Essay: Ecocertification and Nestlé's Nescafe

1.1 Introduction
In recent past, the global market for green products has seen dramatic improvement and is increasingly gaining grounds (Rex & Baumann, 2007). This, to a large extent, has been fuelled by increased knowledge of how patterns of production and consumption of goods and services affect ecosystem elements. Worldwide, the growth in demand for these ecological products is estimated between 10- 20% per annum with the largest growth evidenced in industrialised countries like the United States, Western Europe, and Japan (Rex & Baumann, 2007; Chang, Griffith & Zepeda, 2003).
Eco-labels have emerged as a means of informing consumers about products to assist them to make choices that will reduce environmental impact and enable them influence how products are made. However, there is said to be information asymmetry between the producer and the buyer. Thus, the consumer’s inability to ascertain the environmental-friendliness of the method of production by the physical features, taste or smell of the product (Nadai,1999; Van Amstel, Driessen & Glasbergen, 2008). As characteristic of credence goods, it is the producer who provides information about how environmentally friendly the process of production is (Nadai, 1999).
Van Amstel et al (2008) posit that ecolabelling exists to bridge this information gap through third party assurance of producer compliance with set standards.
However, with the proliferation of certification schemes, the question of whether ecocertification ensures ecological sustainability or whether it is a case of ‘green-washing’ remains a contentious topic in environmental governance literature. The buyer is sceptical about the producer’s information (Chang, Griffith & Zepeda, 2003; Eden, 2009; Eden, Bear & Walker, 2008).
Do these ‘third-party’ entities really ensure producer compliance with laid down social and environmental standards? What are these standards and what are the processes by which certificates are issued? Are they stringent enough that consumers should be rest-assured?
This paper looks back into the processes by which products are manufactured and the geographical locations where inputs are sourced. The environmental consequences of these processes are also identified and evaluated to determine whether certification schemes do achieve what they claim to represent.
Nestlés popular Nescafe Original Blend, which is certified by the Rainforest Alliance Certification (RAC) scheme, is put under the spotlight for this analysis.
2.1 Nestlés Nescafe’s
Coffee is selected for this study, first, since it is one of the most valuable commodities, ranked second behind petroleum (Global Exchange, 2004; Talbot, 2004;Haight, 2011). Its cultivation has immense implications for the environment as several forestlands are cleared for plantations (Brien & Kinnaird, 2003) to meet the increased demand for coffee over the years. The Atlantic Rainforest of Brazil, an area of exceptional biodiversity, for instance is now only 5% of its original size primarily as a result of its exploration for coffee cultivation(Watson, 2001). Coffee is now farmed on some 30 million acres globally, an area almost equivalent to that of England (RA, undated).
Secondly, according to the International Coffee Organization (2012) the amount of coffee taken in per day is over 1.6 billion cups worldwide. Per capita annual consumption of coffee is estimated at about 4kg in the USA and 3kg in the United Kingdom (Figure 1). Consumption is said to have doubled over the last four decades and is anticipated to increase further (ICO, 2012; Newman & SASI Group, 2006). It is clear from these statistics that a substantial number of consumers are involved and can exert pressure on producers- ‘vote with their wallets’- to ensure that biodiversity is protected for posterity (Rappole, King, & Riveraf, 2003;Melo & Wolf, 2005; Lunn et al., 2011).
Figure 1 Figure 2
ICO, 2012 www.investmentcontrarians.com
2.1.1 Nestlé
Founded by German pharmacist Heinrich Nestlé in 1867, Nestlé is now the world’s largest food company, out-performing its closet competitors- Kraft Foods Incorporated and Unilever Plc. and employs about 253,000 people in roughly 511 factories worldwide (Nestle, 2013). It manufactures a variety of products ranging from bottled Water, dairy products, through chocolates and confectionaries to pet food. They are the producers of popular brands like Pure Life bottle water, Carnation Milk, Nesquick, Maggi, Nespresso and Nescafe, among others.
Currently, Nestlé stands as the world’s largest coffee purchaser and seeks to double its purchase by 2015 (Lunn et al., 2011). By the year 2020, the company anticipates to procure 90000 tonnes of its coffee from farms managed in accordance with Rainforest Alliance and Sustainable Agriculture Network (SAN) principles (Lunn et al., 2011). The management practices of the source farms for such coffee volumes are likely to affect surrounding ecological system.
2.1.2 Nescafé Coffee- Coming into Being
Nescafé is one of the most consumed coffee brands worldwide. The Nescafé brand, originally created for soluble coffee (Nescafe Original Blend- under study in this paper) has become an umbrella brand for several instant coffee products manufactured subsequently (Nestle, UK). Made from Arabica and Robusta coffee bean species, it is enjoyed by more than 50% of UK households (Lunn et al., 2011;Ponte, 2002)
Nestle source green coffee beans directly from farmers in countries like Philippines, Thailand and Vietnam where it also manufactures for export and for the local market. The company offers fair prices to farmers to ensure continuous supply of good quality coffee, essential for generating long-tern business value(Lunn et al., 2011; Nestle, n.d.; Ponte, 2002; Winn & Pogutz, 2013). In countries where direct sourcing is not possible, the beans are sourced from dealers through the international market (Nestle 2013; Business Case Studies LLP, n.d.)
Dried green coffee beans are hulled, sorted and graded for quality before being roasted to develop the coffee flavour and aroma, some of which are lost during the process.
Figure 3: Nescafe Manufacturing Process Figure 4:Evaporation and Aroma Replacement
Source: Nestle, New Zealand Source: Adapted from Hall, 2014
Roasted coffee beans are then ground and hot water added in a process called extraction (Nestle n.d.). Coffee grounds are removed, producing a smooth liquid. For as much aroma as possible to be retained, oxygen is removed from the extract and foamed with gases like carbon dioxide or nitrogen. The brewed coffee is then sprayed with air heated to about 2500c in a tower to remove about 96% to 98% water (Figure 4) to produce coffee powder that contains some moisture. At the agglomeration stage, the powder is rewetted on the surface to facilitate a sticking together of the powdered particles into coarser particles that melt more easily in the consumer’s cup. It is then freeze-dried to remove remaining water. Volatile aroma recovered in the early stages is sprayed onto the coffee. The coffee gets to the final stage where it is packaged into glass jars with plastic lids (Nescafe’s new packaging initiative), sachet bags and sticks, ready for the market.
2.1.3 From the Factory to the Consumer
Nestle transports over 125, 000 tonnes of Nescafe and other products from the factory and distribution centres to its customers daily. Its transport initiative of shifting from long distance road transport deliveries to short-sea and rail transport has only began to reach a few places, notably the Poland- Portugal and the Hungary- Spain distribution routes (Nestle). Figures 5a and 5b show the Nescafe Supply Chain.
Figure 5a, 5b: The Coffee Supply Chain
Source: Verite, 2013 Source: De Graaf, cited in Verite, 2013
2.1.4 Environmental Sustainability Issues associated with Coffee Supply Chain
There numerous environmental sustainability issues associated with the various points on Nescafé supply chain; from the cultivating company through the manufacturing company (Nestle) to the consumer (Figures 5a, 5b).
As pointed out in Section 2.1, the cultivation of coffee to meet increasing demand has led to the clearing of forests, destroyed wildlife habitats, water pollution and soil erosion. The general expansion of industrial agriculture is reported to account for 70% of global deforestation and the greatest threat to biodiversity (RA, undated). These have reduced the ability of the ecosystem to offering life-supporting services. The cultivation of coffee and the washing of harvested beans are also rapacious water consumers (RA, undated).
The transportation of coffee beans from farm gates to manufacturing centres also requires a lot of energy and releases tonnes of carbon- dioxide (CO2). In 2012, Nestlés CO2 emission from transportation was estimated at 2.8 million tonnes (t) (Nescafe website). By shifting from coal to natural gas-based production, Nestlés yearly CO2 emission has been less 20,000t since 2005 (Nescafe website). It should be pointed out how it has contributed to global warming from 1936 to 2004 with coal-based production. However, the ‘foaming’ of coffee-brew with CO2 (section 2.1.2) still poses great environmental threat. In terms of packaging, ‘Nescafé requires high barrier materials having about 5 layers or more to ensure the coffee is completely isolated from moisture and oxygen’ so it gets to the consumer as fresh as when it was packaged. It has therefore shifted to glass jars made from sand heated to 15000C, which requires a lot of energy. 27% of its packaging material requires 20,000 gigajoules of energy, releases about 1000t of CO2 and requires 30,000m3 of water (See Appendix 1) (Nescafe website).
3.1 The Rainforest Alliance Certification Scheme
The Rainforest Alliance (RA), founded in 1987, was to establish ‘Smartwood’ a forest certification scheme. However, in 1991, it extended into banana certification and later, coffee. Today, the scheme applies to over 100 crop types and livestock (McAllister, 2004; Conroy, 2013). It has a frog as its logo that may appear in one of the forms in Figure 6.
As a member of the Sustainable Agricultural Network (SAN), RA seeks to ‘conserve biodiversity and ensure sustainable livelihoods by transforming land-use practices, business practices and consumer behavior'(Rainforest Alliance, 2005). It is a non-profit organization that has its headquarters in New York and serves as the Secretariat for SAN. In pursuit of the fulfillment of its mission, RA organizes programs ranging from Environmental Sustainability Workshops, through the provision of Sustainability- Oriented Research Grants and Fellowships to keeping an online encyclopedia of conservation projects (Rainforest Alliance, 2005; Ventura, 2007). Additionally, it has a certification scheme for agriculture, forest products and tourism to promote conservation and reduce adverse environmental impacts. Its certification scheme is geared towards, but not limited to coffee, cocoa, citrus, banana, cut flower and fern farms (in Africa, Latin America, Asia and Hawaii) since they are usually cultivated on lands that were hitherto tropical forests with exceptional biodiversity(Rainforest Alliance, 2005).
Currently it is chosen over popular labels like Fairtrade and UTZ, eventhough Fairtrade for instance offers farmers a price guarantee of $1.21 per pound of green coffee beans (McAllister, 2004; Conroy, 2013). Apart from Nestle, major multinational corporations like Johnson and Johnson, Citigroup, Goldman Sachs and KLM Airlines as well as Kraft Foods, Lavazza and Lyon Original Coffee (all three previously with Fairtrade) are now committed to procuring agricultural products from RA certified farms (McAllister, 2004). This is said to be because RA is relatively cheaper (Conroy, 2013; Strong, 2010) and has attracted ‘cost-conscious, high volume purchasers’ (Ventura, 2007).
Through this price advantage and association with such big corporations, RA now has 15% and 4.5% shares of certified bananas and coffee respectively on the global market (Gawor, 2013; McAllister, 2004). It has a total certified farm area of 7,377,709 acres (out of which about 800,000 acres are coffee farms) under its scheme (Rainforest Alliance, 2013).
3.2 Getting Certified by Rainforest Alliance (RA)
Farm Certification Process
To be RA certified, a farm must fulfil ten certification standards (See Appendix 2) set by SAN in conjunction with RA based on Environmental Protection, Human Wellbeing and Economic Viability principles. SAN is an environmental conservation organisation set up in 1991 ‘to transform the environmental and social conditions of tropical agriculture through the implementation of sustainable farming practices’ (SAN).
In addition to RA, SAN is composed of ten environmental organizations based in Brazil, Colombia, Ivory Coast, etc. (See Appendix 3 for Organizations). Eventhough SAN is an organization on its own; it does not seem to operate with much autonomy from RA. SAN for instance circulates all its documents through the RA’s website and does not have an independent organizational presence in the media and scholarly literature (Ventura, 2007).
A RA Farm Certification process begins with a preliminary inspection of farm by SAN member in the country where the farm is located after an application by the farmer. This inspection is to determine if the farm is in compliance with RA/SAN standards, but not compulsory. Where there is not enough SAN staff to conduct a pre-assessment, a local certifier can be hired to do so (Rainforest Alliance, 2012c).
Based on the farmer’s application, RA prepares and forwards a price quotation for the cost of the actual field audit and a service agreement to the farmer-applicant. Farm size, crop type and the geographical setting of the farm usually determine the cost. A Certification Agreement (to be signed if the farm is confirmed for certification) is also sent to the farmer at this stage for his perusal.
Once the client makes payment of the full cost of the audit and signs the Service Agreement, an Audit Plan is sent detailing the farmer of when and how the audit will be conducted.
The Audit Fieldwork follows, and a Draft Audit Report is forwarded to the applicant for review and to reply with comments and corrections which are incorporated into RA’s final report. The final report is submitted to the Sustainable Farm Certification Committee (SFCC) for assessment, if no comments are received after five working days.
The SFCC assesses the audit report and decides whether the farm deserves or not to be certified. The decision is communicated to the RA-Cert who in turn informs the farmer. If the decision is positive, the farmer signs and returns the Certification Agreement to RA. The farm is RA Certified and can commence selling to RA purchasers. Certificates are valid for 3 years.
To maintain certification, farms must continuously comply with SAN principles such as annual audits. Figure 7 shows RA Certification cycle.
Figure 7: The RA Certification Cycle
Source: RA- Cert, 2012c
Product Certification Process
Box 1: Product Certification
4.1 Discussion
The efficiency and effectiveness of a certification scheme are anchored in the credibility of the organising body to exist and operate as an independent third party. This is acknowledged by Rainforest Alliance, but a critical look at its certification and verification procedures, financial mechanisms and how it conducts its business, demonstrates its independence from other stakeholders is farfetched.
Certification and Verification Procedures
The RA’s standards for issuing certificates on products are rather weaker than it declares as products containing as low as 30% of certified ingredients are allowed to bear the RAC seal. In especially single ingredient products, the RA does not have any mechanism that checks where the majority 70% content comes from. There is also no information disclosure on where they are sourced. It holds to therefore argue that the RA assists in the destruction of 70% of ecosystem by seemingly protecting 30%, assuming the 70% comes from farms with high environmentally harmful practices. Moreover, the only means by which the RA verifies the actual content of products before certifying them (apart from the Chain of Custody Documents) is by a product sample sent to the New York office by the manufacturing company. This could be a product specially prepared for the purpose. There were no evidence to show that unannounced visits to assess normal manufacturing operations actually happens. It would also be difficult for such visits to be conducted considering existing long relationships between RA and its corporate purchasers. This weakness is much prominent for RAC farms. In that, locally resident SAN officials (or hired local certifiers) are likely to have social and economic relations with farmers.
With respect to the certification of farms, RA has painted a picture which portrays that its best practices are the reasons why corporate bodies like Nestle and McDonalds are committed to buying from its farms. RA therefore has to ensure that there are always enough ingredients to meet the huge demand of such companies by making sure that SAN is not strict on certification procedures in order to ensure enough farms are certified to meet the needs of its ‘big guns’. By so doing, it retains that public image and protects its farms and purchasers from being accused of misinforming consumers. Furthermore, SAN, which is in charge of the actual certification process, has little independence from RA since it is SAN’s most prominent member organization and financier. It is very unlikely that SAN would embark on any action that is not in RA’s interest.
Financial Mechanism
The RA’s autonomy and independence is highly challenged by the fact that a majority of its funding (about 55.4%) comes from its purchasers and farmers through Certification Fees (31.5%), License/Participation Agreements (11.2%) and Membership Contributions (12.7%) (Rainforest Alliance, 2012a). This weakens the ability and will power of the scheme managers to embark on any action that may jeopardize relations with its core financier categories. Moreover, certification fees being the single largest contributor (31.5%) to the scheme’s budget makes it difficult for RA/SAN to be strict on its certification standards to reduce the number of products and farms it certifies. A typical example is Chiquita Farms International, which had a long history of environmental, human, and employee rights abuses prior to 2000 by which Chiquita had had all its farms certified by RA (Human Rights Watch, 2002; Ventura, 2007). However, a detailed report on child labor in Chiquita Farms by Human Right Watch (HRW) in 2002, aroused questions about how RA certifies farms under its scheme. This is a classic example of ‘greenwashing’.
Check from Annual Reports if there is any report on a farm RA cancelled
Composition of Key Management Members
The members on the Board of Directors for RA include figures who hold key portfolios in companies with commitments to purchasing from RA farms. A typical example is Roger Deromedi, Non-Executive Chairman of Pinnacle Foods and also has a high stake in Kraft Foods. He has (until recently) been with Kraft since 1977 and served as CEO among other positions like Co-CEO and President & CEO of Kraft Foods International (RA Website). Such figures on the board soils the credibility of the scheme as it is likely that other companies and their associated farms will not be treated equally as with the likes of Pinnacle and Kraft and the farms they are linked to.
To this end, it is clear that RA has not yet achieved what it declares to represent since its credibility as a third part is weakened by its interests being entwined with that of those it certifies.
5.1 Conclusion
Ecocertification offers consumers an opportunity to ‘vote with their wallet’ and concurrently gives primary producers, manufacturers, and sellers the opportunity to pursue ‘competitive advantages’ and contribute to ensuring environmental and subsequently, corporate sustainability (Rappole, King, & Riveraf, 2003).
Looking, for example, at the farms and companies under the Rainforest Alliance Certification scheme, it would make a more significant contribution to ecosystem conservation and improvement of environmental conditions if its standards were more stringent and had stronger independent structures to enforce them. However, the information advantage of sellers/producers and their seeming partnership with certifiers makes it somewhat difficult for the benefits of ecolabeling to be fully realised. The consumer remains sceptical.
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APPENDICES
Appendix 1
Box: CO2 and Water Equivalents
Appendix 2
Rainforest Alliance/SAN’s 10 Certification Standards
1. Social and Environmental Management System
2. Ecosystem Conservation
3. Wildlife Protection
4. Water Conservation
5. Fair Treatment and Good Working Conditions for Workers 6. Occupational Health and Safety
7. Community Relations
8. Integrated Crop Management
9. Soil Management and Conservation
10. Integrated Waste Management
These standards are set in compliance with the International Social and Environmental Accreditation and Labeling (ISEAL) Alliance’s Code of Good Practice for Setting Social and Environmental Standards.
Source: SAN Website
Appendix 3
SAN Member Organizations and their Locations
SAN Member Organization Country of Location/Operation
1. The Royal Society for the Protection of Birds (RSPB) U.K & Tropics
2. Centre d’ Etudes, Formation, Conseils et Audits (Center of Studies, Training, Consulting and Audit (CEFCA ). Ivory Coast
3. Nature Conservation Foundation
India
4. ProNatura Sur
Mexico
5. Rainforest Alliance
United States
6. SalvaNATURA El Salvador
7. Institute for Agricultural and Forestry Management and Certification (IMAFLORA) Brazil
8. Institute for Cooperation and Self-Development (Instituto para la Cooperacién y Autodesarrollo, ICADE) Honduras
9. Fundacién Natura Colombia
10. Interamerican Foundation of Tropical Research (Fundacién Interamericana de Investigacién Tropical, FIIT) Guatemala