Your morning espresso could be about to get a lot more expensive

Risks to coffee’s global supply chain including climate change may be significant, but they also present opportunities for sustainable business

 Rising global temperatures are expected to undermine the commercial viability of coffee in many of the world’s producing regions. Photograph: © Robert Harding World Imagery/Alamy

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Alejandro Litovsky

Alejandro Litovsky is founder and CEO of the Earth Security Group

In the past, companies that dominate the global coffee business have managed their supply risk by diversifying their suppliers. Now a quarter of production in Brazil, the largest producer of high-quality Arabica coffee, is under direct threat from climate change, and rising temperatures are expected to undermine the commercial viability of Arabica coffee in many of the world’s coffee-growing regions.

In the next two decades, this systemic failure across many regions will require companies to radically change their production models and sourcing relationships. Yes, the price of your favourite coffee will increase due to climate change, but there is hope that the risks involved will change the entire industry for the better.

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 Brazil’s resource security pressures. Photograph: Earth Security Group

The global coffee market is dominated by a few large multinationals: Nestlé, Mondelēz International and DE Master Blenders 1753. And it is rapidly integrating: the latter two have just received conditional approval from the European Commission to create the world’s largest coffee business. The 10 biggest coffee roasters process almost 40% of all the coffee consumed worldwide, with leading companies including Smucker’s, Strauss, Starbucks and Tchibo.

Certification standards have done much to encourage consumers to support fairer trade and forest protection. However, the Coffee Barometer 2014 is already recognising that these initiatives may struggle in a world where climate change directly uproots smallholder farmers. No fewer than 15 global companies must now consider how the global market will respond to the threat of climate change with a more transformative business strategy for sustainability.

How global supply risk will change

The picture looks bleak for the world’s favourite, higher quality Arabica coffee, which makes up 70% of the 1.6bn cups consumed every day. Grown in tropical regions at a higher altitude, it is especially sensitive to a changing climate. Rising temperatures and long cycles of drought interrupted by shorter, excessive bouts of rainfall increase the occurrence of pests and disease, seriously threatening Arabica coffee.

In the Tanzanian highlands, yields have fallen by 46% over the past 50 years. This is mirrored by the other Arabica-growing nations including Brazil, Colombia, Costa Rica, Ethiopia and Kenya. Meanwhile the global demand for coffee continues unabated, growing at 2.1% annually according to the International Coffee Organization.

Arabica crops will need to move 300 to 500 metres further above sea level in order to survive, according to a new new study by the Colombia-based International Center for Tropical Agriculture (CIAT). This may be feasible for producers in Ethiopia and Kenya, but will be difficult for market leaders like Brazil.

Robusta, on the other hand, is a higher-yield but lower-quality coffee variety used for instant coffee, and is able to withstand higher temperatures. A switch to Robusta is often discussed as an adaptation strategy, bringing countries like Vietnam (the biggest producer) and Indonesia increasingly into the limelight.

But there’s a catch. Coffee aside, producing countries face multiple other pressures on their land, as is shown in the Earth Security Index 2015. Deforestation, land tenure conflicts, food security and water scarcity are increasingly interconnected. These pressures will constrain land expansion for coffee production, requiring business risk management responses to think about alternatives in advance. The feasibility of a large-scale conversion to irrigated coffee production is an unlikely option for these countries.

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 Ethiopia’s resource security pressures. Photograph: Earth Security Group

For example, Indonesia’s nature reserves and indigenous communities occupy elevated land and are a limiting factor to Indonesia’s coffee growing area. Land conflicts in Indonesia are a defining feature of agriculture sectors. Poor track record on land tenure, deforestation and corruption in its highly decentralised government system are more likely to increase land conflicts in global coffee supply chains, like those plaguing the palm oil and timber industries in the region.

It is cooler in the shade

The CIAT study that mapped the suitability of Arabica coffee to adapt to climate change concludes that in order to thrive, coffee plantations will need to be protected by shade trees to keep them cool. Shade-grown coffee is not new, it’s how Arabica coffee was produced before the 1970s – before an input-intensive, mono-crop model took over and allowed global production to scale. Today, the intensive model is more vulnerable to climate change, soil erosion and pest and plant diseases.

Shade-grown coffee is cultivated below the canopy of the trees, integrated into the complex biodiversity of the landscape. The forest-like structure of a coffee plantation has dozens of plant and hundreds of animal species interacting to create a richer, more adaptive environment. Potential pest insects are kept in check by their predators, and coffee beans can grow in a shaded, cooler environment. Farmers retain the income spent on chemical pesticides and fertilisers, minimising run-off pollution to water sources.

The benefits may be apparent, but a 2014 study revealed that despite a growing penetration in the US as a specialty coffee, shade-grown coffee had shrunk 20% since 1996 as a proportion of global coffee production. The fastest growth in the industry has instead been driven through more intensive models.

Starbucks, for example, appears to have discontinued its organic shade-grown Mexican coffee sourced from farmers in Chiapas’s El Triunfo Biosphere Reserve. In the UK, Percol’s Organic Rainforest Arabica coffee has been sold in Tesco andWaitrose, but is currently unavailable in stores. A few other specialty brands are available online, but not in supermarkets.

Where next?

Climate change will force the sustainable business debate to go back to the basics of coffee production models. However, some regions will find it difficult to adapt. According to Peter Laderach, a co-author of the CIAT report, Brazil’s highly mechanised, commercial coffee production is not suitable for intercropping with trees. Business entrepreneurs must challenge conventional thinking. New entrepreneurial models in South America, such as Guayaki, are producing traditional ‘mate’ tea-leaves by regenerating native forest. The model is working. It shows that it is possible to create a consumer-facing brand built around the attributes of an ecosystem regeneration business model.

In those regions that are unable to adapt, however, farmers will either turn to other crops or migrate to already overcrowded cities, transferring the supply risks back to global companies. An adjustment in the global market is inevitable. However, the hope is that the greater risks looming on the coffee industry will unlock a future where ecosystem service innovation and resilience become the only option for a truly sustainable business model for coffee production.