Impact of commodity certification

1. Beyond Commodity Certification
Value Chains Performance and Smallholders Welfare
Prof. dr. Ruerd Ruben

2. Key Issues
 Voluntary Commodity Certification (FT, Utz/RFA)
● Theory of Change
● Impact studies
 Assessing impact
● Field level sustainability
● Household welfare (farmers & Workers)
● Value chain integration
 Beyond certification
● Impact investment
● Private labels
2

3. Impact pathways
3
Interventions
 Professiona l fa rm
ma na gement
 Prod uc er group
ma na gement
 Tra ining for b etter
fa rming p ra c tic es for
higher q ua lity
Outcomes
 Improved yield s
 Higher quality
‘ nic he’ prod uc ts
 M ore
c ompetitive
farms
Assumptions:Monitoring and
enforcement mechanismswork and
are more demandingthan
alternatives. Labour legislation (e.g.
minimumwages) isin place.
Assumptions:Incentivesto invest in
improvement in working conditions.
Workers’ associationsor unionscan
operate freely. Better labour practices
are adopted
 Monitoring sa fe
w orking c ond itions
 Worker a ssoc ia tion
tra ining
 Workers’ rights
 Monitoring a nd
enforc ing living/ higher
w a ges
 Skilled and
motivated workers
 Living/ better
wages
 Dec ent labour
stand ard s
ac hieved
Impacts
 Imp roved soc ia l outc omes (hea lth, ed uc a tion, g enera l wellb eing )
 Hig her a nd more p red ic ta b le household inc omes; imp roved soc io -ec onomic sta tus
Assumptions: Trainingand new practicesare
appropriate. Cooperativesfunction well. Individual
farmersare receptive to proposed changes.Farms
are adequatelyselected accordingto the aimsof
the certification scheme.
Assumptions: Farmersadopt new practices
effectively. Servicesand inputsare availableand
adequateto context. Standardsfor niche markets
can be met consistently. New practicesraise value
of output.
 Pric e p remium
 Floor p ric e
 Ac c ess to more
luc ra tive ma rket
nic hes via la b el
 Pre-p a yment a nd
c red it
 Sta b le ma rket rela tions
 Higher prod uc er
pric es
 Lower pric e volatility
(more protec tion)
 Inc reased farm
inc omes and farm
profits
Assumptions:Market conditions
allow for price differentiation.
Market volatility isa problem.
Government interventionsand/or
regulation
Assumptions:Premium and new markets
are sufficiently remunerative. Costsof
certification lower than benefits.
Farmershavepre-existing capacityto
meet standards.
 Premium-fund ed
investments for
c ommunity
interventions
 Sup p ort to POs for use
of p remium
 Hea lthc a re a nd / or
ed uc a tion a c c ess
 Child ren in sc hool
 Better health
ac c ess for
benefic iaries
 Investment in other
shared basic
servic es
Assumptions:Existing gapsin social
infrastructure. Demand for
proposed services/ infrastructure.
Affordable service delivery is
possible in the certified area.
Assumptions:‘Social’ premiumis
sufficient and effectively used. Equal
distribution of benefitsof community
investments.Elite capture isavoided.
POsare internally democratic.
Assumptions: Adequate demand for certified products.Certified production/employment is the main source of livelihoods.Practices are adopted
evenly across socio-economic groups.Monitoring & traceability isensured. Appropriate balance of incentives and sanctions.
Directionofcausality

4. Theory of Change (FT/Org)
4

5. Certification mechanisms
5
• Guaranteed minimum floorprice (only Fairtrade)
• Stable price expectationsPrices
• Long-term market access
• Pre-finance (or collateral for borrowing)Contract
• Joint fund for collective asset building
• Social and productive infrastructurePremium
• Capacity building for sustainable farming
• Access to premium market outletsQuality
• Cooperative organization and Collective Action
• Pooling for increased Bargaining powerGovernance
• Workplace safety and health
• Decent living wageLabour
Farm household
welfare (income
and price stability)
Sustainable and
competitive
(yields and quality
Inclusive and
participatory
organization
Social services
provision and
workplace safety

6. Key areas
6

7. Proliferation of standards

8. Market Trends in Certified Coffee
Source: State of Sustainability
Initiatives, IIED/ISSD
Demand
Supply

9. Attractive consumer markets for organics
US Retail Prices Organic Banana
US Consumer Demand Organic Coffee

10. Increasing number of impact studies
10
128
16
57
12
15
14
4
Fairtrade
GlobalGAP
Organic
Rainforest Alliance
UTZ
Other
RSPO
0
20
40
60
80
100
120
140
160
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
RQ2
RQ1

11. Standards requirements (criteria)
11

12. Approach for Impact analysis (Diff-in-diff)
Before After
Intervention
Control

13. 0
.5
1
1.5
2
2.5
0 .2 .4 .6 .8 1
Propensity Score
Control
Treated
Before Matching
0
.5
1
1.5
2
Density
0 .2 .4 .6 .8
Propensity Score
Control
Treated
After Matching
ON-CS • OFF-CS • Total
FT 42 6 48
Organic 97 6 103
FT 39 9 48
Conventional 30 6 36
Number of observations on Common Support
Matching (PSM)

14. Indicator FT non-FT sign
Net Household Income + - n.s
Crop yield - + n.s
Crop price + - n.s
Other crops/non-farm income - + (*)
Expenditures 0 0 n.s
Past/future perceptions - + n.s
Durable Assets + - *
Credit Access + - *
Land investments + - *
Housing investments + - *
Organizational Force ++ - **
Organizational Satisfaction ++ - ***
Female-biased Decisions + - n.s.
Risk Acceptance ++ - *
Results (coffee)

15. Living Wage (Banana plantations)
15
Fedes van Rijn, Lucas Judge, Ricardo Fort, Tinka Koster, Yuca
Waarts and Ruerd Ruben (2015) Fairtrade certification in the
banana hired labour sector
• Limited direct wage &
income effects
• Slightly higher social
service provision (also due
to premium)
• Higher (sense of) job
security
• Little sense of (co-)
ownership
• Somewhat higher score
for Happiness

16. Impact areas & Risk of bias
16
0% 20% 40% 60% 80% 100%
Price
Premium
Market
GAP
Management
Labour
Yes
No
Not clear/Not reported
21%
73%
49%
92%
47%
45%
23%
91%
64%
70%
8%
6%
8%
6%
7%
18%
5%
2%
5%
63%
38%
33%
25%
47%
16%
8%
21%
6%
8%
15%
23%
12%
4%
18%
25%
Triangulation
Claims supported by evidence
Analysis
Data collection
Site selection
Sampling methods
Clear description of researcher's role
Clear description of context
Justification of research approach
Clarity of research question(s)
Yes No Not Reported Not Clear
Most focus on prices &
premium;
Little attention for
labour & GAP
No attention for market
governance
Weak aspects:
- Independence
- Sampling
- Site selection
- Data analysis

17. Primary effects (yield & price)
17
Overall (I-squared = 97.5%, p = 0.000)
Jena et al., 2012 (Ethiopia)
van Rijsbergen et al., 2016 (Kenya)
Study
Ruben & Fort, 2012 (Peru)
Bennett et al., 2012 (Cote d’Ivoire)
Waarts et al., 2016 (Kenya)
Coffee
Coffee
Crop
Coffee
Cocoa
Cocoa
FTor FT& org
FTor FT& org
Certification
FTor FT& org
RA or RA & org
Utz or Utz & org
-0.42 (-1.23, 0.39)
-2.20 (-2.53, -1.87)
0.19 (-0.13, 0.50)
SMD (95% CI)
-0.32 (-0.62, -0.01)
0.26 (0.01, 0.51)
-0.04 (-0.28, 0.20)
-0.42 (-1.23, 0.39)
-2.20 (-2.53, -1.87)
0.19 (-0.13, 0.50)
SMD (95% CI)
-0.32 (-0.62, -0.01)
0.26 (0.01, 0.51)
-0.04 (-0.28, 0.20)
Reduc ed yield Increased yield
0-2 -1 -.5 0 .5 1
Yield
Overall
Minten et al., 2015 (Ethiopia)
Weber, 2011 (Mexico)
Study
Ruben & Fort, 2012 (Peru)
Subervie & Vagneron, 2013 (Madagasc ar)
Coffee
Coffee
Crop
Coffee
Horticulture
Various
FTor FT& org
Certific ation
FTor FT& org
GlobalGAP
0.28 (0.08, 0.47)
0.42 (0.32, 0.53)
0.19 (0.04, 0.34)
SMD (95% CI)
-0.03 (-0.34, 0.27)
0.45 (0.18, 0.72)
0.28 (0.08, 0.47)
0.42 (0.32, 0.53)
0.19 (0.04, 0.34)
SMD (95% CI)
-0.03 (-0.34, 0.27)
0.45 (0.18, 0.72)
Lower price Higher pric e
0-.5 -.25 0 .25 .5
Prices
Small
(negative)
yield effect
Clear
Positive
price effect

18. Net Revenue effects
18
FTor FT& org
Ruben & Fort, 2012 (Peru)
Riisgaard et al., 2009 (Uganda)
van Rijsbergen et al., 2016 (Kenya)
Becchetti et al., 2008 (Chile)
Subtotal
GlobalGAP
Asfaw et al., 2010 (Kenya)
Mueller & Theuvsen, 2015 (Guatemala)
Subtotal
RA or RA & org
Waartset al., 2012 (Kenya)
Bennett et al., 2012 (Cote d’Ivoire)
Subtotal
Utz or Utz & org
Waartset al., 2016 (Kenya)
Riisgaard et al., 2009 (Uganda)
Subtotal
Study
Coffee
Coffee
Coffee
Other
Horticulture
Horticulture
Tea
Cocoa
Cocoa
Coffee
Crop
-0.17 (-0.47, 0.14)
-0.02 (-0.34, 0.30)
0.25 (-0.07, 0.56)
0.37 (0.09, 0.65)
0.11 (-0.14, 0.36)
0.44 (0.22, 0.65)
0.47 (0.23, 0.71)
0.45 (0.29, 0.61)
-0.12 (-0.47, 0.23)
0.27 (0.02, 0.52)
0.09 (-0.29, 0.48)
-0.12 (-0.37, 0.12)
0.80 (0.46, 1.13)
0.33 (-0.57, 1.23)
SMD (95%CI)
-0.17 (-0.47, 0.14)
-0.02 (-0.34, 0.30)
0.25 (-0.07, 0.56)
0.37 (0.09, 0.65)
0.11 (-0.14, 0.36)
0.44 (0.22, 0.65)
0.47 (0.23, 0.71)
0.45 (0.29, 0.61)
-0.12 (-0.47, 0.23)
0.27 (0.02, 0.52)
0.09 (-0.29, 0.48)
-0.12 (-0.37, 0.12)
0.80 (0.46, 1.13)
0.33 (-0.57, 1.23)
SMD (95%CI)
Lower income Higher income
0-.5-.25 0 .25 .5 1 1.5
.
.
.
.
.
Coffee
Ruben & Fort, 2012 (Peru)
Riisgaard et al., 2009 (Uganda)
van Rijsbergen et al., 2016 (Kenya)
Riisgaard et al., 2009 (Uganda)
Subtotal (I-squared = 84.7%, p = 0.000)
Horticulture
Asfaw et al., 2010 (Kenya)
Mueller & Theuvsen, 2015 (Guatemala)
Subtotal (I-squared = 0.0%, p = 0.824)
Other
Becchetti et al., 2008 (Chile)
Subtotal (I-squared = .%, p = .)
Cocoa
Waartset al., 2016 (Kenya)
Bennett et al., 2012 (Cote d’Ivoire)
Subtotal (I-squared = 79.2%, p = 0.028)
Tea
Waartset al., 2012 (Kenya)
Subtotal (I-squared = .%, p = .)
Study
-0.17 (-0.47, 0.14)
-0.02 (-0.34, 0.30)
0.25 (-0.07, 0.56)
0.80 (0.46, 1.13)
0.21 (-0.20, 0.62)
0.44 (0.22, 0.65)
0.47 (0.23, 0.71)
0.45 (0.29, 0.61)
0.37 (0.09, 0.65)
0.37 (0.09, 0.65)
-0.12 (-0.37, 0.12)
0.27 (0.02, 0.52)
0.07 (-0.31, 0.46)
-0.12 (-0.47, 0.23)
-0.12 (-0.47, 0.23)
SMD (95%CI)
-0.17 (-0.47, 0.14)
-0.02 (-0.34, 0.30)
0.25 (-0.07, 0.56)
0.80 (0.46, 1.13)
0.21 (-0.20, 0.62)
0.44 (0.22, 0.65)
0.47 (0.23, 0.71)
0.45 (0.29, 0.61)
0.37 (0.09, 0.65)
0.37 (0.09, 0.65)
-0.12 (-0.37, 0.12)
0.27 (0.02, 0.52)
0.07 (-0.31, 0.46)
-0.12 (-0.47, 0.23)
-0.12 (-0.47, 0.23)
SMD (95%CI)
Lower income Higher income
0-.5 0 .5 1 1.5
Type of certification By crop type
Very small (modest) net Revenu effects
By Type : GlobalGaP + / FT –
By sector: Horticulture + / Tea -

19. Household welfare (farmers & workers)
19
FTor FT& org
Ruben & Fort, 2012 (Peru)
Jena et al., 2012 (Ethiopia)
Parvathi & Waibel, 2016 (India)
Fort & Ruben, 2009 (Peru)
Becchetti et al., 2011 (Thailand)
Chiputwa & Qaim, 2015 (Uganda)
Subtotal
GlobalGAP
Mueller & Theuvsen, 2015 (Guatemala)
Subtotal
Utzor Utz& org
Waartset al., 2016 (Kenya)
Subtotal
Study
Coffee
Coffee
Other
Banana
Other
Coffee
Horticulture
Cocoa
Crop
-0.28 (-0.59, 0.02)
-0.09 (-0.35, 0.18)
0.06 (-0.17, 0.29)
0.21 (-0.23, 0.64)
0.24 (0.03, 0.44)
0.48 (0.23, 0.73)
0.11 (-0.10, 0.32)
0.47 (0.23, 0.71)
0.47 (0.23, 0.71)
-0.07 (-0.29, 0.15)
-0.07 (-0.29, 0.15)
SMD (95%CI)
-0.28 (-0.59, 0.02)
-0.09 (-0.35, 0.18)
0.06 (-0.17, 0.29)
0.21 (-0.23, 0.64)
0.24 (0.03, 0.44)
0.48 (0.23, 0.73)
0.11 (-0.10, 0.32)
0.47 (0.23, 0.71)
0.47 (0.23, 0.71)
-0.07 (-0.29, 0.15)
-0.07 (-0.29, 0.15)
SMD (95%CI)
Lower income Higher income
0-.5 -.25 0 .25 .75
Farmers
FTor FT& org
Cramer et al., 2014 (Ethiopia)
Cramer et al., 2014 (Ethiopia)
Cramer et al., 2014 (Uganda)
Cramer et al., 2014 (Uganda)
Dragusanu, 2014 (Costa Rica)
Subtotal
GlobalGAP
Colen et al., 2012 (Senegal)
Ehlert et al., 2014 (Kenya)
Subtotal
Various
Schuster & Maertens, 2014 (Peru)
Subtotal
Study
Horticulture
Coffee
Tea
Coffee
Coffee
Horticulture
Horticulture
Horticulture
Crop
-0.88 (-1.21, -0.54)
-0.39 (-0.63, -0.16)
-0.35 (-0.65, -0.04)
-0.26 (-0.50, -0.01)
0.01 (0.00, 0.02)
-0.35 (-0.65, -0.05)
-0.50 (-1.09, 0.09)
0.04 (-0.23, 0.30)
-0.17 (-0.67, 0.34)
-0.02 (-0.25, 0.22)
-0.02 (-0.25, 0.22)
SMD (95%CI)
-0.88 (-1.21, -0.54)
-0.39 (-0.63, -0.16)
-0.35 (-0.65, -0.04)
-0.26 (-0.50, -0.01)
0.01 (0.00, 0.02)
-0.35 (-0.65, -0.05)
-0.50 (-1.09, 0.09)
0.04 (-0.23, 0.30)
-0.17 (-0.67, 0.34)
-0.02 (-0.25, 0.22)
-0.02 (-0.25, 0.22)
SMD (95%CI)
Lower income Higher income
0-1.5 -1 -.5-.25 0 .25 .5
Wage workers

20. Comparative results

21. Decreasing returns
Contested Areas:
• Over-certification
• Value added distribution inside chain
• Multi-annual contracts (trust)
Organisation
strengthening
Production
techniques
Farmers
income
Power

22. Double Certification : Fair & Organic ?
(bananas, Peru)
22
45%
49%
8%
67% 66%
5%
42%
26%
-3%
20%
8%
-23%
1.3%
42.6%
25.8%
1.2%
6.2%
0.5%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
FT- Organic vs Organic FT - Organic vs Conv Organic vs Conv
Gross Income banana Profit banana production Banana production (Kg.)
Banana productivity (Kg./Ha.) Price Banana-high season Price Banana-low season

23. Voluntary vs Private Standards (Nicaragua)
0,00
5,00
10,00
15,00
20,00
25,00
FairTradeFT
C
onventional
FT
O
rganic
R
ainforestA
llianceC
afé
P
ractices
IndependentFarm
ers
Coffee Price ($)
Coffee Yield
Fair Trade Private / B2B

24. Regional Externalities (Peru)
0
10
20
30
40
50
60
70
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
FT market
share
Regional prices

25. Impact fallacies
25
Secondary effect Over-estimation Under-valuation
Farm-level resource reallocation X
Disloyalty and side sales X
Copying behaviour and spillovers X
Over- and multi-certification X
Reduced risk averseness X
Reliability in value chains X
Innovation towards sustainability X
Gender equity and living wage X

26. New Challenges: Value added distribution
26Source : FairChain (Moyee)

27. Fair Chain : options for Restructuring
27
-€ 1.00
€ 0.00
€ 1.00
€ 2.00
€ 3.00
€ 4.00
€ 5.00
€ 6.00
€ 7.00
Figure 2: Value Chain Restructuring
Series1 Series2

28. VC Lab: Focus on behavioural change
28
Mapping
Transactions
Contracts
Prices
Payment rules
Gaming
Trust
Reliability
Loyalty
Simulation
Practice adoption
Policy effects
Inclusiveness
Sustainability

29. VC Gaming Outcomes (trust & loyalty)
29

30. VC Simulator design
30

31. VC Simulator outcomes (over time)
31

32. Critical issues for certification programs
 How to increase direct welfare effects
 From Practice adoption (GAP) to Intensification
 Specialization & Over-certification (market)
 Region-wide & landscape sustainability (climate shifts)
 Costs of certification (hrmonization)
32

33. Beyond certification
 Delivery Contracts for GAPs
(TCs, trust, reliability)
 Private labels / outsourcing
standards (graduation)
 Impact investments Funds
(pre finance)
 Sectorwide sustainability
(TSC, SAI Platform, WBCSD,)
33
Practice
Adoption
Cooperation
& Contracts
Finance & Markets
Policy Environment

34. Thanks for your attention
RRuerd
Ruerd.Ruben@wur.nl