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Certification useful, but benefits ‘less poor farmers’

10 June 2012

A study on sustainability certification has been published by the International Institute for Environment and Development (IIED). Based on research from a range of institutions, interviews and case studies on fair-trade, organic and some other certification schemes, the study finds that these schemes are likely to help some producers upgrade, offer training opportunities and improve trading relationships, but are likely to benefit ‘less poor farmers’ already producing quality products. While the study focuses on certification for small-scale producers in Vietnam, China, Indonesia (tea and coffee) and India (cotton), its findings are of direct relevance to ACP producers that share many of the characteristics of the systems analysed.

The study reviews evidence on the costs and benefits of a number of certification schemes:

  • Organic
  • Fairtrade
  • Rainforest Alliance
  • Utz Certified
  • CAFÉ Practices.

It also explores the potential of geographic labelling strategies to deliver benefits to poor and marginalised farmers.

Two key factors underpinning these conclusions are cost, and what is known as ‘the fallacy of composition’ (where if everyone increases supply at the same time, prices can decline). The study points out that to participate in many schemes, farmers ‘must absorb the lion’s share of the costs of certification (both direct costs such as fees, and indirect ones, such as the costs of establishing the structures needed to meet traceability requirements).’ Traditionally, such costs have been seen as a way of obtaining premium prices.

Like previous studies, the IIED report distinguishes between Fairtrade and the certification offered by other schemes. Fairtrade has an explicit goal of improving the livelihoods and wellbeing of small producers with an emphasis on ‘fairness and building livelihoods’ through its minimum prices and social premium. It regards environmental sustainability as necessary to underpin sustainable livelihoods. The study concludes that ‘Fairtrade certification has played an important role at times of low prices, such as during the coffee crisis. For very poor producers, minimum prices and market access via Fairtrade networks has been critical. Fairtrade can act as an important safety net and can reduce price volatility.’

By contrast, Rainforest Alliance, Utz Certified and CAFÉ Practices ‘offer no minimum prices, no guaranteed premiums and do not address price volatility or inequity in the value chain as a primary objective.’ Also, the study argues that ‘they are not as strong on social criteria as Fairtrade, and their basic aim is not to transform inequitable trading relations.’ It recommends more research to explore their costs and benefits.

But the ability of even Fairtrade schemes to offer a price premium depends on what the consumer will pay. ‘As certified produce becomes increasingly mainstream and less of a niche product’, the study argues, ‘premiums may become less likely.’ It further notes that ‘Fairtrade premiums and minimum prices have lost value in real terms over time’ and that ‘some have argued that prices are still not high enough to be transformational.’

This finding suggests that Fairtrade needs to do more to remain cutting edge. In April the establishment was announced of the first ‘Fairtrade Access Fund’ which will ‘provide farmers’ cooperatives and associations the long-term loans they need to renew their farms or adopt new technologies and equipment’. These financial requirements are substantial. A 2010 study from Fairtrade International claimed that in Latin America alone, fair-trade farmers needed US$500 million to cover their financing needs, over half of this in the form of long-term loans.

Editorial comment

Certification is, in the words of the IIED study, a process of ‘decommodification’. The word ‘commodity’ is widely used in trade analysis to contrast the relative prices of ‘commodities’ on the one hand, and ‘manufactures or services’ on the other. In this sense, a commodity is an undifferentiated bulk product sold onto a normally highly competitive and possibly volatile world market. Producers (and countries) are often urged to diversify out of commodities and into higher-value, more differentiated products where prices may tend to rise.

However, ‘commodity’ is not identical to ‘agricultural’, although commonly used as such. Fresh green beans exported from Kenya onto a highly differentiated European market are much less a ‘commodity’ than are, for example, Kenyan canned beans (which attract lower prices and may be lower quality) even though this is a processed rather than a raw product. In today’s markets, some agricultural products are ‘commodities’ but some are not.

By helping producers differentiate their output to the consumer, certification may support a diversification strategy. But it all depends upon the terms. There is a lesson in these reports, both for ACP farmers and for European consumers. Both need to be more discerning about which schemes they support. The right ones may foster development, but this is not guaranteed simply by a certificate. It is what is on the certificate, what it represents and how it impacts on the final prices and the distribution of revenues along the supply chain that counts.

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