News Bites

    We have to be in the supply chain to change it


    Comment from Olam Coffee on the Chain Reaction Research Report on deforestation risks in Peru

    The report from Chain Reaction Research states that “No direct link between Olam Peru and deforestation in the Peruvian coffee sector could be identified [1].” However, deforestation in commodity supply chains is still a major concern to Olam, not least because forests are vital in preventing rising global temperatures which can have a negative impact on crops.

    Olam responded to the authors’ [2] various requests when they were preparing this report and provided them with access to relevant information. Whilst we acknowledge that they have included much of our feedback we disagree with the report’s inference that we do not take a proactive approach to dealing with the issue in the Peru supply chain. In particular, the Key Findings section of the report suggests that we would take a lenient view with suppliers who do not comply with the Olam Supplier Code as we do not immediately cease trading. In fact, we had stated: “If we identify any poor practices we will investigate and seek remedial / educational steps in the first instance.  As there are over 160 other coffee buyers in Peru, striking a supplier immediately from the list is unlikely to lead to improved practices – they can simply sell to a less concerned buyer.” Although the authors explain this approach in later chapters of the report, we feel it is a misleading statement for the Key Findings on page 1.

    Through our sustainability programmes, Supplier Code and promotion of third party verification and certification schemes, we are engaging our suppliers to help drive change at the farmer-level. At the same time we underline that tackling smallholder deforestation in Peru, without impacting farmer livelihoods, requires a sector-wide approach with all stakeholders using their influence.

    It is important to note that the coffee supply chain in Peru is very fragmented, with 223,000 farming families producing coffee over 380,000 hectares, which results in fewer than 2 hectares per farm. This makes it extremely difficult for exporters to buy significant volumes directly from smallholders. The biggest challenge for the smallholder farmers is achieving a high yield, often because they have not had training, access to quality coffee seedlings or are farming on degraded soil.  They are therefore faced with lower yields, higher costs for inputs like fertiliser, and price volatility which can impact their earnings and livelihoods. These challenges may give them more of an incentive to encroach into the forest to plant more coffee.

    Solving these complex issues takes time and cannot be tackled by one company alone. We are already actively involved in industry initiatives such as the Global Coffee Platform to engage multiple stakeholders and to achieve systemic change while maintaining or enhancing the livelihoods of smallholders.

    For our own operations in Peru, we proactively take the following measures:

    1. Reforestation and training on climate smart agricultural practices in our direct procurement

    Our sustainability programmes, which now reach more than 1,500 smallholders under the Olam Livelihood Charter, include training in deforestation prevention and climate smart agri-practices, as well as reforestation and shade cover.  The programmes are also designed to tackle the root causes of encroachment – helping farmers to increase yields and incomes from their current stock becoming more economically resilient.

    2. Promotion of third-party verification certification schemes in our indirect procurement

    Approximately 70% of our indirect procurement is covered by third party verification (4C) or certification schemes (Rainforest Alliance and Organic) all of which have environmental requirements.  We actively encourage other intermediaries to pursue third party verification. In order to achieve the third party verification/certification, Olam Peru employs 11 agronomists and field staff who train smallholders on Good Agricultural Practices, even though we are buying through intermediaries.

    3. Olam Supplier Code

    The Olam Supplier Code is an additional layer of environmental and social principles placed on the intermediaries we buy from. To be clear, we do not have a Peru-specific policy, but a company-wide global Supplier Code, which we believe is more encompassing and lends itself to global standards of compliance and transparency. We have a core set of intermediary suppliers whom we engage and influence, and all commit to upholding the Code which includes compliance to local regulations on deforestation.

    We firmly believe that we have to be in the supply chain to change it and that it is more effective to continue to work with suppliers to achieve continuous improvement and maintain some influence over their practices. But we also need others to engage so that together we can support farmers and protect forests.

    Olam’s efforts to prevent deforestation extend beyond coffee. We have completed a first consultative phase of our cross-commodity Global Forest Policy which will link together our efforts across our own operations and those of our third party suppliers.

    For more information:

    [1] Page 9 of the report

    [2] Hilde van Dijkhorst, Aidenvironment; Barbara Kuepper, Profundo; Gabriel Thoumi, CFA, FRM, Climate Advisors

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