6. IMPACT ASSESSMENT OF SOCIAL AND ENVIRONMENTAL CERTIFICATION

Implementing standards and entering certified (and maybe labelled) markets have complex impacts on the economic performance of the farm. Production costs, yields and producer prices may each be affected positively or negatively, and have to be analysed together. Furthermore, initial investment costs are likely to be very farm specific. New crops or activities may be introduced into the system, complicating cost-benefit analysis even further.

There are no systematic studies available that assess the impact of certification programmes over a wide range of farms, crops and locations. However, the number of case studies is growing that have studied - more or less comprehensively - impacts on various costs and profitability aspects. This chapter tries to give an overview of documented case studies on the impact of certification on producers in developing countries. The selected cases all concern horticultural and tropical crops, and they focus on certified farms producing for the market, whether for local urban centres or for export.

This method of collecting 'evidence' has two dangers. First, mainly positive cases tend to be reported on, if only because failures will stop being a case. Second, no field verification could be done. Reported data have been cross-checked with other sources wherever possible. Third, most documented cases are those cases that were supported through a project with donor assistance. This is the main reason why less information is available on the implementation of SAN, SAI and ISO 14001 standards, but it can also be assumed that private organic initiatives are under-represented.

The focus of each case study, and hence the methodology used, varies between the cases. Some have focused on yields, others on profitability, others again on success factors and the role of supporting organizations. For each type of certification, an overview table is given of the data on yields, production costs and profitability in comparison with similar conventional production systems. In the description of each case, additional information is given.

6.1. CERTIFIED ORGANIC AGRICULTURE

The FAO publication Organic agriculture, environment and food security addresses the impact of organic agriculture, certified and non-certified. The study notes that profitability of organic systems may seem high in one season because of the price premiums received for the marketed crop, but low in the subsequent season because animal feed or green manure crops are grown. Therefore it is essential to take the whole rotation into consideration when assessing profitability of organic systems^[88].

In Table 5, an overview is given of case studies of certified organic production by smallholders in developing countries.

Table 5
Overview of farm economic data from case studies of certified organic cash crop production in developing countries

Organic fresh vegetables for local supermarkets in El Salvador

Based on the report of Damiani, 2001a.

History and organization

In the late 1990s, two North American NGOs, CLUSA and Technoserve, stimulated the creation of three farmer cooperatives in Los Planes and Las Pilas, El Salvador. The climate in the area is suitable for organic vegetable production and the NGOs identified opportunities for marketing to supermarkets. In total, 66 farmers participated. One of the most important motivations for them to adopt organic methods was concern for possible health problems associated with conventional chemical inputs. Farmers formerly grew on a two-season basis, with irrigated vegetables in the dry season and maize in the rainy season. The farmers had sold their conventional vegetables through middle agents, who sold them at the market "La Tiendona" in San Salvador. Through the projects, the farmers have been selling to some of the main supermarket chains in El Salvador.

Investment and changes in farming methods

Because the supermarkets required a constant flow of product, the farmers needed to have irrigation infrastructure, which was a condition imposed by CLUSA and Technoserve when creating the farmer groups. The groups had to programme their production so that they could harvest every week and carefully forecast harvest and distribute harvesting quotas to individual farmers. The supermarkets also required a higher quality than traditional markets, and more uniform colour, size and taste. Some specific investments had to be made, especially the building of terraces and contour planting for soil conservation. Both CLUSA and Technoserve helped the groups to obtain funds for constructing the collective packing facilities and a greenhouse to produce lettuce plantlets.

Farm economics

It is difficult to make a comparison between year-round organic vegetable production and the seasonal maize-vegetable system. Due to the higher labour demand, the farmers reduced their total cultivated area slightly. Farmers who had continued to grow the same crop reported yields falling substantially in the first two or three years, and then recovering and stabilizing slightly below the yields from conventional methods. The study indicated that prices paid by the supermarkets were higher than at La Tiendona, and that there was also a premium for being organic. Most organic farmers were men, which is potentially explained by the need for stable forms of land tenure to make soil conservation investments that pay back only in the long term, and the requirement for irrigation infrastructure (women in the region may be disadvantaged because of tenure inequalities). Another explanation may be that soil conservation measures required considerable physical work and most farmers do not have resources to hire labour. The three packing facilities led to the creation of wage labour, and they employed in total 45 workers, most of them women.

Organic mango pulp from Alto Piura, Peru

Based on the report of Cardoza, 2001.

History and organization

The Asociación de Productoras y Productores Ecológicos del Alto Piura, in north Peru, organizes small-scale farmers with, on average, 2.1 ha under irrigation, with mainly fruit trees. Since 1993, the NGO Centro IDEAS has promoted organic agriculture in the valley. At the time of reporting, IDEAS provided advice to around 200 farmers, with a total area of 3 000 ha. Of those producers, around 32 percent were certified. One of the higher volumes produced is mango. In 1999, a North American importer (Douglas Stewart) ordered one container (20 tonnes) of organic mango pulp, but this could not be delivered because certification was obtained too late. For the next year, however, proper preparations were made and it was agreed that the mangoes would be processed at the plant of Agrobackus in Motupe-Lambayeque. The farmers and the plant were inspected and received the certification in time.

Investments and changes in farming methods

One of the most adopted organic techniques is the use of mulch. In 2000, some 60 ha of fruit orchards were installed or renovated. Installation of a fruit orchard costs US$500/ha. For pruning and grafting of new varieties on old trees, US$175/ha is required. Also, incorporation of organic material is an important investment. Centro IDEAS provided technical assistance through demonstration plots for smallholders, training of coordinators and promoters, participatory research, and 1-to-1 investment (what the farmer invests, IDEAS doubles).

Farm economics

After installation, maintenance of 1 ha of mango costs on average US$400 for an organic orchard, compared with US$1 015 for a conventional orchard. Organic mango yields are around 25 tonnes/ha. For fresh conventional mangoes, variable production and harvesting cost were new soles 7/box, while they fetched an average price in the city of new soles 9/box. For organic mango for the Agrobackus plant, variable costs were new soles 2/box and the price received was new soles 7/box, resulting in a considerably higher profit margin. Harvesting costs in particular were lower (down from new soles 5.5 to new soles 1/box), mainly because no grading was necessary for the pulp plant. Annual certification costs for the whole group were US$1 300, which would average only US$20 per farm.

Organic tropical fruits - a business opportunity in Uganda

Based on the report of Kidd, Tulip and Walaga, 2001.

History and organization

The export of organic fruits from Uganda has developed without any donor support. Two exporters, Bio Tropical Garden and AMFRI Farm, have organized 10 to 20 farmers in the form of an outgrower scheme. The farmers do not receive much technical information beyond what is prohibited. The exporters had already been dealing with the same farmers in conventional production.

Investments and farm economics

The farmers did not have to change their practices much. The exporters pay for certification (no complex internal control system, but group certification with simple records and 100 percent inspection) and own the certificate. Surplus that the exporters do not buy is sold on the local conventional market or the conventional export market. The farmers do not receive a price premium; the premium is used by the exporter to cover the costs of certification, with some increased profit margin. The benefits for the farmers is the known, secure market outlet.

Organic bananas from the Dominican Republic

Based on the report of Damiani, 2002c.

History and organization

Since the late 1980s, banana production in Azua has been characterized by little use of chemical inputs. Due to the dry climatic conditions, there has been no problem with Black Sigatoka. A national marketing firm, Plantaciones Tropicales, established links with small-scale producers and a certification firm. The first exports were made around 1988. A second production and marketing firm, Horizontes Orgánicos, was established in Azua, working according to biodynamic principles. In 1994, a technician from Horizontes set up her own firm, SAVID. SAVID and Horizontes started to sign contracts with small-scale producer associations, and SAVID expanded its activities to other parts of the Dominican Republic.

Large-scale organic banana production grew steadily in other parts of the country and by 2001 Azua produced only 10 percent of the total production. In Azua, production is still 80 percent in the hands of small-scale producers, with an average of 1.25 ha each. Most farmers are organized in associations, but they are weak. The marketing firms have set up, managed and financed the internal control system and own the certificate. The contracts with the producer associations were initially for longer periods - up to three years - but they recently became shorter to avoid problems from price variations.

Investments

The Dominican Centre for Export Promotion (CEDOPEX) has organized workshops and participated in fairs, promoting organic exports in general. The owners and agronomists of the two marketing firms introduced new organic technologies and varieties. The firms initially had to rely on ships that transported other products, which was expensive and negatively affected product quality. Eventually, SAVID was able to convince banana ships to include the Dominican Republic in their routes. The firms obtained advance funds from buyers and used them for the provision of short-term credit to farmers to purchase inputs. The firms also provided technical assistance to improve product quality. However, due to the limited resources of the small-scale farmers, tasks were frequently delayed and improvements in the irrigation system have not been possible.

Farm economics

Compared to conventional small-scale banana producers, organic producers face on average 8 percent higher total production costs (US$2 560/ha compared to US$2 370/ha for conventional production). These costs reflect the higher labour demands, for example, 50 percent more for weed control compared with "modern" techniques. Although the monoculture requires substantial amounts of organic fertilizers and pesticides, total organic input costs were lower than conventional input costs. As a result, labour costs form 71 percent of total production costs in the organic system, compared to 51 percent in the conventional system. Yields were similar to conventional yields, at 14 tonnes/ha. Low yields were explained by the use of insufficient amounts of organic fertilizers, the inadequate maintenance of the irrigation system and a serious drought in the late 1990s.

The marketing firms exported about 70 percent of the production, with a significant premium, and sold the rest on the domestic market as conventional. Because the farmers had limited market information, and because SAVID and Horizontes were the only exporters, with SAVID accounting for 80 percent of all organic banana exports, small-scale farmers had a relatively weak negotiating position. The more so because the marketing firms owned the organic certificate, although Horizontes has been encouraging the associations to take over the internal control system and certification.

Despite this weak negotiating position, farmers received an organic premium of about US$1/box in 2001 and 2002. In 2001, organic farmers received US$4.5/box (compared with US$3.5 for conventional bananas, a factor of +29 percent) and in 2002 it was US$5.5/box (compared with US$4.5; +22 percent). Part of the production was sold in the fair-trade market, for which farmers received an additional US$1.75/box. As a result of the price premium, the modest increase in production costs and similar yields, net revenue was 52 percent higher for organic banana producers (US$1 720/ha compared with US$1 130/ha for conventional). However, farmers had to sell a significant portion on the domestic market during summer, when international demand is low.

Due to the greater availability of organic bananas on the international market, buyers have become increasingly demanding in terms of quality, which the small-scale producers find difficult to meet. The marketing firms have been expanding production on their own plantations, further reducing the share of small-scale farmers in total organic banana production in the country.

Cocoa and banana production in Talamanca, Costa Rica

Based on the reports of Damiani, 2002b, and Deugd, 2001.

History and organization

Talamanca is part of La Amistad National Park and the Talamanca-Caribe Biological Corridor. The smallholder farmers in Talamanca grew cocoa in a system that included shade trees and rainforest. In the late 1970s, attack by a fungus, in combination with low world market prices, led farmers to abandon the crop. The Talamanca Small Farmers' Association (APPTA) was created in 1987, with the assistance of ANAI, a NGO from the United States of America. APPTA has currently around 1 100 producer members. Through ANAI, contacts were made with buyers of organic cocoa in the United States of America, who were looking for regions where cocoa had been abandoned, with the idea of obtaining organic certification without a costly conversion period. In its initial phase of conservation activities, APPTA had created local committees in the different villages to carry out reforestation activities. APPTA used these committees as a basis for the internal control system. Later, APPTA negotiated successfully with a Costa Rican firm that makes banana puree for baby food (Gerber) to sell organic bananas. By 2000, APPTA was exporting 210 tonnes of organic cocoa (of which 24 percent to Europe) and it was selling 1 300 tonnes of bananas annually.

Investments and changes in farming methods

Nowadays, most farmers have 1 ha of cocoa + fruits and tubers + shade, and 1 ha of banana + shade. In addition, they usually cultivate an area of basic grain. The main investment was the certification itself. Since 1995, all certification firms operating in Costa Rica have to have offices in Costa Rica. It was hoped this would decrease certification costs, but this was not observed. The other important investment was the renewed maintenance of formerly abandoned cocoa plants, which was labour demanding. This especially affected single women, who did not have the resources to hire wage labour. For APPTA as an organization, the presence of credit was essential to be able to pay its members at delivery. This credit was provided by the North American buyer of the cocoa, in the form of seed capital.

Farm economics

In 2000, APPTA paid US$1/kg for organic cocoa to its members, compared with an average conventional price in the region of US$0.40/kg. Organic bananas were bought at US$81/tonne for an average production of 12 tonnes per farm. A study by Deugd (2001) evaluated the micro-economic performance of the production systems predominant among APPTA members. Three systems were studied: a cocoa-banana system; a banana system; and a cocoa system. All these included fruits and trees, although banana systems are usually less mixed. The cocoa-banana system generated US$11.6/labour day; the banana system, US$14.9/labour day; and the cocoa system, US$5.50/labour day, compared with a wage in the area for similar work of US$7.27/day. Although the return on labour in the cocoa system is less than for wages, the net annual income out of this system was US$264/ha, an important supplement to family income, especially for households that do not have access to other job opportunities.

Environmental impact

According to Deugd (2001), the degree of erosion and leaching were minimal, due to the thick ground cover. Some studies found that although not as diverse as the natural forest, the shaded systems were much more ecologically diverse than the monocultures in the lowland^[89], and as many bird species were found as in the natural forest^[90]. Deugd concluded that the extraction of nitrogen, phosphorus and magnesium was more or less compensated for, but the potassium balance was negative, with a loss of about 47 kg/year. By 2001, a project of the University of Costa Rica had started in collaboration with APPTA to identify materials and practices to increase inputs into the soil, especially potassium.

Organic shade coffee from the Baturité mountains in Northeast Brazil

Based on the report of Saes, De Souza and Otani, 2001.

History and organization

Most coffee in Brazil is sun-grown. However, farmers in the Baturité mountains of Ceará had kept some shade, because the local climate conditions, with seasonal heavy rains and a dry season, did not permit sun-grown coffee. During the 1990s, the yields in the area went down from around 10 bags/ha to 5 bags/ha, mainly due to a lack of pruning and coffee plant aging. In 1990, the Baturité Mountains Environmental Protection Area was created. One of the activities was the Projeto Café Ecológico, carried out by the NGO CEPEMA Foundation, with links to a Swedish NGO. The project started in 1995, with technical assistance, the provision of new coffee plants and fruit and shade tree species. In 1996, the Associação dos Produtores Ecologistas do Maçico de Baturité (Association of Ecological Growers of the Baturité Mountains, APEMB) was founded, involving 158 growers, of which 110 were certified. With help from a Swedish organization, APEMB found a buyer in the Swedish roaster Classic Kaffe.

Investments and change in farming methods

APEMB worked on quality improvements, mainly through the introduction of better drying practices and bean selection. In the first years, the Banco de Nordeste provided financial support to pay for the certification costs, amounting to US$5 000.

Farm economics

Compared with sun-grown coffee elsewhere in Brazil, the shade-grown coffee gives lower yields, due to lower plant density (3 000 plants/ha) and lower yields per plant. However, yields vary a lot, from 1.3 bags/ha to 12 bags/ha, with an average of 5.8 processed bags/ha. APEMB exported 6 tonnes in the first year, which increased to 30 tonnes in 1999, 60 percent of the total amount produced. They received US$160/bag, compared with US$100-110/bag on the conventional market (45-60 percent higher price). Part of the premium was due to being able to sell as arabica, whereas before they had sold the coffee as "Conillon" (robusta), which fetches a much lower price. During those three years, the world supply of organic coffee increased dramatically, and the next year Classic Kaffe decided to discontinue buying from APEMB. APEMB failed to find a new buyer and, due to a lack of financial resources, they could no longer pay for certification.

New strategy

Given the problems in marketing, CEPEMA redefined the project's strategies and started to develop a network for the local marketing of coffee, fruits and vegetables. This would avoid high certification costs, while potentially receiving modest price premiums. The project envisaged making use of growing tourism and planned to deliver baskets (a box scheme) to the district capital, Fortaleza. Reports in the news confirmed that the sale of "Café Ecológico Pico Alto" was launched in March 2003 in Fortaleza^[91]. The coffee is promoted as being "certified" by CEPEMA and the fact that it had once been exported is exploited in the publicity as a proof of quality.

Organic coffee in Costa Rica

Based on the report of Lyngbaek, Muschler and Sinclair, 2001.

Research methodology

The study compared ten paired organic and conventional smallholder coffee farms in Costa Rica. Criteria for organic farms were that they had to have been under active organic management for at least three years. Four of the organic farms were not certified, and sold to the conventional market. The conventional farms were selected for proximity to their organic counterpart and for similarity of altitude and area under coffee. Fixed costs could not be included due to a lack of data, but were probably very limited and of minor importance. Yields, variable production costs, farmgate prices and net income were studied during three years (1995-1998).

Farm economics

On average, organic coffee yields per hectare were 22 percent lower and yields per plant 17 percent lower. However, large variations existed between pairs. For three pairs, organic yields were higher; for two pairs, the yield was similar; and for the remaining 5 pairs, the organic yields were considerably lower. Variable production costs were on average 4.5 percent higher for organic farms, mainly due to higher labour costs for preparing and applying organic fertilizers. The conventional farms had higher labour costs for harvesting, a cost directly related to production levels. Despite lower average yields and slightly higher variable costs, the average net income from coffee was on average only slightly lower (-4.5 percent) for organic farms. Large differences between pairs were also observed for net income, with three organic farms performing better than their conventional counterpart. The authors calculated price premiums that would be necessary in each case to at least equalize net income for each of the two paired farms. These hypothetical premiums ranged from 14 to 53 percent (leaving out the two extremes). Costs for certification were not included in the study because farms were either not certified or the costs were born by a supporting programme or the processing plant. Where certification costs were borne by an outside entity (three farms), the certification costs were probably indirectly born by the producers through a lower price premium obtained from the plant.

Organic coffee from Huehuetenango, Guatemala

Based on the reports of Damiani, 2002a, and Cifuentes, undated.

History and organization

In 1996, the Peace Accords were signed and shortly thereafter the Cuchumatanes Highlands Rural Development Project started in the Department of Huehuetenango, one of the poorest of Guatemala. The project resulted in the creation or revival of three associations: Cocolá Development Association (ADIPCO); the San José Quixabaj Agricultural Cooperative; and the Agricultural Cooperative Chojzunil. Coffee producers of ADIPCO, Quixabaj and Chojzunil traditionally used little or no chemical inputs. The project's marketing component identified organic coffee as an alternative for the three associations. The project contacted AGEXPRONT, an association of exporters of non-traditional products. The project became a member of AGEXPRONT's sub-commission on ecological products and through AGEXPRONT they made links with EXCAGUA in Guatemala City - a conventional and organic coffee exporter to Europe. The associations obtained their first full organic certificates in 1998 and 1999.

Investments and changes in farming methods

The most important investment the farmers had to make during conversion were soil conservation measures and the introduction of new species of shade trees. In addition, the associations needed to make investment for the collective processing of coffee, separate from conventional coffee. In the first two years, 70 percent of the certification costs were paid by the project and an environmental organization. The project paid for an extensionist to organize the internal monitoring system. The project also trained farmers, who qualified as "promoter" and who could graduate as a "credit manager" and finally as an "extensionist peasant". Those farmers accompanied the internal inspection teams that visited twice yearly.

Farm economics

While other coffee farmers in Guatemala, who had used chemical inputs, experienced substantial yield decreases during the first years of organic management, the coffee farmers of ADIPCO, Quixabaj and Chojzunil did not. To the contrary, they observed yield increases of 38 percent-67 percent in five years (from 0.86 tonnes/ha to 1.40 tonnes/ha according to Cifuentes). This can be explained by the low inputs and low yields prior to conversion, and the better shade and application of organic fertilizers and soil conservation measures. This also meant higher production costs, mainly in the form of more labour and higher harvesting costs due to the increased yield. According to Cifuentes, there were initial quality problems, resulting in low prices received from the initial buyer. After resolving these, and selling via EXCAGUA, prices increased from US$20 to US$25 per tonne (+25 percent). Damiani found that in 2000 the price received for the green coffee was 30 percent higher than conventional smallholder prices, and 18 percent higher in 2001. Cifuentes found that average family income had increased from US$1 250/year to US$1 970/year.

External circumstances

In 2000, a road was built connecting the communities with the city of Barillas. This reduced transport costs by half and transport time from one day to 4 hours, which benefited organic and conventional farmers alike. The project also benefited from research activities by the National Coffee Association (ANACAFE). ANACAFE took into account producers' requests, and consequently the research programme shifted from increasing productivity to decreasing production costs. As a result, ANACAFE had been working on compost and bocashi as an alternative to chemical fertilizers, manual control of broca (a coffee berry borer, Hypothenemus hampei) and the use of natural enemies for some parasites. In addition, ANACAFE trained 16 extensionist in organic coffee production and contacted Mayacert to provide workshops on organic certification.

Maikaal Cotton from India

Based on the reports of Caldas, 1995; Myers, 1995; Myers and Stolton, 1999; and Parrott and Marsden, 2001, who drew on Caldas, 2000, and Barauah, 2000.

History and organization

In 1992, an alliance between farmers, their spinning mill (owned by Maikaal Fibres), sales agents and an organic consultant set up on-farm trials and an experimental farm with organic cotton cultivation. The following year, 200 farmers joined the on-farm trials, and seven years later more than one thousand farmers, with more than 6 000 ha in total, joined the scheme. The majority of the farmers were small-scale cotton growers holding on average two ha of land. Organic cotton is the main crop, grown in rotation with food crops.

Investments and changes in farming methods

Conventional cotton was grown according to standard technical "packages", including chemical fertilizers and pesticide spraying from 10 to 25 times in a growing season, and there were reports of development of pesticide resistance in whitefly. For the organic cotton, several rotations and crop associations have been developed, and multipurpose trees planted around field boundaries. Various organic fertilizers are used, based on soil analysis. Pests are closely monitored and controlled by a combination of pheromone traps, providing habitats for natural predators, release of beneficial insects and entomopathogens, and the use of botanical pesticides. An alternative credit system was established, financed by Maikaal Fibres, that provides cash and in-kind credit at no interest. Compliance with the developed guidelines is monitored by the Maikaal extension service, and certification to international organic standards is carried out by IMO.

Farm economics

Initial yields dropped, but in 1995 yields had recovered to former levels, and after seven years organic cotton yields were 20 percent higher than conventional cotton. Farmers have a guaranteed market and receive a 25 percent premium. Yields of the rotational crops are also up to 20 percent higher. In addition, soil quality has improved. Irrigation and labour requirements have been reduced, resulting in 30-40 percent lower production costs. The combined effects of lower production costs, equivalent or higher yields and price premiums result in higher farmer margins. External biological inputs, when necessary, are ordered in bulk to reduce costs. In some areas, former retail pesticide suppliers have become suppliers of bio-inputs.

The EPOPA project and organic cotton from UGANDA

Based on the reports of Walaga, 1997; Malins and Nelson, 1998; Van Elzakker and Tulip, 2000; Van Elzakker and Leijdens, 2000; and Kidd, Tulip and Walaga, 2001.

History and organization

The majority of cotton producers in Uganda are small-scale, resource-poor farmers. The Export Promotion of Organic Products from Africa (EPOPA) project started in 1994 with the Lango Organic Cotton Project in Lira and Apac districts. The project area was chosen because of the presence of black ants that were able to control most pests. EPOPA provided an interest-free loan to the Lango Cooperative Union (LCU), then just emerging out of the government-controlled cooperative movement. Farmers joined the scheme on a village group basis, called Primary Societies. Once a village was accepted, farmers were provided with seed on credit, the costs being deducted from the price paid for the cotton. In 1996, Farmers Fair Trade Uganda (FFTU) was set up by a Netherlands-based trading company^[92]. FFTU attempted to purchase directly through the Primary Societies, which gave LCU the feeling that its position was undermined. FFTU also had problems in accounting for crop finance, and reverted to purchasing through LCU. However, financial problems continued and poor timeliness of arrival of FFTU funds resulted in a significant part of the cotton being sold as conventional. Despite the financing problems, the number of participating farmers rose quickly, from 200 in 1994 to an estimated 7 000-8 000 farmers in 1998. Inspection and certification is done by the Swedish certifier KRAV or the Dutch SKAL, using group certification. Other organic cotton projects were added to the EPOPA programme, such as in Adigo parish, Apac district, with Outspan Enterprises as the exporter. The number of farmers involved increased to some 24 000 in 2000. While the government initially opposed organic cotton, officials began to see positive results and started exempting some areas from pesticide promotion campaigns.

Investments and changes in farming methods

There is little difference between organic and conventional smallholder production methods, except that conventional producers may occasionally use small amounts of mineral fertilizers and chemical pesticides. However, it was also reported that farmers had to start using formal rotations, green manure and integration of livestock. For three years the project provided technical assistance, market support and a reducing share in the certification costs. Exporters are not used to involving themselves with farmers, let alone providing extension services. Especially in the first year, the exporters needed assistance to become accustomed to this new role. However, the project avoided paying for costs that would normally be covered by an exporter.

Farm economics

The organic premiums received by farmers participating in the Lango project were 10 percent in 1994/95, 14 percent in 1995/96 and 50 percent in 1996/97. In Adigo parish, farmers have obtained 15-30 percent higher prices, with no significant increase in production costs. On average, organic cotton receives a 20 percent organic premium on export prices. Approximately half of this goes to the farmer, implying a premium over farmgate prices of 15-20 percent. The export premium also pays for the field staff employed by the exporter, and exporters also achieve higher profit margins. The cost of inspection and certification, organized and paid for by the exporters, although initially high, has now fallen substantially due to economies of scale. In general, the exporters holds the certification and this means that the farmers can not sell their produce as organic to any other buyer. However, they are allowed to sell to other conventional buyers. The higher price for organic cotton has had a positive influence on the conventional price and forced buyers of conventional cotton to offer other incentives, such as supply of farm tools, in order to ensure their supplies. Farmers indicated that the extra cash obtained from organic cotton is spent on houses, school fees, domestic utensils, livestock, farm tools and clothes. A recent evaluation estimated that EPOPA has increased the incomes of more than 24 000 farmers by US$50/year on average. Since 2000, the cotton projects continue on their own. Of note is that the Tanzania EPOPA project, managed by the same organization, was considered a failure. The key difference being the business approach of the local coordinator in Uganda, while elsewhere the activities were driven more by notions of participation and process rather than profit.

Organic sugar from small-scale producers in Misiones, Argentina

Based on the report of Serrano, 2002.

History and organization

Argentina has achieved Third-Country status from the EU since 1992. The relative weight of small-scale farmers (minifundistas) in the organic agriculture sector has been very low. Organic sugar cane production in Misiones is the only case in Argentina where a large number (600) of small-scale farmers (with total farm sizes in the range of 5 to 50 ha each) have adopted an organic crop. Farmers started to grow sugar cane organically in 1997, when the only sugar cane mill in the region decided to shift from conventional to organic sugar production. The mill had declared bankruptcy in 1995, and had been managed thereafter by IFAI, an autonomous agency of the provincial government of Misiones. The macro-economic situation made it very difficult to compete with neighbouring countries on the conventional sugar market, and the shift to organic production was a way to keep the mill open. The idea for the organic alternative came from the NGO Movimiento Argentino de Producción Orgánica (MAPO), which also provided the link with the buyer.

Investments and change in farming methods

The mill has been diffusing fast-growth cane varieties that could outgrow weeds after harvest. At harvest the leaves are cut more carefully for ground cover and to prevent contaminating the sugar with leave impurities (the organic buyer appeared to be more demanding on quality). The certification process started in 1997, and by 2001 almost all the mills' sugar was organic. Right from the start, the mill could produce small amounts of organic sugar because the three-year conversion period was waved by the regulatory agency for land that had laid fallow for several years (capoeira land). Certification costs are paid by the mill, and are quite high. Under Argentinean law, external inspectors have to visit 100 percent of the farmers, so certification costs can not be brought down through implementation of an internal control system. In fact, each farmer is usually visited twice a year. The certification costs come to US$120 per plot per year, but a competing agency offered to do the same for half the price. The mill and IFAI try to diversify the variety of organic crops that sugar cane farmers produce and they have already organized a group of 20 farmers that sell organic fresh vegetables to one of the largest supermarket chains in the provincial capital. The diversification is also important for developing better rotation cycles. Credit was made available through a provincial rural development fund, funded by IFAD, to increase the organic sugar cane area. However, in 2001, credit was used for only 150 ha, while the mill estimated that 450 ha of expansion were realized from farmers' own resources.

Farm economics

Organic sugar cane production requires more labour, but total production costs per hectare are similar to conventional production costs due to savings on agrochemicals. Productivity decreased from 60 to 45 tonnes/ha. This was more than compensated for by the organic price premium (35 percent in 1998 and 75 percent in 2001) and net profit for farmers even doubled in the same period, from $Arg 168/ha to $Arg 367/ha. However, because the mill is the only one in the region, farmers do not perceive the high price premiums. Farmers deliver sugar cane between June and August, when they get paid only a part, covering harvest and transportation costs, and the balance not until November-December. This results in poorer farmers being short of cash during that period, and having to seek additional wage work, and not doing the weeding necessary at that time. The viability of the organic sugar cane allowed farmers who had also produced tobacco and who were concerned about their health to grow sugar cane as the only cash crop. The mill estimated that around 40 farmers had made this choice. However, the main benefit of the shift to organic was that the mill could remain open, safeguarding the sugar economy, including 50 local trucks, income through demand for wood as the mill's energy source, and the mill's work force (53 permanent workers and 75 temporary). Although the mill improved its revenues due to the shift to organic, it was still not profitable, with a net annual deficit of US$400 000 that has been covered by the provincial government. The main reason being the mill has been operating at only 50 percent capacity. The mill is pressing farmers with small plots of sugar cane to increase their area or leave sugar cane production, because the certification costs for small plots are relatively higher. Larger-scale farmers with more than 15 ha of sugar cane (>50 ha total farm size) that shifted to organic were those that had significant parcels of good quality fallow land (capoeira), which guaranteed relatively high productivity. In contrast, larger-scale farmers without good quality fallow land dropped sugar cane production and shifted to other crops, such as citrus.

Organic tea from Bio Foods Ltd., Sri Lanka

Based on the report of Ediriweera, 2002.

History and organization

Bio Foods started as a registered company in 1990, organizing small-scale tea and spice producers in mid-country around Kandy. It was buying from a total of 443 farmers spread over 11 villages and with a total of 704 acres (285 ha). Bio Foods consists of an extension and local (internal) inspection section, produce collecting centres, processing factories, an export and an administration section. The farmers are organized at village level in farmer committees. The main products are green, black, flavoured and herbal teas, spices and coffee.

Investments

Bio foods has provided the committees with training in soil fertility, plant protection, compost preparation, internal control systems, fair-trade quality control, and saving schemes. All products are certified organic, by SKAL, Naturland, IMO or JAS, depending on the country of import and the requirements of the buyer. Certification costs are paid for by Bio Foods and the certificates are owned by them. However, Bio foods is reimbursed by the Small Organic Farmer Association for certification costs for those farmers who are member of SOFA. The tea producers of Bio foods are also registered by FLO and part of the tea is sold under fair-trade conditions, in which case the buyer has a fair-trade licence from an FLO member. The conversion periods and installation of the internal control system per group of farmers has been reported to vary from one to 5 years. A major obstacle has been the different requirements of each certification body concerning the structure and functioning of the internal control system.

Farm economics

The organic price premium for green leaf is reported to be 100 percent [this may include the fair-trade premium]. Organic spices have fetched premiums of 10-30 percent. Bio Foods also provides the farmer societies at village level with other benefits, such as roofing materials, chairs, cattle, soil inputs, nursery plants and facilities for their children's education, as well as easy-term loan schemes. Despite these positive results for the small-scale farmers, Bio Foods has doubts as to the long-term sustainability of the company. It has been difficult to find buyers who are willing to sign forward contracts with guaranteed prices or volumes. However, they continue buying all certified raw material from the farmers and processed finished products are stored until a buyer is found. Some farmers in Sri Lanka have given up on organic farming due to unstable prices and demand. By guaranteed buying of their produce, Bio Foods ensures that farmers continue to comply with the organic standards.

6.2. DISCUSSION AND CONCLUSIONS FROM ORGANIC CASES

From these cases, it becomes clear that traditional low-input farmers may expect productivity gains from organic agriculture methods. However, higher yields are usually accompanied by higher production costs, mainly in the form of increased labour demand. In particular, the introduction of new soil conservation methods, such as terracing and preparation of organic fertilizers, were often mentioned as increasing total labour demand. If soils were depleted under former land use management, these labour requirements can be expected to be higher.

The organic premium received usually covers these higher production costs and certification costs and the result is increased net profit. In former low-input situations, the increase in productivity might in itself compensate for higher production costs, without the need to access premium markets through certification.

It must be noted that in many cited cases the usual three-year conversion periods were shortened or waived completely, because the certification body was satisfied by evidence of former low or non-use of chemical inputs. This is an important advantage, leading to quicker returns on investments and less risk that price premiums will have come down by the time certification is obtained. However, Kidd, Tulip and Walaga (2001) observed a growing trend in certification for export markets of applying the same standards as in Europe, with less flexibility for shortening or waiving the conversion period.

In the few cases cited of conversion from high-input production systems, initial yield declines have been observed, usually recovering to levels slightly below the original conventional yields, and sometimes above original levels. Effects on production costs per hectare have been varied (lower, similar and higher). In these cases, given the initial investment costs and decline in yields, access to premium markets is essential - usually requiring certification.

In all cases, returns on investments in organic agriculture, especially in soil conservation methods and in conversion from high-input situations, occur in the long-term only. Tenants and sharecroppers without a guarantee of continued access to the land are unlikely to make this investment. A farmer interviewed by Damiani (2001a) reflected on the long-term investments to be made:

It would have been impossible for me to do organic vegetables if I were not the owner of the land. Anyone can rent a piece of land to cultivate cabbage or tomato with fertilizers and pesticides just for one year, but one has to wait for years to see the fruits of starting with organic crops. You work a lot with not much return the first year, but the soil gets better year after year because of the organic fertilizers and the crop rotation, and the productivity keeps growing. You cannot do all this effort one year and then leave others to obtain the gains of your effort.

Another important characteristic of many of the cases is the use of group certification involving an internal control system. It was observed by many authors that this was important to reduce the costs of certification. Such group certification has been reached in two distinct ways. First, through farmers' associations, with farmers participating actively in decision-making and monitoring, in which cases the certificate is owned by the association. In many of those examples, the certification costs were subsidized by donor organizations, subsidies usually declining after the initial years. The second system is exemplified by Uganda, where the exporter organizes and pays for the certification. Kidd, Tulip and Walaga (2001) argue that although this has the disadvantage that farmers are not allowed to sell to other organic buyers (but they are allowed to sell to any conventional buyer), this option is preferable where producer organizations do not exist or are weak. In general, given the importance of group certification for smallholder producers, the unclear status of group certification with regard to the EU regulation (and possibly also NOP and JAS) is observed as a barrier for further development of organic exports from smallholder producers.

It was often observed that the quality requirements of the new organic market were higher than for the former conventional market. This may be easy to understand for those cases where the organic status allowed more upmarket sales, away from local wholesale markets or middle agents (e.g. vegetables in El Salvador and coffee in Brazil and Guatemala). The reverse case was observed for mangoes from Peru, where switching to organic agriculture allowed sales to the less demanding pulp plant. In the case of sugar from Argentina, the organic processor demanded a 'cleaner' product. In the Dominican Republic, price premiums were apparently not enough to justify the necessary investments to significantly improve the quality of organic bananas grown by small-scale producers, and it is increasingly difficult for them to compete in the nowadays more demanding international organic market.

6.3. FAIR-TRADE

Because fair-trade initiatives started with a clear development perspective, many producer groups have also received initial technical assistance in addition to benefits through market access and price premiums.

An overview of the results of the reviewed case studies can be found in Table 6. Some coffee cooperatives included in this chapter are also certified organic.

Fair-trade bananas from Volta River Estates Ltd., Ghana

Based on the reports of Blowfield and Gallat, undated, and Budu, in FAO, 2001.

History and Organization

Volta River Estates Ltd. (VREL) was formed in 1988 as the first commercial banana producer in Ghana. The operation collapsed in 1990 as a result of Black Sigatoka disease. VREL was restarted in 1993, with 140 ha and 23 workers. VREL began to export again in 1994 under its own Ghanapack label, and only then discovered that it had to pay a licence fee for access to the EU market. This, together with a long-running dispute over land and labour on its initial two sites, meant that the company was verging on bankruptcy. In 1996, it established contact with the Dutch NGO Solidaridad and the Max Havelaar Foundation. At that time they were starting the Oké label for fair-trade bananas in the Netherlands, but were unable to get import licences for bananas from Latin America. VREL was accepted as a registered fair-trade supplier. In 1997, VREL exported 3 700 tonnes and by the end of 1997 VREL had 280 ha under production, had largely resolved its labour problems and was employing 900 people. The bananas are sold to Agrofair, a fair-trade licensed importer in the Netherlands. Agrofair is 50 percent owned by the fair-trade producers, including VREL, and the other 50 percent by Solidaridad and a ripening company. Agrofair sells the bananas in the Netherlands, Belgium and Switzerland.

Investments

VREL had difficulties establishing itself in the Swiss fair-trade market due to quality problems, which were in turn the result of shipping-related problems. This resulted in 20 percent of the bananas being sold on the domestic market, where they fetch only 30 percent of the export price. Until January 2003, the various countries had different fair-trade labels and VREL had problems getting the right label on the right produce. Because no herbicides are used, VREL has a high worker per hectare ratio (3:1 compared with 1:1 on many plantations). Also, no pesticide-impregnated bags are used. VREL workers are represented by the Ghana Agricultural Workers' Union (all plantation workers must join this union under Ghanaian law) and they agreed a collective bargaining agreement in early 1998, which included a six-year plan for pay increases and a grievance procedure. VREL provides informal training. In 1999, the key positions in the company were still held by expatriate managers (from before FLO registration), but there are a growing number of Ghanaians in positions of responsibility. Workers are aware of fair-trade and VREL is producing local-language leaflets explaining this further.

Table 6
Overview of farm economic data from case studies of fair-trade registered producer organizations

Farm economics

Production and exports have been variable. Exports rose in 1998 to almost 5 000 tonnes, but declined in 1999 to 3 290 tonnes, and then recovered to 5 000 tonnes in 2001. VREL started producing organic bananas on a new site in 2002. Agrofair reported that production levels were down in 2003 due to conversion of the whole area to organic production methods^[93]. There is a one-month delay between harvesting and payment. Agrofair is able to pre-finance all orders with loans from a Dutch development bank. VREL also needs to pre-finance EU import licences, which can amount to over US$1 million/year and accounts for over 50 percent of the CIF price. The fair-trade premium has been largely absorbed by these licences and as a result could not be used for social and environmental improvements.

The fair-trade minimum price for bananas is set by FLO on the basis of calculated costs of production. For Ghana, this was US$8.5/box, which is US$1.25 higher than for Latin American fair-trade producers. There was oversupply of fair-trade bananas at certain times of the year and consequently Agrofair sold part on the conventional market or in eastern Europe, sometimes at prices insufficient to cover production costs. Being part of the fair-trade movement, VREL has had access to soft loans for expansion, with interest rates as low as 2 percent, while commercial interest rates in Ghana were nearing 50 percent. As external finance is equal to 150 percent of turnover, this is a very important effect.

Worker benefits

VREL has created about 900 permanent jobs, with priority given to people in the vicinity. However, the first two sites were established on land previously used for smallholder intercropping. Although those smallholders were given precedence to join the workforce, today most workers come from other communities. Because part of the land was previously not under production it can be assumed the livelihoods opportunities have increased in the region. Blowfield and Gallat (no date) reported that wages were higher than the national minimum, but not significantly different from day rates of casual labour in the area. Budu^[94] reported that VREL workers' household income was significantly higher than total household incomes in other regions of Ghana.

A Solidarity Fund provided workers with basic food for reduced prices and interest-free loans. Overtime was paid at ILO-approved rates. VREL provided boots and protective clothing and a health clinic on each site. Workers were also reimbursed for hospital treatments. A quarter of the shares of VREL were now owned by the workforce and held in trust by Solidaridad. However, workers did not really benefit from these shares because the company had yet to make a profit in 1997. Interviewed workers said that employment by VREL was preferable to dependence on smallholder farming or casual labour.

Divine cocoa from Kuapa Kokoo, Ghana

Based on the reports of Bayley, Mavrotas and Nyanteng, 2000; Mayoux, 2000; and Tiffen, 2002.

History and organization

Just when the cocoa market in Ghana was being liberalized, world market prices reached new lows. Under the new circumstances, it seemed interesting to farmers to organize themselves into their own buyers' cooperative and export direct. Kuapa Kokoo (= good cocoa farmer) Limited (KKL) was formed in 1993 as a farmer-owned business. The basis is primary village societies, which are democratically run by members and are represented at management level. TWIN (United Kingdom) offered operational and financial advice and a start-up loan, and SNV (the Netherlands) provided village-level training of committees and bookkeepers. Within three years the company had grown from 2 000 to 8 500 farmers, and in 2000 KKL had around 30 000 members organized in 462 village societies. KKL established a reputation for honesty (not "fixing" the scales) and reliability (cheques did not bounce). Since 1996, there have been no international staff on the management teams or in the formal structures. However, TWIN and SNV were crucial in the start-up phase, providing knowledge of international marketing of high quality cocoa and by giving KKL credibility and evidence of the liberalization process to the cocoa farmers.

Investments

KKL also set up a separate Farmers' Trust, run by elected farmers and selected Ghanaian advisers, and funded through grants, profits and fair-trade social premiums. In 1998, TWIN, Kuapa Kokoo Union and the Body Shop formed a joint venture, the Day Chocolate Company (DCC) to market the Divine chocolate bar to United Kingdom-based supermarkets. Despite a very competitive United Kingdom chocolate market, where the three biggest chocolate producers enjoy the benefits of long established brand names and large promotional budgets, the Divine chocolate has been quite successful. Bayley, Mavrotas and Nyanteng calculate a fair-trade retail price premium of 44 percent for the Divine bar.

Also in 1998, two credit schemes were set up: Kuapa Kokoo Women's Revolving Scheme, funded by grants from various donors, and Kuapa Kokoo Farmers [Savings and] Credit Scheme, operating through individual contributions in cash or kind and run by elected contributors and society executives.

Farm economics

The impact of fair-trade in Ghana coincided with the general liberalization of cocoa marketing. The Produce Buying Company, the former monopoly buyer, lost market share to the new Licensed Buyer Companies (LBCs), of which Kuapa Kokoo is one. The market is still regulated through a minimum producer price, taking into account production costs. The LBCs still sell to the Ghana Cocoa Board (Cocobod). The LBCs are paid an estimated profit margin of 15 percent on top of the producer price and estimated costs. It has been government policy to gradually increase the producer price (through reducing government tax), and between 1993 and 1998, real conventional producer prices increased even as international prices fell.

Cocobod has instituted a special arrangement for the fair-trade market. All cocoa originating from KKL is marked, and when a fair-trade importer places an order, Cocobod ensures that KKL cocoa is supplied. Cocobod is then paid the market price whilst the fair-trade premium is paid into the Kuapa Kokoo Farmers' Trust. Initially, fair-trade sales accounted for 15 percent of total KKL sales, but due to the growth of overall volume this has declined to two percent. The question is whether KKL would not have been as successful without the fair-trade market.

Nevertheless, KKL is the only farmer-owned buying company. The LBCs employ purchasing clerks, whereas KKL uses the village societies' executive committees to collect the cocoa, resulting in lower overheads. Members of the executive committees of the primary societies receive training and benefit from a modest commission per bag handled. The lower overheads allows the paying of a modest 1 percent premium over the government guaranteed price; an end-of-year bonus, depending on the profit; and cedi 400/bag to the village society, for cooperative development. The fair-trade premium is used to fund community projects through the Farmers' Trust.

Other benefits

The Farmers' Trust has sponsored medical programmes, scholarships, schools and freshwater wells. This means that benefits extend beyond Kuapa Kokoo members, who in general make up 7-10 percent of a medium-sized village. It must be said that other LBCs have developed similar projects. Apart from the women's credit scheme, KKL aims to enhance women's participation through affirmative action. Cocoa in general is viewed as a man's crop because of the land ownership structure. Senior staff and board members benefit from capacity building and exposure to the international market through links with DCC.

Fair-trade coffee in Bolivia

Based on the report of Eberhart and Chauveau, 2002.

History and organization

Despite its potential to produce high quality arabica coffee at high altitude, Bolivia has lost its international markets. The trade was dominated by middle agents who paid a uniform producer price with no incentives to increase quality. As a result, the coffee has been subject to a 20-30 percent penalty against the reference price of the New York Coffee Exchange. In 1991, with help from Centre International de Coopération pour le Développement Agricole (CICDA), France, ten cooperatives founded the Federación de Cafetaleros Exportadores de Bolivia (FECAFEB). First missions from Max Havelaar Foundation had promised to help with commercialization. FECAFEB had to represent the organized coffee producers and provide technical assistance and credit.

Because of the yet weak organization, the Max Havelaar Foundation decided not to register FECAFEB, but instead registered three of the more stable cooperatives: CORACA Irupana, CENCOOP and COAINE. CORACA has been supported by the Bolivian NGO Qhana, and has developed a long-term relationship with the ATO Oxfam Belgium, their sole export destination. COAINE appeared to be the only organization with the entrepreneurial capacity to negotiate with the private importers, and came to deliver the majority of the fair-trade coffee. From 1992 to 1998, COAINE experienced strong growth. With help from NGOs, new and smaller groups were organized and registered, but they channelled their coffee through COAINE.

Most coffee is delivered in consignment; the cooperative itself does not buy the coffee but functions only as an export channel, and farmers are only paid afterwards. Therefore most farmers sell part of their coffee to merchants who pay immediately and adjust prices on a daily basis. When market prices are high, this may lead to the cooperative running short and being unable to fulfil coffee contracts. In 1998, a conflict within COAINE erupted around the manager. In the same year, the controls by FLO noted a lack of transparency and the sale of coffee from non-registered groups under the fair-trade label. FLO suspended COAINE from the coffee register, but COAINE was registered again after the manager was replaced.

Investments

Investments were mainly in organizational structures and quality improvements. Furthermore, a DED/FECAFEB project promoted organic certification, and in 2002 almost 1 300 farmers from 18 cooperatives were certified. Quality improvement is now integrated in the organic methods. Investments for conversion to organic certification were the preparation of compost, especially for the nurseries, and the installation of anti-erosion barriers.

Farm economics

In 2000, fair-trade and organic sales were 61 percent of total sales from the cooperatives (organic, 40 percent; fair-trade, 7 percent; organic fair-trade, 14 percent). However, of the 16 registered organizations, 6 did not export at all under fair-trade conditions. In times of high world market prices (1994 and 1995), the fair-trade price was similar to or slightly higher than conventional Bolivian prices, but, in 2000 and 2001, the world market price was very low and premiums very high. Compared with the conventional prices received by the same cooperatives, the premiums in 2000 ranged from 21 percent to 97 percent for organic, from 106 percent to 123 percent for fair-trade, and from 109 percent to 195 percent for organic fair-trade. Premiums were even greater in 2001. These very high premiums were incentives to circumvent the minimum price set by FLO. Certain importers asked the cooperatives to sell several containers of non-labelled coffee below the market price in return for a container under fair-trade conditions. It is almost impossible for FLO to prevent this practice as the fair-trade minimum price is paid for the labelled container and they have no control authority for the non-labelled containers. Of course, such practices are not used by ATOs, who do not trade in conventional coffee.

The General Assembly of the cooperatives decides how to use the fair-trade premium above the minimum price, and it is almost always distributed to the farmers. However, the villages decide regularly to make communal investments, paid for by a contribution from each family. The most important effect of fair-trade has been the assistance of the fair-trade price in achieving quality improvements. The best quality is now also sold on the conventional quality coffee markets, escaping the Bolivian low-quality penalty. Of the private importers, only three have provided pre-financing, but pre-finance might not have been asked for. One of the ATOs had proposed pre-financing but this offer was declined by the cooperatives. In conventional low-quality coffee, longer-term contracts do not exist. In contrast, the ATOs and the smaller private importers of "origin coffee" do have a long-term relationship with the producers.

Organizational results

FECAFEB was relatively successful in channelling 40 percent of the total coffee from the cooperatives, mainly thanks to the fact that the manager of COAINE was also manager of FECAFEB. After the conflicts in COAINE, she started on her own as a private broker and most of the buyers, including those of fair-trade labelled coffee, followed her. As a result FECAFEB was in crisis, until they made an agreement with the old manager in 2001. Despite FLO promoting direct buying from cooperatives, the private importers of fair-trade labelled products continued to prefer to buy via brokers.

No big impact on democracy and transparency within the registered producer organizations has been observed in Bolivia. This can be attributed in part to the low educational level of the producers, and in part because the system has been too flexible. Only in the case of serious dysfunction, as described above, was the organization de-listed. The results seem better when the coffee is bought by ATOs, who visit regularly. In the end, the organic label, with its stricter individual identification, has contributed to a new institutionalization of the organizations, with stricter rights and obligations.

In the smaller groups, the elected manager has to (partially) abandon their own economic activities, with no compensation. This necessarily leads to a high rotation (annually) of managers, who typically are inexperienced in handling large sums, up to US$200 000/year. Frequently, major decisions are taken by consensus between all members, with the disadvantage that several days may be required to convene a meeting, and this is not adapted to the response speed expected by importers.

Fair-trade coffee from Coocafé, Costa Rica

Based on the report of Ronchi, 2002.

History and organization

Small-scale farmers dominate coffee production in Costa Rica, with 92 percent of producers in 1996 having farms smaller than 5 ha. Until the mid-1990s, most cooperatives were members of the Federación de Cooperativas de Caficultores RL (FEDECOOP). In 1988, six cooperatives founded an exporting association, Consorcio de Cooperativas de Caficultores de Guanacaste y Montes de Oro RL (Coocafé). One of its members, the tiny Coope Cerro Azul, already had a working relationship with the ATO S.O.S Wereldhandel (now Fair Trade Organisatie). In 1989, Coocafé started exporting to fair-trade importers. More cooperatives joined and Coocafé had nine members at the time of reporting. From 1992, Coocafé also started exporting their first roasted coffee brand, and now sells three brands: Café Paz (to the United States of America and Japanese fair-trade markets), Café Forestal and Café Auténtico. All exports were effected through FEDECOOP until Coocafé's own exporting arm was established in 1997. In the same year, FLO was established and formulated their coffee standards and pricing mechanism.

Farm economics

The study did not analyse production costs and yields. It does however mention the planting of more shade trees (extra costs) and use of less pesticides and herbicides (savings). From 1993 to 1998, on average, 52 percent of export volumes went to fair-trade markets. Coocafé pays the producers on the basis of the normal New York differential price. Of the extra revenues from the fair-trade sales (due to higher fair-trade minimum price or the fair-trade premium), 70 percent is divided among the primary producers. As a result farmers of Sarapiquí cooperative received in the period 1989 to 1995 a 25-60 percent higher liquidation price and on average a 39 percent higher coffee income than other coffee farmers in the region.

The other 30 percent of extra revenue from fair-trade are used to operate the Social Capital Fund and the Development Fund, used for producer credits and investments in facilities for the production of organic fertilizer and other environmental improvements. In 1995, the Government of Costa Rica decided that all coffee processing plants should convert to use of "clean technology". Conversion costs for Coocafé cooperatives ranged from US$38 000 to 70 000, and resources were drawn from the Social Capital Fund. In addition, Coocafé pays out 13 percent interest on each cooperative share in the Funds, and the cooperative can access the funds for a 3 percent commission to Coocafé. The sales revenues of the three roasted brands in addition pay for an Educational Extension Fund and the Fundación Café Forestal, through which environmental projects are initiated.

Ronchi (2002) noted that, while a quarter of the cooperatives in Costa Rica had closed down in the preceding decade, all the Coocafé cooperatives had land buying projects for members with tiny holdings and for members' children. This suggests that the profitability of the fair-trade market induces increased supply.

Organizational development

Indirect benefits of fair-trade for cooperatives is that Coocafé represents them on some important national bodies. However, the information exchange with FLO could be improved. The only contact that the member cooperatives may have with FLO are informational requests of a confidential nature, while they feel a lack of reciprocity in information exchange. As the fieldwork for the report discussed here was carried out in 1999, the re-organization of FLO might have improved transparency. Many producers had a limited awareness of fair-trade. In interviews, they mentioned the better prices received and the services provided by their cooperatives, but had no clear idea of the role of fair-trade therein.

Smallholder coffee from UCIRI, Mexico

Based on the reports of Pretty, Morison and Hine, 2003, and SAFE, 2001.

The Union of Indian Communities in the Isthmus Region (UCIRI) was organized in Oaxaca for the cultivation and marketing of organic coffee, to reduce dependency on credit. Organic coffee cultivation demands more labour, mainly for erosion control measures, such as half-moon terraces for each tree. Formerly the coffee beans were depulped into waterways, causing significant water pollution; now farmers return the pulp to the fields after composting, along with animal manure, lime and green plant material. This has improved yields by 30-50 percent, to a production level of 600-1 200 kg/ha. The fair-trade premium is used in particular for improving schools. UCIRI also runs public transport and medical insurance systems, and owns several shops.

Café Mam high altitude coffee, ISMAM, Mexico

Based on the reports of Damiani, 2001b, and Mendoza Zazueta, [2001].

History and organization

Indígenas de la Sierra Madre de Motozintla San Isidro Labrador (ISMAM), Chiapas, initially comprised 200 small-scale indigenous farmers and focused on collective work and marketing. European buyers showed interest in organic coffee, and ISMAM got in touch with UCIRI (see previous case) and certification agencies. In 1993, ISMAM sold the first organic harvest through UCIRI, and a year later started exporting direct. By 2001, ISMAM had 1 300 members, with a total area of certified coffee of 5 000 ha, an average of 3.8 ha/farmer.

To carry out the internal inspection and documentation, ISMAM created a "Certification Department". ISMAM turned the "collective work groups" created by the church into local committees with a formal representation in ISMAM and part of the monitoring system. ISMAM asked every local committee to select one of its members to be trained and become a "promoter". This member had to organize meetings and visit each member at least once a month and collect information as part of the monitoring system.

In 2001, exports reached almost 2 900 tonnes. The organization had a recognized coffee mark registered as Gourmet "Café Mam", high altitude coffee. ISMAM acquired a toasting and packing plant with a processing capacity of around two tonnes/hour. Mendoza points out that it had been working well below its capacity and it had to compete with transnational enterprises.

Investments

The church played a key role in ISMAM's development and one of the priests became an official advisor to ISMAM. The governmental "Alliance for the Countryside" programme provided subsidies of 25-50 percent for investments of individual farmers. ISMAM received funds from the National Fund for the Support of Solidarity Enterprises (FONAES) from 1992, which it used initially to purchase storage and processing facilities. Between 1998 and 2001, FONAES funded the modernization of processing facilities and provided credit to ISMAM members. In addition, the Rural Credit Bank has financed ISMAM's activities over a long period, including a loan for expansion of processing facilities, a revolving credit line for three years for the purchase of coffee from its members, and credit for ISMAM's individual producers. For the credit lines provided to ISMAM they had never had a default, while credit to individual members showed very low default rates (two percent by the end of 2001).

Farm economics

The traditional methods used in their shade coffee production were similar to organic methods and the most important change was the application of soil conservation measures and introduction of new tree species, demanding primarily labour for constructing terraces. The production costs per hectare increased significantly, about 47 percent higher than the traditional low-input conventional production, but 46 percent of these higher production costs were due to the higher yields obtained (30-50 percent), which increased harvesting, processing and transportation costs. When compared with production costs of larger-scale farmers using high-input conventional methods, the production costs of organic coffee were 11 percent lower for the same yields.

ISMAM obtained a 30-87 percent premium on the organic market between 1993 and 2001, and has sold about 30 percent on the fair-trade market since the mid-1990s, thus obtaining even higher prices. This allowed ISMAM to pay its members an average 45 percent price premium in 2000 and a 65 percent premium in 2001. Producers may choose if they wish to be paid at delivery or later (remate), the latter option giving a higher price. The persons interviewed by Mendoza said that the majority chose half and half, because they needed cash to pay for the hired labour needed for harvesting. Mendoza estimated that through ISMAM family incomes had increased on average by 30 percent. The setting up of a local certification body in the second half of the 1990s (Certimex) contributed to a decrease in certification costs for organic farmers in Mexico in general.

Coffee from cooperatives in Tanzania

Based on the report of Jones et al., 2000.

Background history

Government involvement in cooperatives in the late 1970s and early 1980s resulted in a highly politicized cooperative structure. The failure of the approach led in 1991 to the re-introduction of member-based cooperatives. This coincided with the adoption of coffee market liberalization policies and the entry of private traders into the coffee market. The market share of private traders increased from less than 10 percent in 1993/94 to more than 70 percent in 1998/99, at the cost of market shares of cooperatives. There were now around 20 private traders, many of which were subsidiaries or agents of multinational companies. The new licensing system required traders to provide full and final payment at delivery. This also forced cooperatives to raise their advance payments and abolish input credits because they could no longer be sure they would be repaid, as farmers could choose another buyer. As most farmers were considered not creditworthy by banks, the lack of credit facilities has been a major problem. Liberalization resulted in more competition, and the proportion of auction prices transferred to producers increased from 50 percent in 1990/91 to around 70 percent in 1998/99. Together with relatively high world market prices in 1995-1997, this resulted in higher producer prices, but producer prices dropped by 50 percent in 1999/2000.

Fair-trade history and organization

The Kagera Cooperative Union was the first cooperative selling to fair-trade channels, in 1990. The Kagera cooperative bought robusta coffee from about 40 000 farmers in Kagera district and sold between 6 and 11 percent as fair-trade. Initially, Kagera cooperative also bought arabica from the Kilimanjaro Native Cooperative Union (KNCU), and sold it to fair-trade markets. This was felt to be inappropriate and in 1993 KNCU was registered and was to gradually take over its fair-trade export from the Kagera cooperative. KNCU had 96 primary societies. The farmers had been selling increasingly to private buyers and were selling only half of their coffee to KNCU. From that, 10-15 percent was sold as fair-trade. The third cooperative selling to fair-trade channels was the Karagwe District Cooperative Union, but in 1997 several members of its management were charged with corruption and the cooperative was suspended from the FLO register. After a new management team was appointed, the cooperative was re-admitted in 1998, but now bought only a small proportion of the coffee in the district. The Kagera Cooperative introduced the Arusha Cooperative Union to the Max Havelaar Foundation. In 1996 they exported one container to fair-trade markets, but were then unable to obtain credit for pre-financing and could buy only limited amounts of coffee. In 2000, they were considered creditworthy again and hoped to resume exports and fair-trade.

Farm economics

Since most of the fair-trade organizations and importers deal with the cooperatives, the farmers themselves are only dimly aware of fair-trade. Given that only a small portion is sold as fair-trade, the price premium hardly affects the average price received by individual farmers, and in most case the premium is not paid direct but used for projects. For example, KNCU has an elected "premium committee" that asks the primary societies for suggestions for the use of the premium. In three years of operation the premium had been used for a book on quality husbandry, a study tour to Kenya for 50 members, and farmer-to-farmer extension. If world market prices are high, Tanzania arabica is even higher because of premium quality, and fair-trade organizations will struggle to buy at all. Despite a negligible direct effect on income, the fair-trade minimum price has been reported to increase conventional prices by around 3 percent at the moment the unions buy back their members' coffee at the auction to fulfil fair-trade orders.

Organizational development

The most important fair-trade benefits were reported to be the pre-financing, the capacity building and trade facilitation. The pre-financing is important as the inability to match advance-payment levels of private traders has been the reason why most cooperatives lose market share. However, the pre-finance received from fair-trade channels is only a small proportion of the finance that cooperatives require to purchase their members coffee. Fair-trade has been a significant factor in the setting up of export departments within the cooperatives, also used for (limited) direct exports to conventional markets, which reduces dependence on auctions and brings increased knowledge of the international coffee market.

6.4. LESSONS LEARNED FROM THE FAIR-TRADE CASES

In all the cases involving farmer cooperatives, it is clear that the fair-trade price premium is only part, and often only a small part, of the benefits derived from the fair-trade system. The success in self-organization seems to be far more important, resulting in better bargaining positions, better credit worthiness and economies of scale. The fair-trade system contributes to these organizational successes through capacity building, an initial guaranteed market, linkages with the international market and learning-by-doing in exporting. In addition, and similarly to the organic cases, fair-trade contributed to quality improvements.

In the analysis, one would ideally like to separate the contribution from the fair-trade marketing system from the contribution of additional development aid activities. If benefits result mainly from the marketing system, an increase in market share for fair-trade products would be necessary to be able to repeat such successes with other farmer groups. In contrast, if benefits result mainly from the additional aid activities, one could also replicate the approach taken by these activities without needing a fair-trade market. However, it seems both have been mutually supportive and highly interlinked.

A concern for the future development of fair-trade is the reported general lack of knowledge about fair-trade among individual members of large cooperatives. One could have doubts regarding the "effective democracy" of large cooperatives, and suspect the emergence of a new "management class". The latter is not bad per se, as any organization would benefit from having professional management, as long as it is effectively and democratically controlled by the members.

Maybe of importance for long-term development is the perception of many consumers that paying a higher price is directly improving farmer incomes. As can be concluded from these cases, that is not always the case. Those consumers would have to be convinced that the development of organizational capacity of farmer groups and the credit and educational projects financed by the premium are contributing to longer-term improvements in living standards.

As noted earlier, in Chapter 5, the supply from FLO-certified producers is much higher than demand. This is one of the main reasons that the fair-trade premium does not always directly improve farmer incomes. Often a low percentage of total production is sold in the fair-trade market, e.g. in the cases of coffee from Tanzania and cocoa from Ghana. A higher market share is required to be able to have a more direct impact on income.

Matters are different in the case of organic fair-trade. Due to the more individual certification controls, the farmers are much more aware of the "labelling" and the organic fair-trade premiums are significant. UCIRI and ISMAM have also managed to sell a large part of their products under their own labels, and therefore there has been a direct impact on farmer incomes.

For hired labour situations, the case of VREL is the only example here, but can not serve as a typical case from which conclusions can be generalized. Without fair-trade, VREL would not have obtained EU import licences, so fair-trade saved VREL. Surely, such an impact is difficult to replicate.

6.5. OTHER STANDARDS

There are much fewer documented case studies that contain information on costs of compliance and impact with reference to other standards discussed in Chapter 3. An overview of some cases is given in Tables 8 to 10.

Table 8
Overview of economic farm data for a farm that implemented the SAN standard

NOTE: (1) pps = pound per solid.

Table 9
Overview of economic farm data of farms that implemented the SA8000 norm or the ETI Base Code

Table 10
Overview of economic farm data for a group of suppliers who implemented the EurepGap standard

Sustainably grown oranges from Costa Rica

Based on the reports of Andersen and Somaribas, 2003, and Peris Moll, 2003.

History and organization

Del Oro had a total area of 7 000 ha, of which 3 000 ha was under citrus, and the rest being forested land. Del Oro was owned by the Commonwealth Development Corporation (now called the CDC Group plc). Del Oro was a young plantation and therefore annual production had been increasing continuously as more and more trees matured, with a check in 1998 and 1999 due to El Niño. The company had five plantations, all certified ISO 14001. The collaboration with SAN started in 1996, with the development of SAN norms for citrus production. They were certified at the end of 1997. Transition of one farm into organic production started in 1998, and was certified organic in 2000. The cost-benefit analysis was carried out for crop years 2000/01 and 2001/02.

Investments for SAN certification

Investments were made for infrastructure, including housing, toilet facilities, and storerooms for machinery and agrochemicals. A recycling plan was developed, as well as an occupational health programme, which included the purchase of pesticide application gear. They formerly applied the herbicide paraquat together with the fertilizers, and the change to a less toxic herbicide also meant an extra application round. The total annualized implementation costs, including the extra work hours, came to US$47 850, equivalent to US$16/ha/year, representing 1.5 percent of total production costs. Some of these investments would have had to be made at a later stage anyway due to the introduction of new legislation or stricter enforcement of existing rules. However, the costs might have been different as the SAN norms had more precise specifications.

Investments for organic certification

When starting conversion to organic for one of the plantations, Del Oro stopped giving chemical fertilizers, but did not have an organic management plan ready. This lack of research proved very costly due to a sharp drop in production. After eight months they started to consciously apply organic fertilizers in the form of chicken manure, foliar fertilizers and liming. Together with a slight increase in weed and pest control costs, total costs for the transition period were calculated at US$1 484/ha. When annualized, the amortization of these transition costs came to 1.3 percent of total production costs.

Help in public relations

In 1998, Del Oro made an agreement with the neighbouring Guanacaste Conservation Area (ACG) that they would transfer 1 200 ha of the company's forested lands to the conservation area over a 20-year period. It was also agreed that Del Oro would pay for various benefits that derived from neighbouring protected area, such as natural pest control and clean water coming from the forests. The largest payment to the park was for the biodegradation of 1 000 truckloads of orange waste from the juicing plant. The waste was planned to be deposited every year in a different, selected, site within the conservation area, with the aim of regenerating soils and the flora, and in particular to get rid of the introduced African jaragua grass, which was out-competing the endemic flora. The agreement between Del Oro and the park was big news. However, the heaps of fly-infested mulch drew criticism. As a result, Del Oro has spent US$100 000 in legal fees and public relations to defend the deal, but to no avail. The SAN secretariat supported them publicly during this period, and this was highly valued. The agreement was cancelled in 2000.

Farm economics

After achieving SAN certification, Del Oro tried to sell juice as SAN-certified in the United States of America and in Costa Rica, but without much response in the market. They did not make a market analysis at the time, but it was their feeling that SAN was not recognized by the consumers. Today, Del Oro is selling the juice as conventional (mixed with juice from non-certified oranges that they buy from local producers). For 2000/01 and 2001/02, an analysis of production costs and revenues was made. A noise in the analysis was the application of compost. After the waste from the plant could no longer be used in ACG, it was turned into compost. This resulted in Del Oro applying compost at US$2.50/tree, whereas market prices for good quality compost amounted to only US$1/tree. The distortion was aggravated by Del Oro using the compost on selected farms to artificially increase production costs for tax purposes. Therefore, compost costs were omitted entirely from the analysis.

In 2002, total production costs for the SAN-certified farms were US$1 028/ha, and US$1 128/ha for the SAN-organic certified farm, i.e. 9.7 percent higher. Variable costs before harvest were US$352/ha and US$486/ha, respectively, i.e. 37 percent higher for the organic farm. Yields were on average 24 tonnes/ha for SAN-certified farms, compared with 15.5 tonnes/ha from the organic farm (which had dropped below 10 tonnes/ha in 2000). As yields on the organic farm were still recovering, these yield differences were expected to reduce. It must also be noted that one of the worst performing farms was chosen for conversion to organic management. The price premium was US$0.42 pps per box (pps = pound per solid). This resulted in a net profit for the organic farm of US$573/ha, falling in the middle of the profit ranges for the other four farms, which ranged from US$284/ha to US$878/ha. Organic yields were expected to improve, but the organic market was starting to get oversupplied and in the 2002/03 season some of the organic production was sold as conventional. SAN certification costs for the whole of Del Oro were US$25 000/year and organic certification costs by two different certification bodies came to US$9 000/year for a single farm.

Other benefits

The management learned a lot during the development and implementation of the SAN standard, and again during the organic conversion period. After SAN certification they were disappointed that SAN withdrew from advising, to avoid conflicts of interest with their function as certification body.

Ethical Wine from South Africa

Based on the reports of Collinson, 2001, and Nelson, Ewert and Martin, 2002.

History and context

During the last ten years, the South African wine industry has faced a deregulation of the industry, transition to democracy, extension of labour legislation to agriculture, and the opening of international markets. The cooperative sector, until then protected by minimum prices, planting quotas, absence of labour rights and geared towards producing cheap white wines, found it difficult to adjust. For many of them their survival was at risk and the jobs of many farm workers with them. The estate and private cellar sector welcomed the changes and took advantage of the international market, mainly the United Kingdom. Overall, the wine industry has expanded, but employment growth has not been as large as increase in wine area, due to increased labour productivity^[95].

Under the traditional "paternalism" system, all power lies with the farmer, who has the moral obligation to care for their workers and their families. Although the system was not without welfare benefits (e.g. free housing), most labourers worked for long hours for low pay. The new labour laws improved working conditions, especially regarding working hours, leave and unfair dismissals, but also stimulated casualization and the use of contract labour.

Almost all the farms that adopted labour codes and took part in the cost-of-compliance study were known to provide relatively good working conditions and salaries. Fairview is a non-estate, producing wine from own grapes and from grapes bought from other growers. The owner has a reputation for being one of the best employers and in 1999 decided to seek SA8000 certification. To comply, he had to impose labour standards on the five grape suppliers. Graham Back Wines is similarly progressive and unusually large, so that it can employ a human resources manager. Sonop Savisa has been Swiss owned since 1992 and been steadily improving worker welfare, allowing farm workers to own and manage their own residences, community facilities and a small area of vineyard. Vredendal Cooperative combined a winery with a wholesale operation. It had 160 farmer members in an area not noted for high levels of worker welfare. Apart from Fairview, all farms and cooperatives participated in the ETI wine pilot trial.

Methodology

Collinson (2001) conducted a cost-of-compliance study and measured or estimated all costs associated with actions necessary to meet the standards. The estimated ETI compliance costs were predictions, because none of the participants had yet emerged from the monitoring process and been declared compliant. As a consequence, the author had to make many assumptions concerning the interpretation of the standard by those who would verify it, especially on "decent housing" and "living wage". The author further assumed that all the workers would have their wages increased by the amount equivalent to the difference between the pre-compliance actual wage of the lowest paid worker and the basic living wage. Verification (inspection) costs were in the ETI pilot borne by ETI and its supermarket members, and therefore not taken into account.

The impact study by Nelson and colleagues (2002) involved five code-adopting companies, including the four involved in the cost-of-compliance study, and compared them with five "similar", non-adopting companies. First impact indicators were identified through focus-group discussions with workers and three worker household case studies. For the impact study itself, a total of 161 workers were interviewed, 122 working on code-adopting farms (of which 63 were permanent workers) and 39 on non-adopting farms (of which 33 were permanent).

Costs of compliance

Costs for Fairview in the pre-certification year came to US$20 850 for planning the management system. Compliance costs were US$5 060 initially, and then US$3 650 annually, mainly for a chemical store and protective gear for workers. Cost for suppliers to Fairview represented 1.3 percent of their total turnover. For Graham Back Wines, estimated costs came to US$670 for planning and US$3 200 annually, mainly for increasing the wages of non-permanent staff. Sonop Savisa planning costs were calculated to have been US$1 460, after which the firm would incur US$11 400 annually for increasing worker wages. The Vredendal winery planning costs were calculated at US$2 920, after which the winery would have to spent an extra US$38 490 annually on increased wages and the amortization of a new chemical store. A Vredendal farmer member would face US$1 460 in planning costs and from US$12 450 to US$14 720 annually thereafter for improvements in worker housing.

Except for the Vredendal cooperative, the costs would not be a big problem; they would range from 0.1 percent to 1.3 percent of turnover. However, for the Vredendal winery the costs would markedly reduce profit and for the Vredendal member farmer the costs would be so high that they would lead eventually to bankruptcy. Improvements in worker housing to comply with the ETI (as interpreted by the author) can only be implemented very slowly to ensure those same workers will not lose their jobs.

Impact and benefits

The identification of priority needs by workers revealed that the core provisions of the codes do address some of the priority needs (housing, wages and no harsh treatment or abuse). Other needs, such as job security, continuous training and information on company performance, are not addressed in the code, as are some needs relating to the domestic sphere. In contrast, issues that are addressed by code provisions, such as occupational health and safety, freedom of association, child labour and hours of work, were not highlighted as important issues.

The impact study revealed that the code-adopting companies on average exported a higher percentage of their wine and obtained higher revenues than non-adopting firms. It is important to note that the majority of the adopting companies probably decided to implement the code because they were already focusing on social issues, and not the other way round. The main reason given by managers for adopting the code was to facilitate access to specific markets.

All managers of the code-adopting firms knew what the codes were about, but only three managers of the non-adopting firms had heard about the codes, and had no detailed knowledge of them. Just over half the employees at code-adopting farms had heard of codes of practice, but only eight had more detailed knowledge.

One company had experienced public relation benefits because it was used in presentations as an example. The cooperative farm viewed the ETI as a neutral third party who could introduce changes in working conditions while protecting the management from becoming the object of inter-member conflict. Labour arrangements have always been regarded as sacrosanct by the farmers and no business of the cooperative management. Given the legacy of "traditional" labour conditions on the cooperative farms, the code has probably had its biggest impact there. Immediately after signing up to the ETI pilot project the cooperative members had introduced written contracts and improved health and safety practices, and had launched a programme for incrementally improving the housing stock.

Of the other companies, one had put an immediate end to gender discrimination; another no longer allowed any children to work on the farm, even if this had always been voluntary; and a third farm had upgraded health and safety regulation. Managers noted that some social issues, especially employees' domestic problems, were not addressed by the code. As the majority of permanent workers live on the farm, these problems do not remain purely domestic.

When comparing the position of workers at adopting and non-adopting companies, in adopting companies the labour force was more educated and more workers had been sent on training courses. Fifteen percent of workers at non-adopting companies were provided with alcohol (in the past it was common to pay partly in alcohol rations), while only 3.5 percent of workers from code-adopting farms reported this. Employment conditions were considerably more favourable at code-adopting farms, i.e. more use of written contracts, more provision of protective clothing, health care subsidies and education on HIV and AIDS. On code-adopting farms, 87.5 percent of employees reported that their interests were being represented by a worker's committee, while for non-adopting companies only 15 percent was represented. In contrast, membership of trade unions was five times higher at non-adopting companies. It was concluded that workers on adopting farms were better off, but this was mainly due to a policy of social responsibility existing before code implementation.

EurepGap-certified pineapples from Ghana

Based on the report of Foli Gogoe, 2003.

History and organization

Pineapple is currently the largest non-traditional export earner of Ghana. The value of pineapple exports grew 37.5 percent between 1997 and 2001, to reach US$13.2 million. This despite one exporter reporting that the price had fallen between 1993 and 1998, from US$0.65/kg to US$0.45/kg. Use of agrochemicals is based on calendar applications following recommendations made by a consultant in the early 1990s. There are 60 registered pineapple exporters in Ghana, of which 9 supply about 72 percent of total exports. Of total exports, 45 percent is obtained from smallholder farms, either outgrowers, individuals or group associations (mostly grouped for training rather than group marketing). Domestic financing has always been a constraint. In 2001, domestic annual interest rates varied between 50 and 60 percent, coupled with double-digit inflation. When the EurepGap protocol was launched, Blue Skies was one of the first processors-cum-exporters in a developing country to take it up, in order to maintain its current market share in the United Kingdom. Growers aspire to sell to Blue Skies as the company offers the best price, pays weekly, and offers training programmes. However, disadvantages of Blue Skies are the high percentages of rejects, less transparency in weighing and no preferential access to loans or credit.

Investments

The EurepGap protocol has 250 control points, half of the criteria referring to the correct use of chemicals during crop production and post-harvest treatment. For the EurepGap certification process, Blue Skies operates as a Produce Marketing Organization (PMO). They spent close to £ stg 51 000 in going through the process. Initially there were 36 farmers to be taken through the process in two batches of 18 farmers each. The first 18 farmers were selected on the basis of their ability to consistently supply and meet orders (and quality requirements). The farm size varied between 5 and 2 000 acres (»2-800 ha). Blue Skies paid three different prices, depending on consistency of supplies, quality and negotiation skills of the supplier. Although not directly related to farm size, a certain correlation between size and price was observed. The farmers were trained over a two-year period, by the agronomic team of the company that had been trained by a foreign consultant in implementing the EurepGap protocol. The EurepGap checklist had to be adapted to be relevant for the Ghanaian context, of which the necessary authorities were informed. Growers faced high initial investments costs in constructing and upgrading structures such as toilets and baths, chemical stores, shelters and offices. Some growers (especially the larger ones, who were also exporters of fresh whole pineapples), had certain infrastructure already in place and spent relatively less money on this. About one-fifth of the growers managed to obtain bank loans to meet the initial investments costs, and as a result the interest and repayments on loans increased as part of the fixed costs. In special cases, Blue Skies increased the orders from growers to improve their financial position to enable them to meet these infrastructure costs. As a result of EurepGap, Blue Skies standardized the type of herbicide (less toxic) and quantities used. Before EurepGap some growers used a nematicide with cardolufos, a WHO class 1b ingredient, that is no longer used.

Farm economics

After certification was obtained, data were collected on cost of production before and after EurepGap implementation, using a participatory budgetary approach. Income data were obtain on the basis of receipts and market intelligence. In addition, qualitative data were collected through interviews. The results showed an incremental benefit of 7.8 percent in profits between the without and with EurepGap periods. The difference was, however, not significant and there were wide variations among growers, (indicating some had experienced greater profit growth, while others might have had reduced profits). Average total production costs remained the same, but the budget structure changed. On average, fixed costs increased by 7.8 percent, mainly due to a significant increase in depreciation of buildings. This was compensated by a decrease in variable costs. In interviews, farmers reported huge savings on agrochemicals, but the study results showed that those savings were actually quite modest (on average 5.4 percent for weed control, 9.4 percent for fertilizer use and an increase in pesticide costs due to increased prices). Harvesting costs fell due to a decrease in the use of Ethephon for de-greening, to meet maximum residue limits. Blue Skies even tried to stop the use of Ethephon altogether, but this lead to higher rejects because farmers were less able to determine the correct time for harvesting, which led Blue Skies to make the Natural Ripening Programme voluntary. Farmers faced extra costs for the removal of the mother plant immediately after its useful life, before leaving the land fallow to prevent disease build up on the field. Potential benefits from this would be only experienced in subsequent years, which could lead to reduced pesticide costs. Labour costs increased due to provision of pension schemes and better medical care. Other costs related to EurepGap implementation were borne by Blue Skies, such as training, soil, water and blood analysis, and the certification and inspection costs. One indirect effect of the EurepGap certification was the average increase in field size, because certified farmers were guaranteed a market by Blue Skies and therefore planted more.

Other benefits and effects

For the 80 percent of the farmers who did not keep records before, the necessary bookkeeping was valued as of immense benefit. Additional effects of EurepGap implementation was that farmers and workers spent longer on farm, made possible by shade, potable water and sanitary provisions, which lead to better supervision. Farmers were proud that their farm looked clean and farmers (especially smallholders) and workers had gained knowledge about agrochemical handling. Agrochemicals were now stored properly and protective clothing was used, all reducing health risks related to agrochemical use.

6.6. DISCUSSION

Because there is only one example for each standard, it is difficult to draw general conclusions from the case studies. However, the Del Oro case is quite representative for SAN standard implementation in so far that there is no price premium or label involved and that after standard implementation the situation is quite static.

From the wine cases, it is clear that cost of compliance to the SA8000 and ETI standards depends very much on the starting situation and on the exact interpretation of the standard. Costs of compliance change dramatically if the living wage or housing conditions are specified differently.

The fact that code requirements only partly matched workers priorities in South Africa is not a surprise. First, parts of the areas covered by the code, but not considered a priority by workers, are probably requirements that the South African companies comply with by default, i.e. problems such as forced labour do not occur. Second, some priorities of workers that are not covered by the code may be difficult to address through codes, such as job security and needs related to the domestic sphere. Third, the codes are international and priorities of workers may differ from place to place. Fourth, some problems may be formulated in different terms. For example, the priority of addressing wages may include - but not necessarily in this case - the notion that a sufficient wage would remove the need for children to supplement family income, but at the same time "child labour" as such may not be mentioned as a priority issue.

It should be noted that Blue Skies should be considered a special case in the way EurepGap has been implemented. The external consultant employed normally works on implementation of organic standards and this might have influenced the interpretation of the EurepGap standard. In this case, Blue Skies guaranteed the farmers a market as a strong incentive for implementation. It must be noted that the retailers promoting the standard will ultimately ask EurepGap certification as a prerequisite, but are not prepared or able to guarantee a market for certified suppliers. As long as only a minority of suppliers have obtained certification, these suppliers will have an advantage over their competitors. However, over time, this advantage can be expected to be eroded as more and more suppliers obtain certification. Before making the requisite investments, individual growers may want to consult their buyers to make sure EurepGap will give them an advantage in the market.