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  • QA 222
    Question:
    Are certifications improving farmers' net incomes?
    Background:
    Is there any evidence that certifications are creating shared value along the value chain and that they are indeed improving the net income of farmers? (Adjusted by inflation and cost of goods). What is the current supply and demand for certified coffees (coffee being certified vs coffee actually being sold as certified). What can account for any difference? *
    Asked by:
    Certifier - United Kingdom
    Answer:

    A COSA pilot study suggests 'a general trend of superior net incomes for certified farms over conventional farms is apparent but, the gap between the two appears narrow'. COSA is the Committee on Sustainability Assessment - to see the full report visit http://www.iisd.org/standards/cosa.asp and look for 'Seeking Sustainability'. Currently this report would appear to be the only independent source of this type of information.

    The same report also mentions a number of indirect outcomes (other than income) that need measuring: economic, environmental and social. It also points out that overall results vary substantially depending on the country of production, the size of the farming enterprise and the production system that is employed. Here we would add that the certification or verification process usually assists growers to gain better insight in the workings and economics of their farming operations. **

    We are not aware of any mechanism that does (or could) ensure that incremental farmer incomes are not eroded by inflation and rising costs. Coffee prices are determined by supply and demand and fluctuate accordingly. Formal certification premiums (where applicable) themselves are also dependent on supply and demand with excessive supply reducing premiums. For more on this go to topic 03.02.01 of the Guide and Q&A 102 &141 in the Q&A Archive that explain the limitations of what may be considered niche markets, certainly so in the coffee industry.

    The exception here could be Fairtrade ( www.fairtrade.net ) that formally increased its base premium by 5 cts/lb, effective June 1st 2008. However, it is generally believed that the supply of Fairtrade certified coffee comfortably exceeds demand and premiums are maintained through regulation rather than market forces. See topic 03.06.05 of the Guide for more on this.

    Data on supply and demand for certified coffees are scarce but indications are that supply exceeds demand, certainly so in the organic segment. The main reason, we suspect, is that most consumers are not necessarily interested in certification labels, preferring instead to rely on manufacturers' assurances that they are buying decent quality goods. This remains a limiting factor for future growth, and certainly when economic times are difficult as at present.

    Put differently however: growth in certified coffee production is not necessarily always demand driven, resulting in over supply that then has to be marketed as conventional coffee. See topic 03.05.02 of the Guide for more on this. ***

    *  This question can only be answered partially as collection of the kind of data this calls for is not within the scope of the Coffee Guide Q&A service.

    ** See topic 03.07.02 of the Guide for an overview of leading certification and verification schemes.

    *** Visit also http://www.intracen.org/dbms/organics/index.asp for wide-ranging information on organic products and markets, including coffee.

    Posted 03 June 2009

    Related chapter(s):
    Related Q & A:
    Q&A 039, 047, 102, 141, 213