Illy, a leading global coffee company tackles sustainability and stumbles

by Daniele Giovannucci


As more food industry leaders adopt visible sustainable procurement, private firms weigh the value of their own in-house approach versus partnering with existing public initiatives – even competitiveness guru Michael Porter is talking about it.


A common groan sounded recently when Andrea Illy, the chief executive of the esteemed Italian coffee roaster (Trieste-based illycaffé S.p.A.) announced they were to launch yet another private sustainability certification scheme onto the market.  Some in the sustainability community see the move as counter-productive. I have not met Andrea but have had the pleasure of knowing other leaders in the firm and I do not doubt that there are some good intentions behind this but I cannot help but agree with those that think this may hurt farmers, particularly small and poor ones, more than help them.

Coffee farmers face more standards that demand certification (or verification) than any other commodity producers. There are currently eight that are widespread, six public and two private:

  1. Organic
  2. Fairtrade
  3. SMBC – Bird Friendly
  4. Rainforest Alliance
  5. UTZ Certified
  6. 4Cs
  7. Starbucks C.A.F.E Practices®
  8. Nespresso AAA®

Each has its own level of difficulty, depending on a farmer’s starting conditions. Each has its own standards, certification criteria, and procedures. Each has its own costs of learning, adaptation, and inspection. There was talk nearly a decade ago that having four distinct standards was more than necessary when only Organic, Fairtrade, SMBC, and Rainforest Alliance were around. Unlike the later addition of Utz and the 4C, the standards set by a private firm are typically only accepted and remunerated by that firm’s own buyers. If you want to sell to somebody else, the new buyer cannot use the private certifications and is unlikely to offer any remuneration for it.

As a producer, this can force you into a costly bind. Which certification do you seek? What will it cost if you guess wrong? Make no mistake, it is a guess because very few producers have more than an inkling of what the implications of their choices are. In fact, I know only a few who can clearly articulate the differences. To make matters worse, achieving certification, any certification, does not guarantee that your coffee will be purchased.

Until the work of the Committee on Sustainability Assessment (COSA) captures the actual costs and benefits of the many certifications under different conditions, farmers are left to figure it out themselves. It is already clear that some poor choices could easily diminish their sustainability rather than enhance it. But even when farmers are better informed, they will still face risks with these initiatives because each has somewhat different outcomes depending on the application context. In other words, the results can be different from farmer to farmer especially when you have a different agro-ecological zone, farm size, production method, country, etc. Early results from COSA efforts in a number of countries indicate that there is a considerable cost, in both time and capital, for farmers to adopt a new standard and its accompanying certification or verification process.

So why does a notable 76 year-old business undertake to create its own certification? Ernesto Illy, the noted coffee scientist that led the company from a modest regional business in Italy to a globally recognized brand, and a US$ 300 million company, before his recent death was not a big fan of sustainability certifications. He sent me erudite notes on the shortcomings of one or another. He felt that cultivating, processing and harvesting a high quality coffee was basically all that was really needed for sustainability (I hope he would forgive this oversimplification). The rest would take care of itself. Well, we disagreed, but not that much and I always respected him for his candid views and his willingness to discuss; he was a good scientist, always willing to look at facts and data. I find it harder to muster respect for the company’s current move.

Sure, companies need to grow and evolve and I am glad to see Illy more actively considering sustainability issues But does the coffee world need another certification claiming sustainability? It is likely that one or more of the six existing public certifications have adequate sustainability criteria for any occasion since they cover the range of options quite thoroughly. Illy notes that it wants strict quality criteria as well, something not explicit in the public standards. Fair enough. But do you need a certification for that? The buyers always apply quality criteria anyway, and this is somewhat standardized within the firm’s purchasing guidelines already. Why not just widely publish that – so folks in their supply chains know whether they can meet the grade or not? What is the point – if producer sustainability is the objective – of requiring farmers to take on the costs and effort of yet another certification process, particularly when it applies to only one buyer?

Illy notes that this certified coffee will be marketed with a distinct label that they also plan to license to other roasters. I wonder how many competitors would want to use that label. Does anyone really believe that it will become a new public standard to be used by more than one company? Of the firms that have recently moved toward the use of certifications in their purchasing, all of the food industry leaders have all elected to use public, not private, certifications.

Very recently, Mars, one of the world’s largest and most profitable food companies, made announcements about its commitments to public sustainability certifications such as Rainforest Alliance and Utz Certified for both its coffee and chocolate-based brands. Similarly, Kraft Foods, the world’s second-largest food and beverage company, has partnered with Rainforest Alliance for its certification needs. Cadbury, a leading global chocolate and confectionary brand recently announced that its flagship product will be Fairtrade certified. Even Wal-Mart, the world’s largest food retailer – and a leading seller of certified products – has chosen to go with public certifications such as organic, Fairtrade and Rainforest Alliance. Perhaps these firms’ strategic thinkers know something about the value of working with public systems when they want consumers to believe that they have an interest in the public good.

In a paper with Stefano Ponte (Food Policy Journal) we suggest that in this age of global capitalism, public–private partnerships with civic organizations or NGOs provide the normative framework that corporations use for social legitimacy. Leading firms have been researching the issues for years and nearly all elect to support existing public approaches. They go this route not only for the credibility that these offer but also because they realize the burdens that come with managing a certification transparently. Similarly, most pundits in the sustainability arena understand that adding yet another certification only makes a small producer’s life harder.

One could have taken a lesson from the experience of Starbucks, the world’s largest private coffee firm that is using its own certification. They get kudos from consumers, media, and the sustainability community when they increase their purchasing of a public certification such as Fairtrade. As the largest buyer of Fairtrade coffees in the world this recognition is well-deserved. But few give Starbucks credit for getting farmers to meet its private C.A.F.E. Practices standard. And there is certainly plenty of grumbling in the field about it.

This is unfortunate because the investments of Starbucks and Nespresso — the only two firms seriously mounting their own standards — have been substantial. And I believe that leaders in both firms had good intentions when these approaches were designed. Even the ongoing administrative costs alone are a considerable and perhaps unnecessary burden to the firms. Nespresso’s management is already shifting its sustainability focus toward having farmers certified by Rainforest Alliance. The discussion of the value of its C.A.F.E. Practices program has come up within Starbucks as well. When firms take the time to independently measure their real impacts, they can better understand how their sustainability investments could yield higher returns in terms of farmer relations, sustainability, and public credibility. Consumers may trust a corporate claim to quality and the long-term growth of Illy, Nespresso and Starbucks attests to that. Yet it would be foolish to assume that such trust extends to issues of corporate social responsibility. Most consumers have long ago stopped trusting firms’ own claims about their goodness or their commitment to sustainability.

An FAO report on coffee certifications co-authored in 2008 notes that such essentially private standards are seldom credible because they are under the private control of firms that can at any time alter, dilute, or simply not fully use the standard (Chapter 3). Most are formulated for corporate needs perhaps more than for farmer sustainability and give rise to accusations that they are designed by well-off northerners that have little empathy for the producers that supply them in a developing country.

I wonder if there are any credible voices suggesting there ought to be more certification standards. Taking the available lessons, is there a good business case to be made for such a decision? A sustainability case? In fact, after a recent presentation and discussion by noted Harvard Business School professor and competitiveness expert Michael Porter, I would venture to say that the consensus is that having more sustainability standards will make it more difficult for farmers and for firms. So, is this going to be Illy’s contribution to sustainability? I hope not. They have a talented and very creative team and surely they can come up with a bolder and better idea.

This entry was written by:Daniele Giovannucci and posted on Tuesday, January 12th, 2010 at 11:08 am and is filed under Sustainability and Coffee Causes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.


6 Responses to “Illy, a leading global coffee company tackles sustainability and stumbles”

  1. Nate says:

    The good news is that ‘sustainability’ is a popular topic, both with roasters and consumers. The bad news is that with all of these certifications, and private programs, the lines are blurred. Each certification has its merits as well as its cons. Fair Trade does not address quality in any way, ‘Direct Trade’ doesn’t offer the purchaser any recourse if the product quality drops, and Rainforest Alliance only requires inspection every 24 months. Paying a higher price for green coffee is only a small aspect to ‘sustainability’. It is difficult for us to trust any certification when %99 of the end consumers are thousands of miles away, and cannot imagine the issues that producers live with. I love that social and environmental sustainability is a hot issue, but how can we make it easier for consumers to identify compliant and ethical companies? How do we address the balance between quality green coffee (our duty to customers), and social sustainability (duty to producers)? I imagine those will always be the problems.

  2. Dear Daniele,

    First of all, congratulations for the excellent article. I think I have a point in understanding what Illy wants with this project. As you know, Illy already has a reliable chain of suppliers worldwide. Those growers are particularly committed to quality issues, and as a consequence, to produce quality, most of the time you will have to invest on managerial strategies within your farm. Managerial strategies lead to sustainability, at least, economical sustainability and sometimes, depending on the country’s laws, to social sustainability.

    If Illy chooses to use an existent certification scheme, there is a great possibility that its suppliers will have to invest more money to enter into other certification. By creating their own label, Illy chooses to use its own supply chain, selecting its better growers as example to start a sustainable program. Although it seems controversial at first sight, Illy choice will not imply on more costs to its trustful Illy-quality suppliers.

    Well, this is my point of view, but as a certification enthusiast and scientist I think it would be nice for Illy to start thinking on a joint venture with other certifications, like Starbucks did.

    Kind regards,

    Paulo Henrique Leme
    P&A Marketing International
    Brazil

  3. Mondy says:

    We wouldn’t think of using coffee from unsustainable growers and fair-trade organic coffees are what we recommend to others but a new standard makes no sense. What we need is adherence to the existing standards and assurance that products labeled as meeting the standards actually do. Stop looking for a problem that doesn’t exist and work on the bigger issue; companies with huge market share that still buy and serve unsustainable products.

  4. It seems a shame that such a good “idea” (Fair Trade) gets botched in politics & big business. The farmers have enough to deal with.

  5. Daniele makes a number of important points here, in particular i would reinforce the following message:

    - bad for farmers and exporters (particularly SMEs and small coops) to have yet another standard to deal with
    - bad business decision by Illy as they can get the same value added from buying into a “public” standard like organic at a much lower cost (no need to set up baseline, monitoring, third party verification or to market the new brand)
    - no extra environmental or social benefits as some of these “public” schemes already provide these benefits

  6. solson says:

    Wow. This is eye opening. Most consumers have no idea the difficulties producers face in trying to meet these standards. I personally had no idea there were 8. The cynic in me tends to believe that Starbucks C.A.F.E. Practices, Nespresso AAA, and the new Illy program are cooked up in conjunction with those firm’s marketing departments.

Leave a Reply