AHC Group

Lessons in social responsibility for the value chain from Green Mountain Coffee Roasters, Inc.

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Courtesy of AHC Group

Written by a consultant specializing in value chain social responsibility, this article details the challenges of promoting social responsibility through the supply chain of a specialty company operating in the world's second largest commodity business — coffee.

THE COFFEE CRISIS

Over the past five years, a severe drop in the commodity price of coffee has devastated coffee producers worldwide. In 2002, prices paid to farmers sunk to their lowest levels in 30 years (in 100 years in real terms) and have risen only slightly since then. Coffee farmers, many of whom are small landholders in developing countries, now sell their coffee at prices below their costs of production, leaving them unable to support their families. Landless coffee laborers are even worse off because farms have laid off most workers. According to the World Bank, more than 540,000 Central American laborers have lost their jobs in the current crisis.

Families dependent on coffee crops are cutting back on food and basic medicines and are pulling their children out of school. Many have abandoned their farms and migrated to the already teeming cities of the developing world, where an uncertain future awaits them. Coffee traders and the banks that finance them are also in trouble. Governments that rely on export revenues from coffee are facing large budget shortfalls, putting pressure on social services and increasing foreign debt loads. The situation has attracted worldwide attention to the plight of coffee-dependent communities, many of which were poor to begin with. Alleviating these conditions, at least in the short term, has fallen to national and international relief operations. The roots of the coffee crisis lie in a global oversupply of coffee beans.

GMCR'S COFFEE VALUE CHAIN

Green Mountain Coffee Roasters is a small, publicly traded specialty coffee company based in Waterbury, Vermont. The company roasts, packages, and sells more than 100 specialty coffee selections through a coordinated multichannel distribution network focused on the wholesale trade. The distribution network is designed to maximize brand recognition and product availability and includes supermarkets; convenience stores; office coffee services; restaurants and food service; and a small catalog and on-line sales operation. Sales in 2003 were $116 million, which is about 1% of the $ 9 billion in annual sales of specialty coffee in the U.S.

GMCR seeks the finest coffees available and buys only high-quality arabica beans, choosing only beans in the top ten percent of quality. The company does not own or control any of its sources of coffee beans. Instead, GMCR purchases coffee beans throughout the world, including the Americas, East Africa and Southeast Asia. GMCR's annual coffee purchases are equivalent to about 0.1% of the world's coffee production of about 101 million bags. Almost half of GMCR coffee purchases come directly from farms and cooperatives, with the remainder purchased through brokers. The company often buys coffee from sources it has known for years and seeks to increase the proportion of coffee it buys directly from producers. Direct purchases often provide opportunities for ensuring long-term quality.

STRATEGIES FOR SOCIAL RESPONSIBILITY IN THE COFFEE VALUE CHAIN

GMCR's strategy is to build mutually beneficial relationships with coffee producers to secure reliable supplies of high-quality coffee beans. The company does this through:

  • Building relationships with producers and buying from identified sources,
  • Paying price premiums for fair trade and organically certified coffee,
  • Providing financial support to growers, and
  • Providing financial support to non-profit organizations that work in coffee growing communities.

IMPACT ON GMCR PROFITABILITY

GMCR believes that its social responsibility activities play a significant role in its success. While it is not possible to directly measure the effect of GMCR's value chain social responsibility activities on its profitability indicators, the company has achieved an average sales growth of 14 percent over the past five years and more than 21 percent average growth in earnings.

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