Global Network for Advanced Management

Dispatches from #GNW2017: What’s Behind a Label?

Wednesday, October 18, 2017
INCAE Business School

Coffee labels often carry a range of promises to the consumer: Fair Trade. Organic. Rainforest certified. Those certifications, though, may not always live up to those promises, says Bernard Kilian, a professor at INCAE Business School who studies agricultural economics. In some cases, just because coffee is labeled as fair trade or organic, it doesn’t mean that its production process has been economically beneficial for the coffee producers.

 

“What I see is a lot about marketing, but little caring about impact assessment,” Kilian told students about the certifications during Global Network Week. 

He said that while the labeling may have started off as a well-intended certification system to ensure more environmentally friendly products that also provide good wages, oftentimes the labels are considered more important as a sales strategy. Economic growth for farmers and coffee producers has remained stagnant at times, and while coffee and other commodities’ prices have experienced swings in the past decade, creating a boom for some, farmers don’t always benefit from these certifications in the same way as companies like Starbucks that sell the end product might.

“For years, the commodity markets were up, and they were down. For years, Latin America looked wonderful: prices were up and everyone looked terrific,” Kilian said. “Now, the markets are down again, particularly with coffee. That affects people in rural regions because the typical small farmer doesn’t have protection against the variability in prices. They’re completely exposed.”

There are some new coffee farms that have developed their own ways to sell directly to consumers outside of the general commodity market—in some cases earning three times as much as the market demands for a premium product—but frequently, farmers aren’t able to make larger business decisions on their own. Some have trouble obtaining credit from banks because they’re uncertain of how to fill out basic forms, he said.   

“Farmers need to know about productivity and production costs,” he said. “To really change a farmer’s life, you need to do something different.”

Sometimes fair trade and organic certified products aren’t from the best regions, either. Consumers may believe that they’re doing a service to workers, but frequently they pay a premium for a label. Coffee farms may also sell their products as fair trade in some cases, while also providing beans to other distributors that do not carry the certification, he said.  

“There are some conventional farms out there doing a marvelous job caring about what’s going on with their people and their labels, too. Just by adding a logo to anything, it’s not that all in the world is fixed,” he said. “If we want to have an honest conversation about sustainability, we need to truly discuss what’s involved in that process. If we want to make improvements in the lives of farmers, we need to talk about the supply chain and what’s really needed to make someone better off.” 

This week, Matthew O’Rourke is reporting from Global Network Week 2017 in Costa Rica, where INCAE Business School is presenting its module, “Doing Business in Latin America: The Competitiveness and Sustainability Challenge.”