Partner content by ING: Clean Coffee, a podcast on sustainability

Coffee is one of the world's most traded commodities. Figures suggest every cup that's produced on average destroys around 5 centimetres squared of rainforest. One coffee requires 140 litres of water to make. That's a swimming pool to make a 1 kilogramme bag. The rainforest is the world's lungs, producing oxygen, removing carbon dioxide, and playing its part in keeping global temperatures down. This podcast is to showcase how some incredible business projects were created sustainably. And this episode is all about coffee. I'm Katie Prescott, a business journalist based in London, and this is ING Uncovered Sustainability, episode 1, Clean Coffee. Our guests are Justin Archer, sustainability manager at Sucafina, the multinational coffee company, who work with almost 200,000 different growers across 34 countries. And we're speaking with Justin while he's on a coffee plantation in a remote part of Uganda near Kampala. We're also joined by Louis Prieur from ING, who worked with Justin on how to achieve funding for a cleaner way to make coffee.

Yes, Katie, how are you?

Hello, Katie.

I'd like to start by going right back to basics and asking you, Justin, really to explain to listeners what the scale of the damage done by deforestation is. Why was this something that you wanted to tackle? But what is it about coffee in particular that contributes to deforestation?

So the reason I've been reaching out to Louis and speaking with ING is that, uh, Sucafina is preparing to comply to upcoming regulations in the European Union that will require a number of commodities of which coffee is one, to meet conditions on no deforestation. And these laws come into effect at the end of 2024, as far as we're aware. And so the challenge we have is to demonstrate to European consumers and of course regulators in the European Union that the coffee that we trade as a company is not grown under conditions that would drive deforestation. And that is problematic, um, mainly because the coffee industry is known to be very disaggregated. Coffee trades hands up to 20 times, they estimate, between growers and consumers, and we are just one of the links in the chain. And so it means that in most cases we're relying on intermediaries, could be third-party exporters or unofficial trading companies, um, who work in informal networks to provide coffee to us, which they themselves might have sourced from other informal networks and what have you. So that creates a tremendous challenge if we have to demonstrate that every bean of coffee we place on the European Union market is free of deforestation. And, and effectively it means we need to figure out a system of traceability. And work backwards in the supply chain meticulously to identify the grower of origin for every single bean that we want to export.

And when you talk about those rules, could you just explain to listeners what you mean? So these are new— is this new regulation coming from the EU? Is it in particular?

Yes, absolutely. So the European Union is putting in place a wave of new regulatory requirements that will affect food products, commodities that reach the European Union. Deforestation is just one of the topics that's being addressed by regulators in Europe. But they're also looking at things like the responsibility to declare carbon emissions and work towards mitigating carbon emissions wherever possible. We know that human rights will be another big topic that's coming down the pipeline from regulators in the European Union. And all of this, of course, is well-intended. We, of course, all want to work in businesses and in supply chains that meet high standards of regulation. But change takes time. Change takes time. And of course, you know, being at the sharp end of this regulation, We're the ones that have to figure out how we're going to drive the compliance in the countries of production.

So Louis, when Justin presented you with this incredibly tangled problem, this difficult web of supply chains that he was trying to untangle, what was it that appealed to you and made you think, yes, this is something we can really help with?

What really appealed me first was the ambition, but the ambition was not recent in a way, because we have been preparing for this for a number of years. We have worked and financed Sukafina for a number of years already. And we already had key performance indicators in our credit facilities that allowed us to fix common targets regarding deforestation and regarding the other social and environmental factors. What was, I found, really interesting in this is the way we really match and cope with the new regulation that is now in place in the EU.

I think cope is a very good way of expressing it, actually, because it is an incredibly complicated process. If you think about the amount of cups of coffee that are sold in Europe, for every consumer, everyone who buys a cup of coffee, to know exactly where that has come from, particularly having heard from Justin, the complication of that is very difficult. Justin, just talk us through logistically how you went about doing this. How do you try and identify farmers and look for the source of that coffee that's going into that cup in Europe?

Yeah. And, and maybe just to frame the, the size of the challenge, uh, once again, um, we estimate, and it's just an estimate, that there are about 12.5 million households that produce coffee around the world, mostly across the tropical belt, of course. Um, if you look at the sum total of the most well-known global certification programs, I'm talking about things like Fairtrade, Rainforest Alliance, and you sum up the number of farmers, coffee farmers in those programs, you probably reach something like 1.2 to 1.5 million. So roughly 10% of global coffee farmers today are part of some kind of existing certification scheme where some form of traceability will be in place. Now, Europe consumes about half the world's coffee, so you can see the size of the challenge to, to, to identify the rest of the farmers out there. If we want to comply. So in the case of our company, we estimate we would have to map probably upwards of 400,000 to 500,000 farmers globally to ultimately comply with this regulation. We started this exercise pretty much from zero about 3 years ago, as Louis hinted, before the regulation came into place. And in the last 12 months, by working in collaboration with, with ING and other banks, We've set ourselves ambitious targets, and we've actually achieved a rate of around 150,000 farms mapped so far. So still a long way to go, obviously, on this journey, but an amazing achievement given the complexity of the supply chains that we work in.

An incredible achievement and a huge number. What is your ambition? What would you like to get to?

I think we're going to have to get north of sort of 400,000 to 500,000 farmers ultimately, if we really want to continue supplying the European market with the volume of coffee that we currently do. I hasten to add, of course, you know, this is not just only a challenge for Sucufina, it's a challenge for the entire global coffee trade, just by the nature of the way it's structured. And it's gonna be a challenge, obviously, for coffee roasters in the European market who want to keep on supplying coffee to, to, to their consumers. This is a tremendous mindset shift in, in, in the way coffee has been produced and, and traded historically, and it's gonna require a lot of adaptation.

Louis, what is it about that certification process that you've particularly wanted to see at ING?

There are different certification processes that are in place in the market, so there was no challenge to that. And those are the certifications that we all know when we buy coffee in the stores. In addition to that, Suicafina has its own implementation standards that are called IMPACT. On our side, we set clear targets which we think will bring us to the point we want to reach. It's more a question of setting performance indicators than actually applying certificates that we obviously know as consumers in the retail markets.

And how did you find that process, Justin, on the other side of it?

No, I think, you know, we welcome these challenges. I think we consider ourselves to be innovators in the sustainability field as it is, as a company. This is definitely a big step up in terms of ambition. We believe that if we do this right, it's the kind of ambition that can differentiate us, you know, from what the rest of the market is doing. You know, I hope there's going to be a first mover advantage for us in doing so, but it's been a big ask. We've actually co-invested in a satellite technology company with whom we've co-developed our own monitoring tools to assess deforestation at the farm level. So, you know, our effort has to go into developing policies, standards, and tools to measure deforestation on the ground using publicly available data like Global Forest Watch. But we also have to go on the ground and collect GPS points, polygons from these, you know, now 150,000 farms that I mentioned and put these things together.

Yes, I can see it involves you taking on a very different role. How have farmers reacted to that?

So I think farmers have mixed reactions, of course. Perhaps an initial reaction from many farmers is that, this is creating a barrier to entry to the European Union. And in some ways, of course, it will do that. And so I think farmers feel a little bit penalized for consumer behavior, I suppose, in the European Union. You know, many farmers would argue that they're not deforesting to plant coffee. And I would tend to agree with that, that in actual fact, the causes for deforestation are manyfold, and you can't just single out individual commodities for this. But on the other hand, I think they also welcome our efforts in trying to help them stay compliant. And, and so this journey is, is one of not just collaborating with, with our financial partners, but of course engaging with regulators in coffee-producing countries, engaging with our competitors to, to, to, to work jointly on, on solving some, some complex problems and, and trying to be as pre-competitive as we can in this space to work hand in hand with all stakeholders and, and find ways to, to, to keep coffee compliant. I mean, our biggest fear would be that some of the fantastic coffee origins that we have in the world that produce really fine coffees, but produced by tens of hundreds of thousands of coffee smallholders, that they could be in danger of missing out. And we might lose some of that diversity in the coffees that we drink if we don't find a solution.

Would you just talk us through, Justin, it's very interesting hearing you make the point about mapping and how you're technically doing this. What sort of technology are you relying on in order to make these changes and make these checks?

Yeah, so the primary technology is, of course, satellite monitoring. And it starts with us Having our boots on the ground, sending agronomists or field officers into the fields, meeting with farmers, getting their permission to map their farms by literally walking the boundaries of their land, and then uploading that geospatial data onto platforms that monitor deforestation. And so that allows us to then ascertain whether the farms that we work with are associated with deforestation, or are they indeed producing coffee in areas that are protected, in other words, national parks or protected forests. And so it gives us a basic alert system and that allows us to then either perhaps distance ourselves from farmers that are blatantly bending the rules, but hopefully what it really does is allow us to figure out ways to work with farmers that might have a lesser understanding of the rules and bring them back into the supply chain. And then that's obviously a long-term process as well. So, but that's in essence the main technology we use. And that's how it's applied.

And Louis, is there anything that you've learned from going through this process with Zuccafina that you can apply to other industries and other companies you work with?

Obviously, the main items is what Justine mentioned is the recourse to IT. And this whole process would certainly not have been possible a few years ago. And the recent developments in data gathering, data analysis, the access to the satellite system, to blockchain, have been used and put to contribute to this overall effort to improve the sustainability. And this is important for the whole overall, for all sectors in the different industries that the same tools can be used and replicated in the end. So we had this common effort with, with Sucafina and we process, we have different innovations and we use that again like this expedition of first mover advantage, actually being among the first to develop, to use tools for traceability, for mapping, and for other objectives to reach the goal that we want to and to make it different and more sustainable.

There's clearly been this Herculean effort to make this very complicated supply chain very transparent, and it's striking to hear how much work you've been doing with the tech, as well as, as you said, Justin, boots on the ground as well. This all comes at a cost, clearly. Do you— what is it doing to the cost of your coffee, first of all, Justin? And then do you think customers are willing to pay for that?

You're absolutely right, Katie. There's a significant cost implication to doing this work. So on the one hand, there's a cost of not being able to comply with the regulation, which would be, you know, dramatic for a company of our size. On the other hand, there's the cost of actually going out and doing the compliance work and mapping those farms, as you mentioned. And this has got to be paid for. There's no doubt about that. I mean, regulators are imposing more stringent requirements for a particular set of consumers. And our understanding would be that consumers therefore are more open to the idea of rewarding farmers that can adhere to certain practices and standards. And I hope that's going to happen. My fear, of course, in the short term is that companies like ourselves and probably the farmers will end up shouldering part of the burden. I think the transition to a fully green supply chain is going to take time, unfortunately. And we see some reticence, you know, frankly, on the behalf of some roasters to take on this additional cost. So it's a game of give and take. We have taken the decision to be early movers and to act quickly. But there's a significant outlay involved in this. And our hope, of course, is that we can recover this with time.

What's your view on that, Louis?

I believe that, again, like for other industries, this is a a necessary change, a necessary move that we have to address. Obviously, there are transition costs attached to that, but coffee has become a very popular product. And I find this personally important that it remains a product that is accessible for most of us and it does not become a luxury product. And that's one of the roles of large merchants such as SUCAFINAT to make it possible to procure in different areas, to keep the diversity of coffee procurement. And in the end, the cost should be absorbed. It should be obviously limited to the minimum, but according to the studies that we have had, that we read, and according to the industry, that should be a manageable cost. In the end.

And when we think about that manageable cost, Justin, can you put a number on it? Do you know how much this would put the average cup of coffee up by, the investment that you've made in the transparency of the supply chain?

I wish I had an answer to that question, Katie. Unfortunately, the supply chain is just so complex and so very varied around the world that I think the cost will be different country by country. What I will say, of course, is that the support we get from the banks in setting targets, but then rewarding us for achieving those targets, definitely helps. And I think this is one of the key roles that the financial sector is playing to help European companies in particular to align with regulation is providing incentives for us to be good actors and be rewarded through the cost of financing for that, right? So that definitely helps to at least offset some of the initial investment in technology and set us on the right track.

I just think one of the joys of this podcast is it is a chance to step back and for the both of you really to reflect on your achievement, you know, 150,000 coffee growers. Certified is really quite something. How does that make you feel, Justin, when you look back at where you've come from and the huge amount of work that it's taken you to get here?

Yeah, I mean, I have to say the numbers are sometimes so unreal that it's hard to really put it into perspective and understand what it means. And of course, it is an amalgamation of many, many separate efforts in many, many countries. But it is a staggering piece of work. And knowing that there's still a long way to go, of course, is quite humbling. Um, but like I said, I, um, I think that the positive for us as a company is that in, in forcing ourselves to get closer to the people that produce the coffee and, and the ones that ultimately carry the burden of supplying consumers with the product that we love is that we also uncover other, other issues that we need to address. And, and, uh, and so, you know, as someone who works in the sustainability field, I'm taking really a lot of pleasure in having a better understanding of, of the challenges that our producer suppliers face. And how we can help them to navigate some of the challenges that they have, not just deforestation, but of course, other big topics.

Yeah, they do always say one horizon always reveals another. What are some of those challenges for you then, looking forward?

Well, I think as we get closer to producers and have a better sense of the environments that they live and work in, you know, and a better understanding of some of the complex social dynamics, human rights challenges, the role of women in coffee farming in some countries, for instance, It allows us to think about, you know, what actions we can play as an ultimate buyer of coffee to help improve some of those things. And so it's been really great that as an offshoot of some of the work we're doing on deforestation, we also now have programs looking at things like gender roles in coffee production, for instance, or looking at how we can actually embed a lot more awareness about human rights challenges in certain regions where we produce coffee from. So out of all this really are born many other programs, which I think will help Socafina become a more compliant and more sustainable company going forward across the whole gamut of challenges.

And how about you, Louis, sitting in a very different part of the world? Has this made you think differently when you buy a coffee in the morning or you make your morning coffee?

Yes, I guess I see that in the same view as other consumers. And I like to say, I don't know if— that it's— I don't like my coffee to have a bitter taste. It's always— and I'm happy when it, in a way, contributes to the rewiring of the environment, that it's It's well thought through and it's adapted to the values that we have in the end. So that's a personal point that adds up to the view I have as a banker and in the support of Sukap Finas business.

Yes, you must feel quite proud that the work you've done in finance has contributed to such an enormous change.

Yes, proud, but I must say it's part of the overall strategy of the bank. And I think most of the large Corporates in Europe are now aware that a transition has to take place. And I like at ING that the plan comes from, is across the institution and it's very well thought through and with strong plans from board level. In the end, making real the strategy of the overall institution as well.

So just to remind listeners, Justin, the result of all of this really is to provide clean coffee to the European Union.

That's right. Our ambition is to provide assurance to consumers that ultimately the products they consume, in this case, the coffee that they drink, is free from deforestation, is grown under conditions that respect natural boundaries and protected lands. And I think that's a worthy endeavor. So, I mean, obviously, It's a complex path and it's a difficult ask that's been placed upon us. But like I said, the legislation is well-intended and I think ultimately will lead to something very positive.

As you've heard, sourcing coffee often means overcoming enormous challenges to create a greener product. But the result is some traders have been able to change the way they deliver coffee, reducing deforestation and making a more sustainable coffee. Sustainable product. It means the coffee coming into the EU from next year will have contributed less to deforestation than before. But is it enough? Coffee will have to continue its path to a cleaner cup. And that might mean we have to fork out a little more cash for the taste. Thanks to both our guests, Justin Archer, sustainability manager at Socafina, and Louis Prieur from ING. We'll see you next time on ING Uncovered Sustainability. This podcast is powered by ING. Society is transitioning to a low-carbon economy. So are ING's clients, and so is ING. It finances a lot of sustainable activities, but still more that's not. See how the business is progressing on ing.com/climate.