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Nestlé to invest 1 billion Swiss francs to make coffee farming more sustainable

© ILFT Marketing Communication Advertisingnestle coffee farming

Global FMCG giant Nestle (SIX:NESN), owner of instant coffee maker Nescafé, has updated its sustainability plans for the brand. This will entail the support of regenerative farming practices in coffee cultivation. This should lower emissions and help protect nature.

  • Nescafé updates sustainability plan to help farmers dealing with climate change and cut greenhouse gas emissions.
  • Nestlé owns four major coffee brands – addressing Nescafe’s supply chain suggests recognition of the importance of coffee to the company.
  • The initiative shows how mainstream action on nature is becoming for sustainability – questions of overall credibility however still stand. 

The company has released new goals, updated since the 2021 announcements. Its new goal will see Nescafe use only responsibly sourced coffee by 2025, and it has introduced a goal of having 20% of its coffee sourced from farmers using regenerative agricultural methods – going up to 50% by 2030. 

This will be achieved through piloting a series of experiments with different regenerative agricultural methods – which could range from no-till, crop rotation, new water management practices etc – to discover which will prove most effective for their suppliers.

Climate change poses significant threat to the coffee industry

Climate change is threatening the coffee industry as the areas suitable for its crops are estimated to halve over the next three decades, according to research from the Inter-American Development Bank.

Latin America accounts for the majority of production globally, with Brazil accounting for around a third of it alone, followed by Colombia, Honduras, Peru and Mexico. Other key countries are Vietnam, Indonesia, Ethiopia, India and Uganda.

All these regions are experiencing increasing extreme weather. At the same time, changes in precipitation and weather patterns could allow coffee to grow in new areas, such as Nicaragua. The critical point is that operational expectations in the coffee are having to adapt.

One of the greatest challenges for global supply is that most of the world’s production is produced by 25 million smallholders, according to Fairtrade, with 125 million people depending on it for their livelihoods.

There is another challenge with this in ESG terms, as estimates suggest that 80% of the farming families live below the poverty line.  That makes them extremely vulnerable to  price volatility in the global market. 

Companies are being forced to respond

Large companies are under growing pressure from governments, ESG investors and consumers to make their supply chains more sustainable, both for the workers and the environment.

In September 2022, the European Commission voted in favour of a new law that will ban goods produced on deforested or degraded land, including coffee. It came after a proposal in February 2022 for a new law to force large companies to check whether their suppliers use slave or child labour.

The biannual assessment of the sustainability of the coffee sector, Coffee Barometer  highlights that despite public commitments to action 15 of the major traders and roasters were not making a meaningful contribution to improve livelihoods and protect nature.

Nestlé makes a third of its sales from coffee brands

Coffee is a core commodity for Nestlé, which also operates the Nespresso, Starbucks at Home and Milo brands. As a whole the group buys 800,000 metric tons of green coffee every year,  from 100,000 farmers across 20 countries.

Sales in the segment jumped 8% to 24 billion Swiss francs in 2021, accounting for nearly a third of total global sales.

Nescafé pledges to support farmers

Nescafé, which sources 90% of its coffee from Brazil, Vietnam, Mexico, Colombia, Côte d’Ivoire, Indonesia and Honduras, plans to work with farmers to test various types of regenerative agriculture practices.

It is also planning to pilot a financial support scheme in Mexico, Côte d’Ivoire and Indonesia to help farmers making the transition.

It did not disclose specific details on its plans, which could include conditional cash incentives, income protection via weather insurance, and easier access to credit lines.

The switch to regenerative agriculture could also contribute to reducing greenhouse carbon emissions, which Nescafé has pledged to halve by 2030, reaching net zero in 2050. While the announcements seem positive, it is difficult to assess exactly what impact the proposals will have given the lack of detail. Nestle has previously been accused of making vague pronouncements regarding its climate, nature and biodiversity plans.

If the programmes are effectively implemented, they could help protect agricultural lands, enhance biodiversity and prevent deforestation, by supporting farmers in planting 20 million trees near their coffee farms.

Nescafé, which was established in 1938, started investing in sustainability in 2010. Its soluble coffee factories have since cut greenhouse gas emissions by 46% and water usage by 53%. It also says it has distributed 250 million disease-resistant, high-yield coffee plantlets that resulted in yield growth and $750 million additional income for farmers in Mexico.

Global brands are following startup focus

Some small brands, such as Apostle Coffee in the UK and Buna in Mexico, are already using coffee grown with regenerative agriculture methods. Yet if such a global industry is to transform, it will require the big brands to get in line. 

Nescafé’s investment could potentially signal that global brands are beginning to face the need to adapt. Given the changing climate, action on security of the supply chain means understanding where and how things are grown, and addressing their impacts on soil health, water management, resilience and climate change. 

However, the sector needs more transparency to understand what needs to improve and to measure progress.

Mark Maslin, a Professor at University College London and author of various books on climate change, said: “If large brands like Nescafe do not become sustainable then they risk reputational damage, and many customers will switch brands as the environmental credentials are becoming more important for consumers.”

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