Being Clear on Transparency

By Angela Magnusson, Commercial Relations Manager, Fairtrade America

“At its core, transparency is the free and open access to knowledge, which implies that information flows all ways.”

coffee-producer

A Fairtrade-certified coffee producer based in Barillas, Huehuetenango, Guatemala. Credit: Sean Hawkey, Fairtrade International

In today’s digital age, instantaneous and open sharing of information no longer dazzles us. Transparency, from the perspective of the US consumer, has increasingly become an expectation and not just a ‘nice-to-have.’

According to “Transparency 2015, Establishing Trust with Consumers,” a recent study from the Hartman Group, while general familiarity with the term “sustainability” continues to grow and shape purchases in the U.S., transparency is emerging as a new buying ideal. This trend represents more than the simple economic exchange people have with companies, but a fundamental shift in the relationship we have with the world and others around us.

More companies are sharing the stories of their products and becoming more adept at communicating just what it is this new generation of customers want to know. But to what end does transparency serve farmers and their families? How can transparency in the other direction – with farmers and cooperatives – provide the groundwork for long-term trust and sustainability in the coffee industry?

At its core, transparency is the free and open access to knowledge, which implies that information flows all ways. As this trend grows, we need to ask:

“Are we sharing information in a fair and equitable way?”

Calibrating Transparency: Building Sustainable Supply Chains

In the information age, coffee farmers not only bear the responsibility of producing great coffees, but are now increasingly asked for real-time data, statistics, and narratives of their day-to-day operations. Unfortunately, this burden of responsibility is overwhelmingly a one-way street that is often not accompanied with a reciprocal sharing of information.

During the SCAA Expo in Atlanta last month, Fairtrade America teamed up with Ed Canty of Cooperative Coffees to organize a panel discussion to look at information imbalances throughout the coffee trade. The panel, called “Calibrating Transparency: Building Sustainable Supply Chains,” brought together people from all points along the coffee supply chain, including:

Out of this discussion, four key points emerged as integral to building transparency that works for all:

coffee-droduction-transparency

Coffee drying in Honduras. Credit: Sean Hawkey, Fairtrade International

Nurturing Long-term Relationships

Transparency is only relevant when there are two parties with different information. By design, it needs relationships. As highlighted by Timothy Hill, relationships go both ways. Most often transparency is one-sided, where producers reveal their costs but the same doesn’t hold true for most traders or roasters.

“If there’s a balance of information, then we [can] negotiate a fair price, but right now farmers are doing most of the heavy lifting,” according to Peter Roberts of the Transparent Trade Coffee Project.

Merling Preza, General Manager of PRODECOOP in Nicaragua, added that for transparency to work, it “has to be across the entire supply chain & with every actor.”

The entire panel agreed that a lack of transparency makes building trust in relationships and confidence in negotiations very difficult. Maintaining strong relationships is not easy and requires give and take from both parties. This can include sharing purchasing plans with producer organizations, or costs that go to bringing the final product to market and more.

Price vs. Cost

Open sharing of information helps producers and companies assign the appropriate value to coffee. And to make sure that’s accurate, the costs of sustainable production must be assessed. Understanding the full social, environmental and economic impacts of coffee from the field to the cup means that producers, consumers, and all in between are empowered with information to make sustainable choices on their terms.

“Before we can share full costs of production, we need to agree with buyers on a joint definition of sustainability,” said Merling Preza, President of PRODECOOP in Nicaragua.

The ICE “C” market price was held up as an example of a price disconnected from the reality faced by farmers. Preza indicated that this market indicator is frequently mistaken as an amount that offsets costs of production. The wide gulf between price and the true cost of production means that the producer is always getting squeezed to provide more and better on diminishing resources.

Full and equitable transparency throughout the chain should provide consumers with a stronger sense of just how their money is being spent and empower farmers with market knowledge when coming into negotiations with their partners.

Understanding Risk and Building Consumer Understanding

For transparency to be effective at all levels, companies need to be systematic about the information shared. The potential for “oversharing” for the purposes of appearing open has the ability to confuse consumers and eclipse the relevance of some of the most important information.

“The language in CSR [corporate social responsibility] is about sustainability and transparency, but it often feels as most are talking around the subject, not sharing real information,” said Nick Brown.

At issue is the fact that while sharing information – particularly on pricing – is seen as the right thing to do, it is not widely practiced for fear of competitors not doing the same. Another hurdle can be found at the consumer level. In his research on retail coffee prices and the prices paid FOB, Peter Roberts has found that many consumers “think a fair price is somewhere between a third and half [of the retail price] going back to the farmer.” This is problematic for transparency pioneers when current best practices have roughly 20-25 percent going back to farmers.

Many of these numbers don’t mean much to consumers when they are not contextualized in the realities of the coffee trade, as Nick Brown put it. Consumers ultimately favor companies with a demonstrable commitment to transparency, but determining how to express that in a clear, accurate way requires education and commitment.

Sustainability

Transparency for the sake of transparency doesn’t do much to swing the pendulum of better trading practices unless it is put in context. It must arrive at something beyond the trust and relationships it helps develop.

As Preza noted, “Transparency means we’re going to be solving problems together.”

According to the Hartman study mentioned above, 88 percent of American consumers consider sustainability in their food purchasing habits. At the other end of the supply chain, la roya and the increasingly negative effects of climate change have demonstrated that current approaches to sustainable pricing have been inadequate in helping farmers equip their farms for what the future holds. There is an urgency in the industry to come to a unified understanding of what sustainability looks like across the supply chain.

In its simplest form, transparency is about everyone having access to the same level of information so they can make the best decision. To this end, it helps facilitate better business decisions. Armed with this information, you and your valued partners can calibrate your respective understandings of success and sustainability. But until transparency is pursued in a fair and balanced environment, progress on addressing global challenges will not be realized.

“If we’re in the industry of making good coffee, we can’t hold onto information,” Timothy Hill commented. “We have to be open to push the industry.”

 

Angela Magnusson is the Commercial Relations Manager at Fairtrade America

 

 

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