’ quality demands vary depending on the contract. Their typical preparations (‘Starbucks
preparation’ and ‘European Preparation’) include the following pre-requisites: only Arabica beans, zero defects
in grade, good even color, and consistent bean size (above screen 15). Cup quality requirements include:
representativeness of the flavor character unique of the origin, clean cup, medium to heavy body, excellent
aroma, and at least hard-bean density for washed coffees. Other contracts, however, may be based on
26
system that rewards performance in a number of categories of “sustainability”. A 100-point

scale includes indicators grouped along three main headings: environmental impact (50
points), social conditions (30 points) and economic issues (20 points).52 In its current
formulation, preferred supplier status will be awarded to those who have scored 100 points.
Preferred suppliers will be given purchase priority over all other coffee offers received during
a particular purchasing cycle. The costs incurred by suppliers in transitioning to such as
system will be mitigated by an interim financial incentive program. This program stipulates
that Starbucks will pay up to $0.10 per pound premium above the contracted price, roughly
one cent for each ten points earned. This incentive system, however, is only transitional and
is supposed to be terminated at the end of the two-year pilot period. After that, only the
qualifying criteria (entry barriers) will be operational. Starbucks has also outlined a system of
independent verification to ensure credibility. Suppliers are required to provide reliable third-
party documentation. The verification system is envisaged as affordable, flexible and
accessible. Independent verification will be provided by private sector organizations or
businesses, NGOs, academic and research institutions, or government agencies.
6. Standards, entry barriers, and equity in the specialty coffee industry:

past lessons and future prospects
In the previous sections, I have examined the variety of standards that can be found in the
coffee trade. Their main characteristics are summarized in Tables 1 and 2, broadly following
the classification of standards offered in Section 2 (mandatory, voluntary, and private). Table
1 includes standards that relate mainly to issues of coffee quality. Table 2 examines standards
that pertain to environmental and socio-economic issues.53 The two tables include a few
standards that relate to the commercial coffee market (coffee quality standards in producing
countries, food safety regulation in consuming countries, the ICO Coffee Quality-
Improvement Program, and standards underlying commercial coffee purchasing systems).
These have been touched only in passing in this paper, and have been placed in the tables for
comparative purposes. The following discussion will focus on the entries that refer to the
specialty coffee market. One of the reasons is that many, if not all, of these are viewed by the
industry as “positive initiatives”, although there seems to be certain degree of polarization
established grades as per origin (official grade denominations) or other established types (commercial
descriptions).
52
The ‘environmental impact’ category includes ten indicators, worth five points each: soil management, water
reduction, clean water, water buffer zone, forest and biodiversity conservation, use of shade, pest management,
accepted agro-chemicals, and waste management. The ‘social conditions’ category includes three indicators,
worth ten points each: wages and benefits, health and safety, living conditions. The ‘economic issues’ category is
rather generic and has only one indicator called ‘economic transparency’, which requires suppliers to provide
documentation regarding prices paid to all upstream actors in the chain.
53
Classification by main aspect does not mean that all standards cover exclusively a given aspect. In many
cases, they comprise a variety of issues cross-cutting quality, environmental and socio-economic issues.
However, an attentive reading of their standards reveals that they usually stress one category over the others.
27
between operators focusing on quality and those focusing on environmental and socio-
economic causes (see Section 8). Except for a growing literature critically assessing fair trade
coffee (Mace 1998; Schmidt 2002; Tallontire 1999, 2000; Waridel 2001), very little has been
done to look at specialty coffee standards as a whole.
I will start with initiatives that relate mostly to coffee quality. Any minimum standard on
quality raises entry barriers and therefore has distributional effects. For example, the “SCAA
certified” specialty coffee approach will set strict standards on cup quality for the use of its
mark of integrity. The problem is that if a producer does not meet the standard, he/she will
find no mechanism within the system itself to get access to capital, financial aid and/or
technical assistance needed to make further investment and “upgrade”. In general, estates
have better access to finance, markets and infrastructure. Therefore, they are more likely to
find the resources to meet the increasing demands of new standards than smallholders and
cooperatives. Also, many estates have cupping skills and facilities, while most smallholders
(and even cooperatives) do not. Estates are better equipped to forge direct links with specialty
importers and roasters, can better internalize feedback information about quality, and are thus
better placed in the “quality learning curve”.54
The “Cup of Excellence” program could help forging direct contacts between producers and
specialty coffee operators. Yet, its current configuration covers only a tiny minority of
producing countries (all in Latin America) and, within these countries, of good quality coffee.
Also, a majority of coffees participating in these competitions (and of those awarded) has
come from estates, rather than cooperatives and smallholders. An important exception has
been the Nicaragua competition, where cooperatives won 13 out of the top 25 spots, including
the overall winner. All these cooperatives owned cupping labs which were provided through a
two-year USAID funded project.55 The Cup of Excellence program envisions an increase in
the number of origins and an expansion of the competition-auction system from top quality
coffees into a larger segment of specialty coffees. This could have a positive impact on
cooperatives and smallholders. A more direct and favorable measure would be to organize
special competition-auction processes exclusively dedicated to smallholder coffees.
Another smallholder-friendly (or at least “size-neutral” process) is the development of

appellation systems, especially in their more generic configuration (where all farms in a
certain area qualify for participation). Furthermore, boundary setting can be tuned to cover
mainly smallholder-based producing areas. However, if minimum quality requirements are
54
The analytical distinction between ‘estates’ and ‘smallholders’ is to some extent arbitrary. Different countries
have different classification systems. What constitutes an estate in one country may be classified as smallholder
in another. Some countries also distinguish between smallholders (under 1-10 ha, depending on the country),
small-to-medium estates (from 2-10 up to 50 ha) and large estates (50 ha and above). In this paper, I prefer to
use a generally applicable distinction between smallholders (under 10 ha) and estates (above 10 ha). This does
not mean that all estates are the same. The smaller the estate, the closer it will be to the needs and characteristics
of a smallholder. Therefore, my statements on the matter should be read as referring to a continuum of situations
rather than a sharp division in two extremes.
55
Paul Katzeff, personal communication, 24 October 2002.
28
set, relatively well connected farmers and those who have access to technical assistance or
extension may benefit more than more marginalized farmers – even within the same
smallholder category.
Even private initiatives, such as relationship coffees raise equity concerns because they are
easier to establish with estates than with smallholders or cooperatives. The key issue in this
case is not one of increasing entry barriers (relationship coffees actually lower them), but one
of who gets involved and who does not. As an estate owner stated, “it is easier to work with
estates than with cooperatives. You just have to deal with one person and one mind; you get
homogeneous farming practices, consistent quality and faster decision making”.56 As argued
above, estates are much better equipped to meet the quality demands of the specialty market
than smallholders and cooperatives. In other words, they are more likely to deliver high
enough quality and uniformity year after year. Yet, not everyone agrees with this picture.
Some specialty industry actors claim that it is not much harder to work with cooperatives than
with estates. The key aspect is that many buyers “prefer soft toilet paper in their hotel rooms
rather than an outhouse in the woods without running water.”57
These critical considerations should be read in a comparative manner. To the extent that these
initiatives enable to channel value added to the producer (of any size), they still operate in a
redistributive manner (between consuming and producing countries). However, the main
objective should be that the producer gets paid a premium for quality, which is neither what
happens in the commercial market nor in the lower-end specialty coffee purchasing systems.
I now move to standards that cover environmental protection and socio-economic issues. A
general problem in the realm of certified coffees is that the quantity supplied is often above
the market demand. Therefore, producers may not be sure that the investment made on
certification (and/or organic conversion) will pay back. For example, oversupply of organic
coffee is a common problem in some countries. In many agro-ecological and/or socio-
economic settings, coffee farmers perform agricultural practices that are close to the organic
model.58 Yet, organic agriculture is more than not using agro-chemicals. The conversion
process is an elaborate and expensive process that may take years and usually involves access
to extension services and technical assistance. The costs of certification for producers can be
alleviated if NGOs or aid agencies are involved, or if the certificate holders are export
companies (in this case, however, the exporter ends up controlling financial and information
flows). The premium received by farmers depends on the marketing system (whether the
certificate holder is a cooperative or an exporter), on what percentage of total sales are
56
Comment from the floor at the SCAA 14th Annual Conference & Exhibition, panel ‘Economic viability for
farmers: The roaster/retailer role’, Anaheim, California, 3 May 2002
57
Paul Katzeff, personal communication, 24 October 2002.
58
This is especially relevant in African Mild Arabica producing countries after market liberalization. Agro-
chemicals have become much more expensive, especially if compared to coffee prices, and access to credit for
smallholders has dried up (Ponte 2002b). On the contrary, in Hard Arabica and Robusta coffee producing areas,
farmers rarely used agro-chemicals even before liberalization.
29
certified organic (versus how much coffee has to be sold as “conventional”), and on the costs
of acquiring and maintaining certification. The key to economic sustainability for organic
conversion is to find a reliable minimum size market year after year. 59
Some of the same problems apply to shade-grown certification. Certified producers have
reported that they do not necessarily end up earning an extra premium above organic
certification (which is required by the Smithsonian standards). In 2000/2001, 6.6 million
pounds of coffee were certified as shade-grown, but only 1.2 million pounds were sold as
such (for a retail value $16.2 million), mostly in North America. This means that instead of
earning a premium, certification may just ensure that certified producers sell their coffee more
easily (or earlier) than other producers. If this is the case, then certification – rather than
providing an incentive – simply constitutes an added entry barrier. Another problematic
aspect of marketing is that many consuming country-based operators use the concept of
“shade-grown verified” coffee. This coffee is not certified by a third party. The concept
simply implies that the farm has been visited by someone to make sure that there is “shade”.
These verifiers are not super partes and it is not clear what guidelines they use. Some coffee
operators use the term shade-grown even where there are only a few trees in a farm, or only
one species. This creates confusion, as consumers do not know which terms to trust, and
provides opportunities for free-riding to less committed operators (the same is true for non-
certified organic coffee).
Fair trade certification is available only to small farmer groups, organizations and
cooperatives. The process usually takes six to twelve months to be carried out – longer if
organic certification is also sought. FT certification requires setting up formal organizational
structures, auditing, and mechanisms of transparency and accountability. Therefore, its cost
depend on whether farmers in a certain area are already organized, and on what it takes for an
organization to achieve “FT status”. The rewards in terms of premium are known and
substantial (as long as there is a fair trade market for the coffee supplied). They vary
depending on whether the coffee sold is Robusta or Arabica, conventional or organic. Yet,
“fairness” issues in FT are not completely crystal clear. Better off farmers are more likely to
be involved in a farmer group or organization than more marginalized ones. In the same area,
there may be a cooperative that is chosen as FT partner and one that is not. FT buyers may
select a small cooperative that sells most of their product exclusively to the FT channel,
making a few farmers relatively well off. Alternatively, they may buy from a large
cooperative that sells a tiny percentage to FT, which results in a small premium to a large
number of farmers. The accountability and transparency record of some cooperatives,
especially if formerly government-controlled, has also been questioned. Finally, some
countries offer much FT coffee, others do not.
59
A recent study on organic conversion for unwashed Robusta in Uganda shows that a cooperative or farmer
group faces an initial investment of $60,000 for the first three years. This would come down to $14,000 for the
4th and 5th years, and to $1-2,000 per year thereafter. The direct costs faced by an individual farmer to
implement organic practices are estimated at $50 over three years. The total investment would be sustainable if a
market for 60 ton of certified organic coffee is found every year (Belling 2002).
30
When the FT market offers such a large premium over the commercial market (this has been
the case since late-1998 for Arabica and since early 1996 for Robusta), these points of
contention become even trickier to handle. FLO is considering a downward revision of the
minimum price for unwashed Robusta, which would be a good idea if it makes FT espresso
blends cheaper at the retail level, and if this translates into a higher market share. Obviously,
increasing the market share of FT coffee in general would have a positive impact on
producers. For this reason, fair trade organizations, after targeting Starbucks, have started to
mount campaigns against large commercial roasters. For example, the US-based Global
Exchange is trying to convince Folgers, the leading Procter & Gamble brand, to begin
offering FT-certified coffee to its consumers. Oxfam is also putting pressure on the “Big
Four” roasters to increase their use of FT coffee in their blends (Oxfam 2002b).
In relation to attempts at “super-labeling”, one of the problems so far has been the limited
reach of such initiatives. Eco-OK has granted 25 certifications in the coffee sector,60 most of
them to estates, and all in Latin America. Utz Kapeh has certified a total of eight farms and
two groups of cooperatives in five Latin American countries. In both cases, no funds are
provided to producers for investments to comply with the standards (although Utz Kapeh
“helps in finding funds”). Both have lower environmental and shade standards than organic
and the Smithsonian shade-grown certification. Finally, none of the two guarantees a floor
price (like fair trade does) or a living wage (just payments according to national laws). This
has prompted criticism from advocates of “traditional” certifications, who fear that
environmental and fair trade principles are being watered down and that the multiplication of
labels is confusing consumers.
In the realm of enterprise initiatives, Starbucks’ Preferred Supplier System (PSS), while
laudable in its intentions, has a number of limitations. Except for the interim period during the
pilot phase, no explicit incentive will be provided to cover the extra costs embedded in
meeting the ‘sustainability criteria’. Suppliers will have to improve performance and pay for
independent verification. Yet, there is no long-term guarantee that they will receive higher
prices than the ones already paid by Starbucks. Unless the system of point-based incentives is
kept in the long-term, the PSS will simply raise entry barriers for suppliers. The requirement
of ‘transparency’ simply stipulates that prices paid in the supply chain be released to
Starbucks, but there is no setting of minimum prices or living wages. The PSS system is also
much more precise in relation to its environmental aspects than its social and economic
ones.61 Finally, it is obvious from the reading of the ‘social conditions’ category that
Starbucks has estates in mind as producers, rather than smallholders (the three provisions
60
Eco-OK certification is more widespread in the banana sector, but still applies only to Latin American farms.
61
The coffee sourcing guidelines adopted by Starbucks are mostly based on conservation principles in coffee
production. These were developed by the company together with Consumers Choice International, Conservation
International, the Rainforest Alliance and the Smithsonian Migratory Bird Centre. This is reflected in the
relatively precise description of environmental indicators. To my knowledge, no such cooperative activity was
attempted in developing social and economic indicators, which would have benefited from interaction with fair
trade and labor organizations.
31
under this category are generic and relate to farm workers). On the positive side, Starbucks
has announced a collaborative project with the Ford Foundation, Oxfam America and CEPCO
(an association of smallholder coffee producers in Oaxaca, Mexico). The pilot project will
provide farmers with technical assistance (including the introduction or refinement of cupping
skills for the farmer organization), market information and product quality feedback.62
The problem of equity in the specialty industry revolves around the fact that raising standards
(whether in terms of quality, environmental protection or socio-economic conditions)
heightens entry barriers in the specialty coffee trade. A first issue is whether higher standards
are rewarded with higher prices to producers. This seems to be the case in relation to the
quality initiatives analyzed in this paper and for fair trade, but not always in environmental
protection labeling. A second issue is whether the regional distribution of benefits is fair. On
this count, Latin America seems to be the clear winner over Asia and especially Africa, with
the exception of fair trade. A third issue is whether one group of producers is
disproportionately rewarded in comparison to another. As underlined several times in this
paper, estates have benefited from new standards and purchasing systems developed in the
specialty industry more than smallholders and their organizations. This does not mean that
working with cooperatives is not possible, but that certain conditions need to be met.
The procurement manager of one of the specialty buyers who works primarily with
cooperatives told me that when they start working with a cooperative, the first question they
ask is whether they have access to technical assistance and at what level. She added that
cooperatives need a good organizational structure to achieve high quality, but they cannot
deliver without support.63 The delivery of technical assistance may be facilitated through
partnerships with NGOs and donors. Therefore, the Memorandum of Understanding between
SCAA’s Specialty Coffee Institute and USAID is a positive evolution.64 Yet, while technical
assistance is one of the ways to address the problem of access, the specialty industry needs to
be conscious that some of its choices raise entry barriers to all cooperatives and smallholders.
The coverage of technical assistance is spotty, sometimes politically motivated, and tends to
concentrate in areas that are less disadvantaged and more likely to show “success”. Technical
62
The stated objectives of this project are: (1) increase the supply of high quality certified Fair Trade coffee for
the US specialty coffee market from small-farmer cooperatives; (2) improve the skills of small-scale coffee
farmers by providing resources and training to improve and standardize post-harvest quality; (3) provide
information and support to enable farmers to earn premium prices for their coffee by producing a high quality
product; and (4) enable the farmers to disseminate their learning to other coffee cooperatives (Joint Starbucks
and Oxfam America press release, 29 July 2002).
63
Interview No. S0505021, Anaheim, California, 5 May 2002.
64
This partnership is particularly important because it is the first time that USAID has signed an MOU with a
private industry group. The MOU aims at institutionalizing public-nonprofit-private initiatives in coffee
producing countries. It was born from the experience of a USAID-funded project in Peru, where Seattle's Best
Coffee Company and the nonprofit rural development organization, Winrock International, renovated over 2,000
hectares of coffee land. Winrock worked at the local level, while Seattle's Best Coffee provided market access
(Mike Ferguson, ‘Impact at Origin: Specialty Coffee Takes the Lead’, http://www.scaa.org/stories.
cfm?st2=stories/121400.cfm)
32
assistance also tends to be “reactive” (filling the gaps after they arise), while the specialty
industry needs to be “pro-active” before it becomes an estate-based industry.
7. Theoretical implications
The case study of the North American specialty coffee industry suggests three broad trends in
the realm of standards: (1) voluntary and private standards are substituting mandatory
standards – if not de jure, at least de facto; (2) measuring attributes that pertain to production
and processing methods is becoming as important as (if not more than) measuring the
attributes of a product; and (3) experience and credence attributes of coffee are becoming
increasingly important vis à vis search attributes; this has led to the proliferation of complex
certification and labeling systems and to new forms of coordination.
One of the implications of these changes is that, as the nature of standards becomes more
complex, the institutions setting and/or monitoring them achieve increased power. This
implies that behind apparently technical discussions about standard content and monitoring
procedures lay issues of access and control. As we have seen above, standards erect new entry
barriers, which have distributional consequences both in terms of geographic location and of
social groups. As certification procedures become more expensive, those smallholders and
cooperatives in producing countries that do not have access to development aid or technical
assistance tend to lose out. Even those who manage to match entry barriers do not necessarily
gain in terms of higher value added. Public institutions, which in the past set standards
embedded in regulation, are increasingly unable to defend the interests of producers,
especially small-scale ones. The result is that, in many instances, producers have been
completely cut off from the game of standard setting and monitoring.
If one employs the categories of convention theory, the global coffee value chain could be
interpreted as moving away from an “industrial” form of coordination (based on buying of
coffee in commercial grades and in relation to the NY futures price) and towards “domestic”
and “civic” forms of coordination (as the specialty industry becomes more important) .
However, as mentioned in Section 2, the “domestic” category contains forms of coordination
that embed very different systems of quality management and power dynamics. The case
study of specialty coffee suggests that shifts within “domestic” forms may be as important as
between these and other forms. For example, information on quality in the commercial coffee
market at the retail level is normally embedded in branding. In the specialty coffee sector,
information on quality is passed on to the consumer to a much larger extent in other ways,
especially in relation to coffee origin – and sometimes on the basis of personal interaction
between roaster and producer, and roaster and customer. Geographic appellation systems
confer power to producers much more than branding. Yet, both pertain to the same
“domestic” category. Differences also arise along value chains, not only between sub-types
of chains. For example, relational contracting between roasters and importers, and between
33
importers and exporters, usually take place in an environment of fairly accurate information
on coffee quality; trusting the supplier in this case is related to the ability of delivering in
time, managing the logistics and preparing coffee to the right specifications. In producing
countries, on the contrary, most transactions take place with only limited information on
quality. Therefore, trusting the supplies is based on the expectation of obtaining a required
and consistent level of quality.
A movement towards a “civic” form of coordination in the global coffee value chain may be –
at face value – more convincing than in the case of “domestic” coordination. The specialty
coffee industry is increasingly focusing on environmental and socio-economic issues. It is
also based much more on quality information sharing and more cooperative forms of
coordination between roasters and producers than the commercial market is. One the other
hand, it is not clear what the explanatory value of this category is, since convention theory
does not ascribe a related form of enterprise to it. To complicate the picture, it may also be
argued that there is a counter-tendency to the shift from industrial to domestic and civic forms
of coordination. The setting of a strict and “objective” SCAA quality standard can be
interpreted as an attempted return towards an “industrial” form of coordination, which may
undermine the need to engage in domestic and civic forms.
In short, it is not clear whether convention theory can provide the tools for understanding the
role of standards in explaining the governance traits of the global value chain. I would argue
that, rather than attempting to “fix” these categories, it is more fruitful to read the relationship
between standards and forms of coordination through the lenses of value chain analysis. This
does not mean that convention theory is useless. It provides a framework of analysis for
assessing how standards shape the forms of governance of a value chain, something that GVC
analysis has not paid too much attention to so far. It is also important to remember that
convention theory undermines institutional readings of standards that do not take into
consideration issues of power and access. Finally, it highlights that perfect information does
not translate into higher efficiency, and that each configuration of quality has implications in
terms of who the dominant actors in a value chain are, and how much control they have over
other actors.
As I have argued elsewhere (Ponte 2001; 2002a; 2002c), previous to the end of the
International Coffee Agreement (ICA) regime in 1989, the global value chain for coffee was
not particularly driven by any actor, nor was it possible to clearly state that producing or
consuming countries controlled it. 65 Entry barriers in farming and in domestic trade were
often mediated by governments. Governments also managed quality control systems and to
65
The first International Coffee Agreement (ICA) was signed 1962 by most producing and consuming
countries. Under the ICA regulatory system (1962-1989), a target price (or a price band) for coffee was set, and
export quotas were allocated to each producer. When the indicator price calculated by the International Coffee
Organization (ICO) rose over the set price, quotas were relaxed; when it fell below the set price, quotas were
tightened. If an extremely high rise of coffee prices took place (as in 1975-77), quotas were abandoned until
prices fell down within the band.
34
some extent decided which quality standards to apply at the export level. In the consuming
country segment of the value chain, roasters were increasing their leading role through
branding (and its “embedded” nature of quality), advertising and consolidation. Yet, their
control of the global value chain was limited by the quota system and government control in
producing country markets.
On the contrary, the post-ICA regime exhibits many of the characteristics of an explicitly
“buyer-driven” chain. The bargaining power of consuming country-based operators has
increased over producing country actors, especially farmers and their governments. The
institutional framework has moved away from a formal and relatively stable system where
producers and producing countries had an established “voice” towards one that is more
informal and buyer-dominated. In the process, a substantial proportion of total income
generated in the coffee chain has been transferred from farmers to consuming country
operators.66 Strategic choices made by roasters in the last decade or so have shaped entry
barriers not only in the roaster segment of the chain, but also in other segments upstream
(closer to the producer). Roasters have maintained a dominant position in the value chain in
part through effective management of asymmetry of information on quality.
In pre-liberalization marketing systems, farmers were often able to get information on the
quality of coffee they delivered at a cooperative society. Sometimes they also received a price
premium for higher quality. In post-liberalized regimes, no such information is shared with
farmers, and one price is paid for all coffee in one specific area. This increases the
“information gap” between producers and actors downstream (exporters, importers, roasters
and retailers). Through the loss of information on quality and weaker quality management,
producing country-based actors and farmers have lost power in the marketing chain.
Importers are also subject to quality risk because they are increasingly required to carry out
supply management for roasters. This means that they have to guarantee specific volumes and
qualities to their clients all year round. This has led them to vertically integrate into export,
trade and processing (sometimes even production) in producing countries – especially when
they handle coffee for which quality management is important (such as Mild Arabica).
Roasters, on the contrary, have much lower exposure to quality risk. When buying coffee
from importers on the basis of “subject to approval of sample” contracts, they have complete
quality information. Once coffee is roasted and blended, the most important quality issue for
commercial roasters is homogeneity. Any one blend needs to taste the same every day and in
all outlets. Although roasters have been increasing the number of products they offer to the
public, homogeneity of each product in time and space is still a key issue. Most roasted coffee
is branded. The composition of branded blends is a tightly kept industrial secret. In the
commercial market, consumers do not have the skills to identify the subtle differences from
66
On issues of governance and institutions in the global coffee trade, see also Bates (1997), Daviron (1993;
1996), Fitter and Kaplinsky (2001), Gilbert (1996), Ponte (2002c; 2002d), Talbot (1997a; 1997b; 2002), and van
Djik et al. (1998).
35
one blend or brand to another. As a result, they use brand reputation as a proxy for variance
in quality. This does not mean that a higher price necessarily buys a better coffee. Packaging,
shelf placing and advertisement also play a heavy role in establishing consumers’ ideas of
quality. Roasters have complete information on quality when they buy coffee and release
next to no information to their clients. This factor, together with increasing market
concentration, has allowed them to gain a “driving” seat in the global coffee value chain.
While supermarket chains have a predominant power position in other agro-food chain such
as fresh fruit and vegetables – and dictate quality and logistics standards to other actors
upstream – coffee roasters have been able to use the asymmetry of quality information on
coffee to their advantage. The paradoxical situation is that farmers and consumers know little
about the quality of the coffee they produce/consume; roasters have all the information they
need.
At one level, the specialty coffee industry may be undermining this governance system. It has
facilitated a change in ideas of quality among an increasing number of consumers. Some
specialty coffees include environmental and socio-economic aspects in the consideration of
quality. Some specialty roasters look for coffees that are very specific in their analytical
quality traits; therefore, they are experimenting with new contractual forms that are supposed
to allow a better flow of quality information from and to producers. The development of
appellation systems may give producers more power on controlling quality information and a
more equal ground in their negotiations with importers and roasters. However, at another
level, the distinction between the specialty and commercial markets is becoming increasingly
blurred. Also, if buyers eventually decide what is included in a standard and how it is
measured, the impact of the specialty industry could actually facilitate a higher degree of
“buyer-drivenness”. Although some standards and forms of coordination emerging in the
specialty industry may have substantial benefits for producers, not much changes in power
relations if producers are still on the receiving end of key decision-making processes.
Finally, one could argue that the specialty coffee industry is overloading consumers with too
much information. Specialty outlets provide information on the origin, sometimes even the
region or the estate or cooperative where the coffee comes from, processing systems, socio-
economic and environmental content, roast date, blend content, and flavorings. While the
specialty industry rests on an overload of (sometimes “dressed up”) information, the
commercial market relies mostly on brand loyalty. This is not to say that brand is not
important in the specialty industry. As a matter of fact, as the amount of information that the
consumer is asked to digest grows, branding may become increasingly important. Consumers
would then use short-cuts by relying on brand reputation. If branding claims more space as a
form of quality management, then the potential producer-friendliness of specialty coffee could
be undermined. Few, clear, and universally-recognized processes of certification (for intrinsic
quality, socio-economic and environmental impact, and geographic origin) would help to
avoid the need of embedding quality information in brands.
36
8. Conclusion: is specialty coffee “SEC-C” or just “sexy”?

Berkeley will be voting in November 2002 on a proposed ban on coffee not grown with strict
protections for workers and the environment. If passed, it would require all brewed coffee
(but not coffee beans) to be sold in the city to be certified fair trade, organic or shade-grown.
These are what Rick Young, the lawyer behind this initiative, calls “SEC-C” coffees
(pronounced “sexy”, standing for “Socially and/or Environmentally Consciously Cultivated”
coffees). This would come on top of an existing 1999 regulation which obliges the Berkeley
city government to purchase only fair trade coffee.67 While this initiative could be dismissed
as “crazy Berkeley politics”, it does help us understand the political fault line within the
specialty industry between supporters of social and environmental objectives (the “SEC-C
types”) and those who are obsessed primarily with quality and ambience of consumption (the
“sexy types”). The “SEC-C types” support the initiative, pointing out that when seat-belt laws
or the ban on lead-free gasoline were first passed people were shocked, but now they see both
things as totally normal. The “sexy types” argue that the measure would be too restrictive and
illegal, plus would mean higher costs for retailers and therefore consumers. They also claim
that what really counts is quality, and that fair trade or organic coffees are almost never the
best in the market (an argument hotly contested by the “SEC-C types”).
In general, the “SEC-C” position is that certification (whether fair trade, organic, shade-
grown, or other) allows traceability and lends transparency, accountability and credibility to a
system of achieving environmental and socio-economic goals. The “sexy” position is that the
continued supply of high quality coffee can be achieved through relationship coffees. As a
specialty operator stated “[relationship coffee] is true ‘fair trade’ . . . wherein the farmer gets
the money and the recognition directly, with nothing siphoned off.”68 One of the implications
of the relationship coffee model is that it can be carried out without certification, because
quality “stands on its own”. As the quality of fair trade and organic coffees improves, the two
positions may not be quite so far from each other anymore. Yet, the philosophical gap
remains. The former stresses the role of rules and verification to achieve sustainability
(intended in its environmental, social and economic aspects). The latter strives to achieve a
market-based system that allows the transmission of quality information to the source, and
therefore a payment in relation to quality. If this happens to help social and environmental
causes, all the better (it helps selling).
As one specialty wholesaler aptly summarizes, “helping and good causes are good for
business. They bring growth”.69 When Ben & Jerry, perhaps the most famous “socially
67
Charles Burress, ‘A great city's people forced to stop drinking swill? Berkeley ordinance would ban all but
politically correct coffee’, San Francisco Chronicle, 21 June 2002.
68
Kevin Knox, Allegro Coffee, quoted by David Griswold in ‘Relationship Coffees,’
69
Douglas Zell, presentation at the SCAA 14th Annual Conference & Exhibition, panel ‘Expanding into
Wholesale’, Anaheim, California, 3 May 2002.
37
responsible” business in the USA, was sold to Unilever, the latter agreed to support the Ben &
Jerry Foundation at the same level as it was funded before (7.5 per cent of pre-tax profit) for
10 years, and to put $5 million in a separate fund, also administered by the foundation. As
Jerry Greenfield (one of the founders of the company) told me, social responsibility (if
accepted at all) works in mainstream business as long as “it creates business and profit”.70 It
has become part of building a “brand image”.
Is “sustainability” in the specialty coffee industry just good public relations and marketing?
How much of it is “genuine”? Finally, does it matter? If we compare the specialty industry
to the practices of the giant importers and roasters in the commercial coffee sector (buy low
quality, high volume at low price, release little information on the coffee itself), the prospects
for a fairer distribution of value added along the coffee chain still stand (relatively) high. At
the end of the day, motivations do not matter as long as results are there for producers, but
one wonders what would happen if (and when) the tremendous growth of the specialty market
levels off.
70
Informal conversation, SCAA 14th Annual Conference & Exhibition, 3 May 2002.
38
Table 1: Coffee standards relating to quality
Name or Actors or organisations

Nature Characteristics Geographic and farm-size coverage
description setting the standards
Domestic trade: after market liberalisation, most producing

Producing country Minimum quality standards for trading coffee domestically and/or for export;
National regulatory body or countries have either eliminated quality regulation or rarely
coffee quality standards embedded in regulation and enforced through monitoring and export
trade association with enforce it; at the export level, numerous producing countries
standards certification procedure; quality standards at the export level are lower than those
regulatory/monitoring still have minimum quality standards (notable exceptions:
(domestic trade envisaged by SCAA and ICO; in Robusta and Hard Arabica trade, often they are
powers Brazil, Mexico, Guatemala, El Salvador, India, Peru);
and export) based on physical properties of coffee, not on cup taste
applicable to all farms
Mandatory Consuming Food safety standards (pesticide residues, maximum allowed toxin levels),
National or regional
country food minimum quality standards (defect point description) and origin documentation for Applied to all coffee from all destinations coming into a
regulatory body (FDA,
safety, quality and allowing the import of coffee in a country; standards embedded in regulation and consumer country
EFSA)
origin regulations enforced through monitoring and testing
Coffee Quality-
Minimum 'global' quality standards for exportable coffee based on defect count
Improvement ICO ICO member states; all farms
and maximum moisture content (under formulation)
Programme
Under formulation; envisages strict minimum quality standards both on physical

Certified specialty SCAA appearance and cup quality to obtain 'SCAA certified' mark of integrity (under n/a
formulation)
Cup of Excellence Competition-auction processes; country-level competitions select the highest Five Latin American countries; mostly estates (except in
ACE
Program quality coffees; these are then sold through internet auctions Nicaragua)
Voluntary
Minimum quality standards applied in the 'Jamaica Blue

Trade associations, Sets boundaries to facilitate the enforcement of the intellectual property rights in
Mountain' appellation, but not in the '100% Colombian'
Appellation of producer organisations or relation to geographic indications of origin and truth in labelling; contains
programme; other appellation systems are being developed in
origin public insitutions in minimum quality standards only if French system ‘Appellation d’Origine
Guatemala, Peru and Uganda but not clear whether they will
producing countries Controlée’ is adopted
include minimum quality standards; all farms
Paying prices in relation to commercial classification or description mandated by

regulation in producing country, usually on the basis of simple description of
Commercial coffee Commercial importers and
mostly physical characteristics of the coffee (sometimes also on cup taste); Global; all farms
purchasing system roasters
pricing based on diferentials over futures markets; small producers rarely receive
price in relation to quality
Paying prices in relation to quality of coffee offered by exporter/broker/importer,

Private Common specialty Most importers and
often on the basis of cup analysis of pre-approved sample; pricing based on
coffee purchasing roasters in the specialty Specialty coffee producing countries; all farms
differentials over futures markets; estates more likely than smallholder to receive
system industry
quality premium
A minority of importers and Sourcing direct at origin; paying premium for quality; may buy on the basis of
Relationship
roasters in the specialty multi-year fixed price contracts de-linked from futures market price; contract may A few specialty coffee producing countries; mostly estates
coffees
industry contain provisions on environmental protection and/or socio-economic conditions
Table 2: Coffee standards relating to environmental protection and socio-economic issues
Name or Actors or organisations

Nature Characteristics Geographic and farm-size coverage
description setting the standards
Smithsonian Migratory Bird Minimum standards on vegetation cover and species diversity to obtain use of Standard applicable only to Latin American coffees so far;
Bird-friendly Coffee
Center (SMBC) label; also covers soil management mostly estates
International Federation of
Accredited certification agencies monitor organic standards on production,
Organic Agriculture Global, but most organic coffee comes from Latin America,
Certified organic processing and handling; formally, IFOAM basic standards also include issues of
Movements (IFOAM) and especially Mexico; all farms
social justice
affiliated associations
Fair Trade Labelling Minimum guaranteed price paid to registered small farmers' organisations that
Organizations International match standards on socio-economic development and labour relations; nonprofit
Global, but large amount of FT coffee is bought in Africa; only
Voluntary Fair-trade certified (FLO) and associated Fair organisations set/monitor standards and mediate between registered producers
smallholders
(certification Trade Guarantee and Alternative Trade Organisation (ATOs), which may be for-profit; also covers
and labelling Organisations basic environmental protection standards
procedures)
Certifies farms, rather than products or companies, on the basis of 'sustainability'
standards; covers environmental protection, shade, basic labour and living Six Latin American countries; 21 estates and four groups of
Eco-OK Coffee Rainforest Alliance
conditions, and community relations; has lower standards on individial issues cooperatives
than any of the organic, bird-friendly and fair trade certifications
Code of conduct for growing sustainable coffee formulated on the basis of the
‘good agricultural practices’ of the European Retailer Group (EUREP); includes
Utz Kapeh Code of Five Latin American countries; eight estates and two groups of
Utz Kapeh Foundation standards on environmental protection and management, and labour and living
Conduct cooperatives
conditions; has lower standards on individial issues than any of the organic, bird-
friendly and fair trade certifications
(Some) A few importers and

Include environmental and/or socio-economic conditions as parameters in
Relationship roasters in the specialty A few specialty coffee producing countries; mostly estates
Private choosing and ranking suppliers
coffees industry
(enterprise
initiatives)
Preferred Supplier Point system to qualify for purchase priority on the basis of indicators of
Starbucks n/a
System environmental impact, social conditions and economic issues (under formulation)
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CDR Working Paper 02.

13 Centre for Development Research • Copenhagen

CDR Working Paper 02.13 November 2002

I am thankful to Mike Ferguson, Niels Fold, Peter

 The author and Centre for Development Research, 2002

2. The role of standards in the coordination of value chains

In agro-food industries, the evolution of the role of standards in shaping access to

differentiation. It has also been accompanied by an increased importance of issues of quality

Contemporary food consumers in high-income economies demand complete information on a

Setting standards is one of the ways of addressing information asymmetry in a transaction.

(1) In domestic coordination, uncertainty about quality is solved through trust

(2) In industrial coordination, uncertainty about quality is solved through the

A key implication of convention theory is that there is no “universal” understanding of

sufficient, condition for subordinate agents to upgrade. Participation also

Standards can be set up to specify technical characteristics of a product, specific production

3. What is specialty coffee?

According to specialty operators, it is becoming increasingly clear to consumers of

4. Addressing the problem of quality

Paying for quality?

Responses from the specialty industry

“Exceptional single-origin coffees create a connection to far-away locations. . . [They] are

A second way of rewarding quality is through “competition-auction processes”. These are

Appellation of origin refers to a designated geographical region known to supply a product

According to a survey of 2,098 North American coffee firms (importers, distributors,

Organic agriculture is a production management system promoting and enhancing

Fair trade coffee

Enterprise initiatives on sustainability

Thanksgiving Coffee Company, a California-based roaster/wholesaler selling an estimated $5

system that rewards performance in a number of categories of “sustainability”. A 100-point

6. Standards, entry barriers, and equity in the specialty coffee industry:

Another smallholder-friendly (or at least “size-neutral” process) is the development of

8. Conclusion: is specialty coffee “SEC-C” or just “sexy”?

Name or Actors or organisations

Domestic trade: after market liberalisation, most producing

Under formulation; envisages strict minimum quality standards both on physical

Minimum quality standards applied in the 'Jamaica Blue

Paying prices in relation to commercial classification or description mandated by

Paying prices in relation to quality of coffee offered by exporter/broker/importer,

Name or Actors or organisations

(Some) A few importers and

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