Sustainable coffee trade: the role of coffee contracts

The paper provides an overview of the role of contracts as instruments to catalyse sustainable development within the coffee sector.In order to do so, the paper provides an overview of the diverse contractual systems currently in use in the coffee sector, highlighting the distinctiveness between “conventional” standard form contracts typically used as a basis for transactions in mainstream physicals and futures markets and “alternative” contracts used for promoting specific sustainability systems:conventional contracts maintain stability and predictability in international coffee trade, but generally do little to support coffee production and processing methods critical to sustainable developmentan overview of three alternative contracting systems (Utz Kapeh, Fair Trade and the Starbucks Preferred Supplier Program) highlights the potential for using price, contract length, risk distribution and preferred supplier status as tools for reducing producer exposure to the market risks and uncertaintiesThe study finds that despite a number of challenges, there is nevertheless significant opportunity for promoting sustainability through the use of specific contractual tools which can improve the transparency and stability of the market situation. Among the most promising tools identified in the study are:long-term agreements between producers and buyers so as to permit the planning of activities at least over a complete harvest cyclethe use of “price to be fixed” contracts, sellers call in physical contracts with producers and producer organisationspreferential supplier status in return for commitments to sustainable production practicesadequate institutional or market-based guarantees to ensure actors honour their contractual commitments through market volatilityincreased transparency of the price formation process along the supply chain through enhanced access to information.