{"id":22294,"date":"2017-11-14T14:44:50","date_gmt":"2017-11-14T19:44:50","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/nespresso-protecting-the-worlds-best-coffee\/"},"modified":"2017-11-14T14:44:50","modified_gmt":"2017-11-14T19:44:50","slug":"nespresso-protecting-the-worlds-best-coffee","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/nespresso-protecting-the-worlds-best-coffee\/","title":{"rendered":"Nespresso: Protecting the World\u2019s Best Coffee"},"content":{"rendered":"

The 400 billion cups of coffee that the world drinks every year are in jeopardy due to climate change.[1]<\/a> Fluctuating global weather patterns caused by excess greenhouse gases, including drought, landslide, plague (e.g., coffee-leaf rust), and flooding, are affecting both the quality and quantity of coffee harvests. Going forward, the situation is expected to worsen. The Climate Institute predicts that areas suitable for coffee growth will shrink by 50% in 2050.[2]<\/a><\/p>\n

\"\"<\/a>
Source: Climate Institute<\/strong><\/figcaption><\/figure>\n

These environmental pressures currently impact the rising raw material costs of Nespresso, a luxury coffee supplier, and the longer-term feasibility of its supply chain. Compared to its competition, Nespresso\u2019s longevity is particularly affected due to its emphasis on high quality. The company \u201cestimates that only 1-2% of the coffee grown globally meets its specific taste and aroma profiles, and quality requirements.\u201d[3]<\/a> Further stress due to climate change on that already limited supply could exaggerate product costs or force Nespresso to compromise on quality. In response to these threats, Nespresso has launched a multitude of sustainability initiatives, most notably: a AAA sustainability program focused on teaching and incentivizing sustainable coffee farming best-practices, an agroforestry initiative, and a capsule recycling program.<\/p>\n

In 2010, in coordination with the Rainforest Alliance, Nespresso founded the AAA sustainability program to mitigate both the immediate impacts and the long-term damages associated with climate change for coffee farmers and the company\u2019s supply chain. The program seeks to educate all 70,000 Nespresso farmers located in twelve countries on sustainable farming practices in an attempt to secure their futures along with Nespresso\u2019s. These practices include soil management, which has tangible, short-term impact, along with longer-term initiatives, such as water conservationism and pesticide reduction. A study in Colombia found participating farms had 22.6% better social conditions, 41% better economic conditions, and 52% better environmental conditions than non-AAA farmers.[4]<\/a> Nespresso has committed to this program for the long-term, and will source 80% of its coffee from these farmers by 2020 despite the 30-40% higher raw material costs.[5]<\/a> \u00a0It is unclear if Nespresso will increase the price of its capsules or take a hit on its margin to accommodate these increased raw materials costs.<\/p>\n

\"\"<\/a>
Source: Nespresso<\/strong><\/figcaption><\/figure>\n

After witnessing the global coffee supply decline by almost 30% between 2002-2010 due to plague (e.g., coffee-leaf rust), and landslides in South America, Nespresso also launched an agroforestry initiative with the goal of planting 10 million trees by 2020. The loss in coffee supply was particularly problematic for Nespresso because 40% of its coffee supply comes from that region.[6]<\/a>\u00a0 Nespresso believes that \u201cplanting trees within and around coffee fields helps \u2026 protect the crops. Thanks to their canopy and rooting system, [trees] reduce the impact of climate deregulations.\u201d[7]<\/a> This is a medium-term initiative with the trees expected to reach maturity within ten years. In the future, the trees will also provide the necessary shade for the coffee plants in the face of increased global temperatures and supplemental income for farmers in the form of fruit and timber sales.[8]<\/a><\/p>\n

Last, Nespresso has urged its customers to combat climate change themselves. To reduce consumers\u2019 long-term environmental impact, Nespresso developed an aluminum pod recycling program for its ubiquitous coffee capsules. In Nespresso\u2019s commitment to be Carbon Neutral by 2020, it states that they \u201cwill expand [their] capacity to collect used aluminum capsules to 100% wherever the company does business\u201d and aim to ensure that \u201c100% of [their] virgin aluminum capsules to be produced with material compliant with the new Aluminum Stewardship Initiative standard\u201d.[9]<\/a> \u00a0Nespresso has had great success: by 2015, \u201c[they] had reached 86% global recycling capacity\u201d[10]<\/a>; quite an accomplishment with over 6 billion pods sold annually.[11]<\/a><\/p>\n

 <\/p>\n

\"\"<\/a>
Source: Nespresso<\/strong><\/figcaption><\/figure>\n

 <\/p>\n

What additional steps can Nespresso Take? <\/strong><\/p>\n

Nespresso has largely focused on medium-term projects and mitigation solutions, and I recommend they also look to support longer-term projects. From an adaptation perspective, Nespresso could collaborate with World Coffee Research to develop and plant a more climate resistance coffee bean that meets Nespresso\u2019s quality standards. Second, Nespresso should protect its downside and invest in product diversification, such as tea and snack products that would not be as susceptible to the same climate pressures.<\/p>\n

 <\/p>\n

What are outstanding questions?\u00a0 <\/strong><\/p>\n

 <\/p>\n

Given the rising cost of sustainably farmed coffee beans (30-40% markup on current market prices), is Nespresso able to maintain its commitment to sourcing these types of beans as they scale? Will the Nespresso customer be willing to accept a price increase to accommodate a more sustainable bean? If not, can Nespresso afford the necessary cut to their margins by sourcing more expensive, sustainable beans? Second, recognizing Nespresso\u2019s focus on quality, are these practices enough to maintain sufficient, high-quality coffee supply? Should Nespresso lower its quality standards? Should they look to purchase coffee farms and implement sustainable practices through a vertical integration scheme? Finally, will Nespresso customers be comfortable with a genetically modified coffee bean?<\/p>\n

(Word Count: 776)<\/p>\n

 <\/p>\n

[1]<\/a> Fairtrade Foundation, \u201cAbout Coffee,\u201d accessed November 2017, http:\/\/www.fairtrade.org.uk\/en\/farmers-and-workers\/coffee\/about-coffee<\/a>.<\/p>\n

[2]<\/a> Peter Laderach, \u201cClimate Change Adaptation of Coffee Production in Space and Time,\u201d Climatic Change<\/em>, (September 2015), accessed November 2017.<\/p>\n

[3]<\/a> Nespresso, \u201cProduct Related FAQs,\u201d accessed November 2017, https:\/\/www.nestle-nespresso.com\/about-us\/faqs\/product-related<\/a>.<\/p>\n

[4]<\/a> Diane Duperret, \u201cNespresso Sustainability Approach Across Its Coffee Value Chain,\u201d April 2015, http:\/\/3blmedia.com\/News\/Nespresso-Sustainability-Approach-Across-Its-Coffee-Value-Chain<\/a>, accessed November 2017.<\/p>\n

[5]<\/a> The Guardian, \u201cNespresso Coffee Farmers: Growing Green,\u201d The Guardian,<\/em> https:\/\/www.theguardian.com\/nespresso-discover-sustainable-quality-coffee\/2016\/dec\/14\/nespresso-coffee-farmers-growing-greenprocess, accessed November 2017.<\/p>\n

[6]<\/a> Nespresso, \u201cProduct Related FAQs,\u201d accessed November 2017, https:\/\/www.nestle-nespresso.com\/about-us\/faqs\/product-related<\/a>.<\/p>\n

[7]<\/a> Tristan Lecomte, \u201cHow Agroforestry can increase coffee farms resilience to climate change,\u201d accessed November 2017, https:\/\/www.nestle-nespresso.com\/newsandfeatures\/how-agroforestry-can-increase-coffee-farms-resilience-to-climate-change<\/a>.<\/p>\n

[8]<\/a> Ibid.<\/p>\n

[9]<\/a> Jessica Lyons Hardcastle, \u201cNespresso Pledges Carbon Neutrality by 2020,\u201d Environmental Leader<\/em>, (August 2014), Accessed November 2017.<\/p>\n

[10]<\/a> The Guardian, \u201cEncapsulating Business with a Sustainable Process,\u201d The Guardian,<\/em> https:\/\/www.theguardian.com\/nespresso-discover-sustainable-quality-coffee\/2017\/feb\/21\/encapsulating-business-with-a-sustainable-process, accessed November 2017.<\/p>\n

[11]<\/a> Christina Passariello,\u201c<\/em>Nestl\u00e9 Stakes Its Grounds in a European Coffee War,\u201d The Wall Street Journal<\/em>, April 28, 2010, https:\/\/www.wsj.com\/articles\/SB10001424052748704388304575202402216730116, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

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