Chapter I - Benefits of certification: does certification benefit farmers and society as a whole?

1. What is the world market for certified products?

Pascal Liu and Mikkel Andersen, ESCR, FAO

Producers, governments, retailers and various other international organizations are becoming increasingly interested in the market for certified products. Certification has become very popular and has received much media coverage, especially as regards organic and fair-trade products, but how big is the actual market for certified products? And can any producer access this market?

In order to guide decision-making and policy formulation, reliable data on the market for certified products are necessary. In particular, quantitative information on organic and fair-trade products should be available since they make up the world’s largest and second largest markets for certified products, respectively.

Based on rough estimates, the total retail value of organic food sales was estimated at US$23 billion in 2003, with fair-trade food sales estimated to be worth around US$500 million. Unlike statistics for general agricultural commodities, however, official trade statistics for certified products are not recorded by national customs offices, so the actual market value of these products is relatively unknown. Therefore, the market values and analyses presented in this study are based on estimates for certified food in European, US and the Japanese markets.

The socially and environmentally certified products included in this chapter include products from fair-trade labelling programmes, organic production, Rainforest Alliance (RA) and SA-8000 certified products. Of these programmes, estimates for RA product sales are not available and the volumes of particular commodities are used instead. For instance, Rainforest Alliance certified bananas account for about 15 percent of the total banana exports from Latin America, or some 1.3 million tonnes, and 700 tonnes of RA certified coffee were exported in 2002. The situation for agricultural facilities certified SA-8000 is similar, although few enterprises have received this certification so far.

In the world market, developed countries are the main markets for certified products with more than 95 percent of sales, but there is a rapid increase in some other countries such as Brazil, Argentina, China and Egypt. Similarly, the EU member countries account for the bulk of the European market (more than 90 percent), but increases are beginning to occur in Central Europe (Czech Republic, Slovenia, Slovakia and Hungary). Switzerland has a very high per capita consumption. There is a large variation in consumption per capita across the different EU countries, with Germany, United Kingdom and France leading by volume as the most important markets.

European Market

Estimates of the size of the organic food market in Europe in 2003 vary between US$10 and 11 billion. Most of the sales take place in the countries of the European Union (EU), with Switzerland following at a distance with a market estimated at US$750 million in 2003. Some organic foods are sold in Norway and Iceland, while consumption of organic products has just started in some Eastern European countries (e.g. Hungary, Slovenia and the Czech Republic). However, sales in these markets are almost negligible in comparison with the EU.

Although sales of organic foods have grown rapidly since the mid-1990s (annual rates of over 20 percent were witnessed), growth has slowed for the last three years. It was estimated at 8 percent in 2002. In the future, there is a risk of oversupply of organic meat and dairy products, with competition increasing in all products, potentially leading to price erosion. In organic fruits, however, demand is still high compared to supply. The EU market for certified organic fruit and vegetables could be estimated at US$1.3 to 1.5 billion in 2000, accounting for between 15 and 20 percent of total retail sales of organic products. It is a very dynamic market that has enjoyed rapid growth since the mid-1990s.

Germany is by far the largest market for organic foods in Europe, followed at a distance by the United Kingdom, France and Italy (see graph below).

Estimated retails sales of organic foods in Europe in 2002 (million €)
(Source: FIBL/SÖL)

There is a wide variation in consumption across European countries. Per capita consumption of organic foods was valued at €99 in Switzerland, while it stood at €23 in Italy and below €10 in Greece in 2002.

Retail sales of fair-trade foods also remain high in Europe, with coffee and bananas leading as the most popular items. Annual growth of about 20 percent has persisted since 2000 within relatively new markets such as France, United Kingdom, Austria, Norway and Finland, whereas sales are either stagnant or falling in the more mature markets, such as Denmark, Netherlands and Germany. In 2002, fair-trade sales in Europe were estimated at over 75 000 tonnes (joint sales of FLO and ATOs) valued at over €300 million but only three countries - Switzerland, United Kingdom and the Netherlands - were actually responsible for two-thirds of total consumption. Coffee led the sales in value while bananas ranked first in volume (see table below).

Sales of FLO labelled products (metric tonnes)

Source: FLO, 2003

United States Market

The United States is the single largest national market for both organic and Rainforest Alliance certified products. In 2003, retail sales of organic foods amounted to about US$11 billion. Although the growth of the organic market has slowed, it was reportedly still 20 percent in 2003. In comparison, the market for fair-trade products is showing rapid growth with rates recorded as high as 48 percent for coffee. However, fair-trade products were only recently introduced into the US market and still have very low sale volumes (a few thousand tonnes) compared with organics. Apart from coffee, which account for 91 percent of fair-trade food sales in volume, tea and cocoa are sold on the fair-trade market.

New lines of fair-trade products (e.g. mangoes, bananas, grapes) have been launched recently and their market is expected to expand strongly. Some natural food stores (e.g. Wild Oats) now carry fair-trade products. The market for various types of ecofriendly coffee (e.g. Rainforest Alliance, shade and bird-friendly coffees) was estimated at some 2 700 tonnes in 2002 and is also in rapid expansion. This growth is partly fuelled by the involvement of large coffee retailers or manufacturers (e.g. Starbucks, Kraft).

Japanese Market

The Japanese market for certified products has not developed at the same pace as the European and US markets and certified products therefore have a smaller share of the total food market. Japan is nevertheless often seen as a very lucrative market because of high prices and high incomes. However, Japan is also perceived as being a difficult market due to distinct quality requirements and difficulties in meeting the private standards and the general import regulations. However, this may evolve to some extent as important structural changes are taking place, including the implementation of the national regulation for organic certification (the so-called JAS law), and the establishment of the national guidelines for "specially grown products".

Currently, several certified organic products, a few fair-trade products and Rainforest Alliance certified coffee are available to consumers in Japan. However, the Japanese market for certified food products has developed since the 1970s on the basis of the Teikei system, which is fundamentally different from certification. Teikei is a production agreement between producers and a group of consumers (Community Supported Agriculture in the United States and Argentina are similar systems to Teikei). Whereas certification and labelling serve as a means of governing transactions between anonymous parties, Teikei focuses on human relations and trust.

Until 1999, when organic agriculture was defined by law, most of the products in the Teikei system were considered to be ‘organic’, including those that were grown with small amounts of chemical pesticides or fertilizers. The importance was, and still is, placed on communication and mutual understanding between the producer and the consumer. Despite the expansion of organic products into conventional supermarkets, Teikei continues to be the basis of the organic food market in Japan. In fact, some supermarkets apply Teikei’s philosophy to communicate with larger groups of consumers. For example, Ito Yokado’s homepage for Visible Face Vegetables allows consumers to look up producer names and production methods for each product.

One of the main drives behind the expansion of Teikei-style systems is a rapidly deteriorating sense of trust with respect to food safety and reliability. During the last decade, Japan has experienced a series of food scares to which food companies sometimes have poorly responded. Some scandals involved false labelling of additives, others were about pesticide residues in imported vegetables from China. One scandal involved GM soybean found in organic tofu.

According to recent surveys, many consumers have begun to worry more about food safety (in one survey 62.2 percent of interviewed consumers rated ‘safety and reliability’ over price and taste). Accordingly, the government has responded with a series of food safety regulations, and food suppliers have started promoting the safety and reliability of their products. In this general trend toward safer food and more reliable food supply, the originally Teikei-based market for products grown in socially and environmentally responsible ways has begun to expand into the general market.

A deregulation of the wholesale sector in 2003 has enabled retailers to deal directly with producers. This has accelerated the initiatives among retailers to set their own quality and production standards to ensure food safety and reliability, and some use third party verification to monitor implementation. Although about 60 percent of the food consumed in Japan is imported, Japanese consumers’ confidence in the safety of imported food is low. Therefore, it is expected that retailers and importers will increasingly demand compliance by foreign suppliers with their own private standards.

In 1999, the JAS law, the Japanese law Concerning Standardization and Labelling of Agricultural and Forest Products was revised and organic-JAS certification was introduced as part of this law. Under the new JAS law, all operators in the food supply chain must be certified in order to sell products with an organic label in Japan.

Domestic JAS certified organic production increased by 38 percent in 2002 but is still only about 0.15 percent of the total production. Therefore, the organic market depends heavily on imported products, especially for fruits, vegetables, and soybeans. However, volumes of imported fresh products decreased in 2002, which probably is due to the end of the ‘grace period’ in March 2002 for foreign organic (but non-JAS certified) products that were allowed to be used as organic ingredients for processing. This caused both inflated imports in 2001 and a decrease in 2002. Data on organic sales are not available and therefore have to be estimated from the production data. The total organic market is estimated to be between US$0.95 and 1.05 billion.

A survey of supermarkets in the Tokyo area found that 95 percent of them carried organic products, but only 10 percent carried more than 20 product items. Foreign processed and pre-packed organic items such as instant coffee were only available at large, relatively upmarket stores. The principal products were traditional Japanese food, such as natto (fermented soybeans). Other widely available products included ketchup, coffee, roasted sesame seeds, peanuts and bananas. Furthermore, some major convenience store chains carry organic natto and konnyaku (jelly made from arum root) on a regular basis.

Organic products are usually 1.1-1.7 times more expensive than their conventional counterparts. Widely distributed organic soybean based products with imported soybeans are approximately 10 percent more expensive than their conventional counterparts, while the same products with domestic organic soybeans can be as much as three times more expensive. The main sources of information on organic foods are ‘word of mouth’, ‘direct mail and advertisement’, followed by ‘television and mass media’ and ‘store front’.

Of the consumers already buying organic food, 46 percent intended to buy more organic in the future, while the other half intended to continue as at present. Of the persons who did not purchase organic foods at the time of study, 85 percent said they would like to buy organic food in the future. In the Tokyo area interest in organic foods is generally higher than the national average. Therefore, it is difficult to generalize these figures. What can be inferred from these findings is that demand for organic food is ‘potentially’ high. When the Japanese economy revitalizes, and more importantly, if the current interest toward safer and more reliable food favours organic supplies, this market potential could turn into reality.

The Guidelines for the Labelling of Specially Grown Agricultural Products were established in 1992 and revised in 2003. The guidelines contain production standards for products labelled as ‘specially grown’ (tokubetsusaibai or tokusai in Japanese). Before, there used to be various categories of reduced pesticide and reduced fertilizer grown products, which have now all come under one category. The guidelines do not have the same legal status as the organic regulation. Operators are expected to manage and check their own operations voluntarily. The implementation of the guidelines varies by prefecture. As of 2002, 39 Japanese prefectures (out of 49) had set up some type of certification system for non-conventional products. Of them, 27 had adopted the guidelines for specially grown products without changes. Some others use the guidelines as the basis of a registration system for market operators or use them merely for reference. 12 prefectures have certification systems based on their own standards. In the case of imported products, a foreign operator must use less than 50 percent of the conventional levels of pesticides and chemical fertilizers that are defined by a local authority (e.g. state, province), which is equivalent to a Japanese municipal government. If the relevant authority does not have conventional levels defined, the producer would have to determine these levels, and have such figures confirmed by that public entity. As is the case with organic products, the label of specially grown products must be removed if products are fumigated at the port of entry.

The sales value of the market for specially grown products was estimated in 2000 at around 300 billion yen. Based on information obtained from 29 prefectures, production in 2002 was estimated to be around 700,000 tons, considerably more than that of JAS-certified organic. A survey by IFOAM Japan shows that 42 percent of interviewed wholesalers and 48 percent of retailers intended to expand their sales of ‘specially grown’ products. Because the guidelines are implemented differently from one prefecture to another and because labelling specifications are varied and vague and are thus not very well trusted by consumers, suppliers often find it difficult to use this label at the national level or add any value to products with such a label. Although this market has potential to grow, the guidelines would first have to be clarified and its system made more consistent. In addition, special requirements to handle and label imported products should be addressed.

In Japan only coffee and tea are sold with the Fair Trade mark. Starbucks Coffee Japan, as well as AEON, a major Japanese supermarket chain, carry Fair Trade coffee in Japan. Furthermore, Alter Trade Japan has established Kokusai Sanchoku or ‘international Teikei’. Instead of certification and labelling, this system is based on Teikei-style agreements between specific Japanese consumers and small producers from the Philippines and Indonesia, from where they import balangon bananas and eco shrimp respectively. They aim to engage in environmentally friendly activities; build relationships that are beneficial for all involved; pursue food safety; maintain clear pricing at all stages; and maintain stable transactions at fair prices.

Discussion

It was asked why certain certification programmes, such as ISO 14001 and EUREPGAP, were not included in the market survey. One of the primary reasons for this is the lack of aggregate data available (only individually certified companies have this information) and the difficulties involved in estimating volumes, especially since the products are not labelled. Although the aforementioned certification programmes are not included in the market survey, they continue to be included in ESCR’s technical work on certification because they represent an opportunity for producers.

It was also noted that while the market figures for certified products were presented in value and volumes, the actual share of certified products in the food market of developed countries is only 2 or 3 percent for organic food products and less than 1 percent for fair-trade. There are still no figures for the share of Rainforest Alliance certified products or SA-8000 certified products, but SAI is in the process of gathering data on the volumes produced in SA-8000 certified facilities. For example, one of the largest multinational fruit corporations is SA-8000 certified, while another had all its farms Rainforest Alliance certified.

In view of the recent decrease in the growth rates of organic product sales, some participants asked whether it was possible to estimate a possible "saturation point" in the organic market. Opinions vary among analysts, but the figures cited range from an optimistic 10 percent for the market share of organic products to a more conservative figure of 5 percent. It is clear to analysts, however, that although growth in developed countries is slowing, potential growth exists in developing countries. It was the opinion of some panel members that the share of certified products in developed countries could be 5 percent by the end of the decade (see "The World of Organic Agriculture - Statistics and Emerging trends" available online at www.soel.de/Oekolandbau/Weltweit.html for more information).

An IFOAM representative asked if retailers would agree with the projections of the panel based on their own data. At present, it is difficult to cross check with retailer figures because of the confidential nature of the data. However, several initiatives to develop market information systems (e.g. the EU’s EISFOM project) have been launched recently, and it is expected that more data will be available to the public in the near future. The resulting public scrutiny may reduce the current margins captured by retailers.

The above presentations show that there is some convergence of organic and fair-trade certification programmes. This is certainly the case for products like coffee (to the extent that double certification has increased two-fold). Participants asked whether this was also happening for other products. While figures are not available for other products, promotional campaigns show higher sales of products that are both organic and fair-trade certified. This is in line with a more general consumer preference for products that are multi-certified and reflects positive consumer attitudes towards reassurance schemes as they relate to food safety, social accountability or environmental sustainability. Companies like Chiquita are already using more than one certification label, but this may represent a problem for smaller producers lacking the resources to obtain several certifications.

The participant from the Coffee Federation of Colombia suggested that there may in fact be two scenarios which correspond to different productions strategies for the producer. In the first one, sales of certified products remain small and the market is a niche market with a high price premium. In the second one, price premiums decrease and the market for certified products becomes much larger. Which one is more likely to occur? Given the decrease in premiums, a panel member favoured the second alternative and quoted a recent study of the World Bank on the world demand for sustainable coffee (see publication at http://www-wds.worldbank.org/default.jsp). A reasonable estimate of the market share of certified coffee could be 5 percent.

A participant from the German Technical Cooperation Agency (GTZ) cautioned against using aggregate statistics of growth for certified products. For example, organic and fair-trade products have different rates of growth, reflecting differences in the levels of market development. Competition between the organization running certification programmes was not perceived to be a problem since they have different scopes, emphasize different issues and target different producers and consumers. Many now collaborate with one another, as seen with the SASA member organizations.

Some participants stated that not all certification programmes are necessarily reliable, and there may even be fraud in the use of labels. They insisted on the need for proper control mechanisms.

2. Farmers’ experience with certification

Guadalupe Quiroz, Unión de Comunidades Indígenas de la Región del Istmo de R.I. (UCIRI) Mexico

UCIRI was created in 1982 by a group of small coffee producers in Mexico. In search of a more stable market to sell their products, they started an association based on basic principles of transparency, the word of God and the indigenous common culture. Today the association has 2500 small-scale producers (2-5 ha each) and has contributed to various local projects within the community including a micro credit scheme, a health centre, an education centre and local public transportation.

Producers in the association first began with improvements to both product quality and environmental integrity. Next was the internal control system for which documenting the development and implementation of all 20 annexes was one of the major challenges for the association. However, the implementation fees, costs of living and improvements costs associated with environmental protection made it increasingly difficult to become certified. Luckily, the association became linked with Max Havelaar in the Netherlands in 1988, which enabled its producers to have an additional US$5 premium per kg.

Due to high costs, however, UCIRI aims to become certified by a local Mexican certification body instead of remaining with the international agent. The association remains concerned about the continuing confusion among producers and consumers about the many different labels and label requirements of certification programmes, competition from large producers and also their misuse of the term "made by small producers" most commonly seen in the market place today.

3. Benefits and constraints of certification: evidence from case studies

Cora Dankers, Consultant, Italy

Introduction

A variety of voluntary social and environmental standards and certification programmes in agriculture have appeared during the past twenty years. Governments have been or become involved in some of them, most obviously in organic agriculture and the related labelling. Other programmes are driven by the agriculture sector itself, such as, again, organic agriculture, or the programmes involved in the COLEACP Harmonized Framework or by the food retail sector, such as EurepGap. However, most social and environmental standards have been developed by non-governmental organizations (NGOs), such as the Fairtrade Labelling Organizations International (FLO), Social Accountability International (SA-8000 standard) and the SAN/Rainforest Alliance (‘sustainable agriculture programme’).

Producers who want to export are confronted not only by a plethora of import regulations, but also within those import countries by different niche markets for which additional requirements have to be fulfilled. From another point of view, their products may already comply with such requirements, and such niche markets may offer opportunities for increased market access or even price premiums. However, developing countries and smallholders may face specific constraints when trying to take advantage of social and environmental certification and the increased market access or price premiums they may deliver. In some developing countries a lack of local certification bodies increases certification costs. Furthermore, requirements for traceability favour large commercial farms. Some standards, such as SA8000, that focus on the working conditions of hired labourers, are not relevant for smallholders reliant on family labour. In contrast, the fair-trade system is especially developed to help small-scale producers in developing countries, but the potential benefits are curtailed by a limited market. Finally EurepGap certification may become obligatory for those producers wishing to sell to its retailer members. This may pose serious problems for those producers that do not have access to laboratories to execute the tests required, and problems may be expected in fulfilling the extensive documentation criteria.

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, a growing number of case studies have analysed - more or less comprehensively - their impacts on various costs and profitability aspects. This chapter gives 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.

Review of case studies on organic farming

A summary of the case studies is given in Table 1. 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.

Review of case studies on fair-trade certification

A summary of the case studies is given in Table 2. 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 that 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, 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 cacao 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. Two farmer organizations (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 in Ghana is the only example here, but cannot 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.

Review of case studies on other voluntary standards

A summary of the case studies is given in Tables 3, 4 and 5. There are much fewer documented case studies that contain information on costs of compliance and impact with reference to standards other than those relating to organic farming and fair-trade. Because there is only one example for each standard, it is difficult to draw general conclusions from the case studies. However, the case study on citrus in Costa Rica is representative of 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 some case studies on wine in South Africa, it is clear that cost of compliance to the SA-8000 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.

Conclusion

Traditional low input farmers may expect productivity gains in the long term when implementing organic methods, but these are frequently accompanied by higher production costs, mainly in the form of higher labour demand. In these cases, access to premium markets through certification usually results in increased net profits. The case studies that report conversion to organic from high input systems observed initial yield declines. Yields in general recovered partly or completely over time. Effects on production costs have been very mixed, but very often involved substantial initial investment. In these cases access to premium markets, normally requiring certification, is essential to compensate for yield declines and investments.

For farmer cooperatives that are certified by Fairtrade Labelling Organizations International (FLO), the fair-trade price premium appears to be only part, and often a small part, of the benefits derived from the fair-trade system. Organizational progress, better bargaining positions, credit worthiness and economies of scale seem to be more important. The benefits result from the fair-trade marketing system and the additional support activities by other agencies, which appear to be highly interlinked and mutually supportive. The effect of the fair-trade premium is limited due to the often small part of total output that is sold via the fair-trade market.

Both organic and fair-trade certification seem to lead to general quality improvements, which in themselves are also valuable in conventional markets.

For the other standards discussed in this chapter, only a limited number of case studies were available, reporting from only a single country for each standard. Therefore no generalizations can be made on the impact of such standards and certification programmes.

More details on the above study can be found in the FAO publication "Environmental and Social Standards, Certification and Labelling for Cash Crops" (2004, see Annex).

Table 1 - Overview of farm economic data from case studies of certified organic cash crop production in developing countries

Table 2 - Overview of farm economic data from case studies of fair-trade registered producer organizations

Table 3 - Overview of economic farm data for a farm that implemented the SAN standard

NOTE: (1) pps = pound per solid.

Table 4 - Overview of economic farm data of farms that implemented the SA8000 norm or the ETI Base Code

Table 5 - Overview of economic farm data for a group of suppliers who implemented the EurepGap standard

Discussion

In most cost-benefit studies of certification, costs are not linked to social and environmental impacts. The presenter noted that in many cases, quality issues are incorporated in costs since the majority of certified products targeted the upscale markets with higher quality requirements.

In the conversion to organic agriculture, production and processing costs such as labour often rise, whereas input costs decrease. This depends however on the previous farming practice (whether it was a low or high input system) and the farmer’s access to labour. In low input systems, if costs are reduced to a level comparable to the costs of conventional production, then the farmer does not need to depend on price premiums. Such a situation is particularly beneficial for small producers, as it gives them the option to decide whether the investment in organic certification is actually necessary or if the conversion to organic farming is sufficient in itself.

The importance of sustainability in the long-run was emphasized, as small producers and cooperatives may become dependent on external funding from NGOs and aid programmes. They may also become dependent on one or two buyers, which is also problematic and not sustainable in the long term either. Therefore, assistance programmes should work towards making the long-term return on investment more profitable, which means analysing both the internal and external investment before decisions are made.