Rapaport Magazine

Cocoa, Coffee and Carats

By Ricci Dipshan
While most in the diamond and jewelry industry are sensitive to the demands of their consumer base, many worry that the industry is turning a blind eye to an up-and-coming niche market that is pervading all sectors of the economy — fair trade and sustainable products. 

The concepts “fair trade” and “sustainability” are synonymous and can be used interchangeably — so long as the trade of a product emanating from a certain region economically, environmentally and socially sustains that community, then that product is sustainable and so is considered fairly traded. 

“I think the public is interested in it,” observes Toby Pomeroy, president of Oregon-based Toby Pomeroy, a manufacturer of sustainable gold and silver jewelry. “It’s clear that people at some level know we cannot unfairly take advantage of people and we don’t want to — it’s not something anyone wants on their conscience.”

Others point to the public relations problems that the diamond industry has had with conflict diamonds as proof that the time is ripe to begin a sustainability push. “I believe there is a certain readiness factor in any industry, when people are looking for it. And in the jewelry industry, especially, the issues of labor and blood diamonds have taken hold of the social consciousness. A lot of people are concerned. I think that is pretty clear,” explains Dr. Brian Nattrass, chief executive officer (CEO) of Vancouver-based Sustainability Partners, consultants to companies interested in developing sustainable practices. 

Some in the industry are already making headway on the sustainability front — like Brian Cook, geologist and co-owner of Nature’s Geometry, based in Laguna Beach, California. Cook operates a mine in Novo Horizonte, in Brazil’s northeastern Bahia state, which is rich in rutilated quartz.  “My perspective is, I am involved in the area with my own mining operation and very small artisanal crew,” says Cook, “and while we have safe equipment, and pay good wages, I am trying to show the people that they should also be thinking about investing their resources for the future. And I am trying to lead by example.”

Cook farms organic produce on his land, and is slowly convincing locals to grow sustainable crops to support themselves once their mines run dry.  “I see what needs to be accomplished out there. I see that the future, if there is no other way for the locals to make an income is going to be bleak. I am showing that there is another way to bring money into the area.”  

Other organizations are also sprouting up to help certify and trace jewelry and diamonds.  The Jeweltree Foundation, for example, based in the Netherlands, certifies small- to medium-sized mining companies, with criteria based on international and local standards designed to detect human rights abuse. The organization also certifies manufacturers that adhere to standards developed in conjunction with the International Peace Information Services, a Kimberley Process (KP) auditor. 

To oversee its members, Jeweltree has them put their company information and activities into an online database, which is checked regularly for fraudulence. “External auditors check if the members comply with the audit requirements. The database then checks whether the information given corresponds with the data obtained,” explains Mike Angenent, founder of the foundation. Jeweltree also has a “License Holder” program, where companies can resell, and get assistance in marketing and advertising, certified jewelry. “In our experience, it works quite well. It is actually quite foolproof and easy,” notes Angenent.

Small Steps

Though there are many encouraging efforts being made toward sustainable jewelry and diamonds, they are still in the beginning stages and do not encompass a large portion of the industry. As of yet, the diamond and jewelry world lacks the robust sustainable efforts of many other commodities. 

Diamonds and jewelry could potentially have a larger and more receptive socially conscious consumer base than other products because of the personal and sentimental relationship people have with these items. “You have a highly visible consumer product to which a lot of emotion is attached,” says Rodney North, of Equal Exchange, a worker cooperative providing fair trade products that is based in West Bridgewater, Massachusetts. North adds that consumers might not fret about paying extra to know that their anniversary gift or wedding ring is not “tainted.” 

Not all firms, however, share that view. The current economic instability fuels worries that consumers may be too cautious with their spending to latch onto higher-priced sustainable luxury products. “There definitively has been an economic weakening,” says Pomeroy. “I think people are more price conscious now than they would be in the boom times — it absolutely makes it more of a challenge.”

The need to put power back into the hands of local miners is paramount to building a foundation for future sustainability efforts in the diamond and jewelry world. “Sustainable industries enter into a marriage with their suppliers — it’s not a one-night stand,” says North. 

To do this, the industry must get back to its roots. “What has traditionally been an industry that has been dominated by miners is now an industry where miners are marginalized and having to operate illegally,” warns Pomeroy, adding that, for any sustainability effort to be successful, the industry must be realistic and patient. “Is it going to pay off right away? I don’t know — and it may be difficult to get off the ground. But the benefit of feeling good about what we do — that has us winning in ways that dollars cannot.”

The Coffee and Cocoa Model

A good model for the diamond and jewelry industry to examine before launching its own sustainability efforts is the crowned king and queen of sustainable commodities — coffee and cocoa, both of which faced a variety of negative issues in the past. Over the past decade, fair trade coffee and chocolate have pervaded the global marketplace, becoming a staple item in grocery stores, cafes and restaurants. Their rise to the top has fueled new hope that other commodities can catch on to an ever-increasing demand for sustainable products, and usher in a new marketplace of ethical and environmentally conscious goods.

According to the “State of Sustainability Initiatives Review 2010,” (SSI review), published by a host of sustainable development organizations, from 2005 to 2010, sustainable coffee sales grew by 433 percent, with more than 500,000 tons of sustainable coffee — approximately 8 percent of global coffee exports — being sold around the world in 2009. Sales of sustainable cocoa, representing about 1.2 percent of global cocoa sales, rose by 248 percent during the same period, with more than 50,000 tons of sustainable cocoa sold in 2009.

Latin America and Africa

Latin America, the world’s largest coffee-producing area, produces 75 percent of all sustainable coffee globally, even outpacing the region’s conventional coffee production. Latin America also farms over 75 percent of the world’s organic coffee and grows 60 percent of all sustainable coffee certified by the four main Voluntary Sustainability Initiatives (VSI)- — Fair Trade Labeling Organization International (FLO), Rainforest Alliance, UTZ Certified and the 4C Association. 

Latin America also is responsible for 48 percent of sustainable cocoa production — an impressive figure when compared to the fact that Africa, according to the International Cocoa Organization (ICCO), is responsible for over two-thirds of global cocoa production.

While it does not have as expansive a range of sustainability efforts as Latin America, Africa — which produces 51 percent of all sustainable cocoa and around 5 percent of all sustainable coffee — has made huge strides in the past few years. According to UTZ Certified, African countries produced over 75,000 tons of sustainable cocoa in 2010, up almost 12-fold from the less than 6,000 tons in 2009.

Sustainable coffee efforts in Africa have also made remarkable progress. This year, Rainforest Alliance announced that it had certified over 6,500 smallholder coffee farms in Kenya and Ethiopia, with more than 430,000 acres of coffee-producing farmland under sustainable management across the continent, including large farms in Tanzania and Malawi.

The Small Farmer Co-Op Foundation

For most VSIs and private certification companies, the foundation of their efforts is the small-scale farmer. According to the SSI review, farmers with less than 12 acres of land produce around 70 percent of all coffee, while the ICCO reports that around 90 percent of all cocoa comes from three million farmers with an average of seven acres of land. These small farmers make it easier for certification organizations to verify each farm’s adherence to sustainability rules. Grouping into cooperative businesses also makes it easier for the organizations to deal with them on a large scale.

“The crux of how we work is with small-scale farmers,” declares North, who claims to have “introduced sustainable coffee to the U.S. in 1986.” He adds that small farmers get more revenue by selling a higher quality, and an ultimately more expensive, product.

Farmers organized into co-ops generally spilt their income, generated by higher revenue or by product premiums, and vote on how excess funds are used to better their community. “Co-ops make it so they can really vote on what the community really needs at that time,” says Katie Barrow, senior manager of public relations for Fair Trade USA, the American arm of FLO. “They can invest some of it on improving the quality of their products, in getting better equipment, or on schools and education.” Co-ops also can act as a community-policing unit, verifying how the money is spent, and making sure farmers are adhering to ethical and sustainable standards. Over time, co-ops can grow to encompass thousands of farmers and multiple communities.

The Big Players

The biggest players in sustainable chocolate and cocoa are the VSIs.  Almost 290,000 tons of sustainable coffee certified by FLO, UTZ Certified and Rainforest Alliance were sold in 2009 alone — the same year that those VSIs also sold almost 30,000 tons of sustainable cocoa. These organizations, therefore, certified more than half of all sustainable coffee and chocolate sales around the world.

While all of the VSIs work through farmer co-ops, the rules they set for certified products varies. For example, though all of them raise funds by making their members, which are usually industry companies vying to use the VSI certification logo on their products, pay membership dues, only two — FLO and UTZ Certified — charge a premium to buyers. And while funds raised for this premium go back to the co-ops and farmers, each of the organizations raises it differently.

“We are the only certification organization that has what we call a required ‘social premium,’” says Barrow, explaining that FLO charges 20 cents for every pound of certified coffee and about $200 for every ton of cocoa. FLO also establishes a minimum price for how much a certified commodity can be sold at, which is approximately $2,500 per ton of cocoa and anywhere from $1.01 to $1.40 per pound of coffee, depending on the type. 

This stands in stark contrast with the UTZ Certified Model. “What I don’t understand about Fair Trade is how they can have a set price,” wonders Graham Mitchell, general manager for the North American division of UTZ Certified. “We have a market-assessed premium based on the quality on the product,” he explains. “The first buyers of the commodity are basically communicated to by the market to pay a premium based on the quality.” According to the SSI report, the average UTZ Certified premium for coffee over the past five years has ranged between three cents and six cents per pound.

The differences between the two VSIs are more than just differences in price — there are also differences in sustainability philosophy. “We don’t really encourage payment of premiums to farmers — we like to see them produce more to make more,” notes Mitchell, adding “What we pride ourselves on is getting more productivity with the farmers, so they can improve their economic condition.”

FLO, on the other hand, believes in a more hands-on philosophy, where farmers pay to get certified, but are also guaranteed certain profits. “The reason for them to pay for the cost of certification is so that we know they are really serious and invested in this — it’s an investment on their part, and it’s important to make sure that they are really committed,” explains Barrow.

Private Initiative: Starbucks

VSIs are gaining popularity within the private sector, with brands like Sara Lee and Folgers Coffee teaming up with UTZ Certified and Ben & Jerry’s and Hershey’s Dagoba Organic Chocolate partnering with FLO. There are, however, a handful of companies that take on certification for themselves — the most notable and influential of which is Starbucks.

In early 2000, Starbucks started discussions with Fairtrade USA to see whether the two could form a partnership to certify Starbuck’s products. The company, however, soon realized that the VSI was not developed enough its handle its demands. “At that time in 2000, Fairtrade was only looking at the working conditions and at the workers — it was not looking at environmental issues and issues of quality,” says Nattrass, who worked with Starbucks on its efforts. “Starbucks is a rapidly growing chain,” he adds, “and it needed to assure itself of a high volume of high-quality and environmentally safe coffee.”

To meet its demand, in 2004, the company started the Coffee and Farmers Equity Practices (C.A.F.E.), a buying guideline program that ensures Starbuck’s suppliers are using green and sustainable practices. Every supplier enrolled in the program is checked through a third-party verifier for four pivotal standards: product quality, economic accountability, social responsibility and environmental leadership.

Starbuck’s unique “in-house” certification program was so successful that it broadened the scope of many up-and-coming VSIs around 2000.  “Starbucks worked with them over the years. And remember that Fair Trade has a very different meaning now than it did ten years ago — it was only concerned with workers’ rights. But now, for certification programs, protecting the environment and economic productivity go hand in hand with protecting the communities and workers.”

Cocoa and Coffee to Carats

The success of coffee and cocoa’s sustainability efforts have relied on bringing communities into long-term relationships with buyers and manufacturers. The ability for sustainability depends not only on controlling the suppliers at the first point of the supply chain, but also on building up communities around the suppliers to insulate them from exploitation and conflict.  

The diamond and jewelry industry must adopt a similar long-term approach. “The biggest challenge in our industry is getting miners and producing organizations certified,” Pomeroy says.  “Having those miners in the field educated is pivotal to any future successes.” 

“Nowadays, virtually every major corporation has a corporate sustainability strategy,” explains Nattrass.  “Most companies realize that doing business in the 21st century means that you are not just concerned about your own profits, but are instead interested in creating ‘shared value’ with your customers and with the people who produce your merchandise.”

Article from the Rapaport Magazine - September 2011. To subscribe click here.

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