The economic impact of sustainability standards on smallholder coffee
Blog Sustainable Growth and Inclusive Growth
Voluntary Sustainability Standards (VSS) are increasingly being adopted to promote sustainable development. A recent study in Ethiopia’s Sidama region reveals the economic implications of VSS certification for smallholder coffee producers. While certification enhances yields, prices, and incomes, it also brings higher costs. Tailor-made support programmes are needed to help farmers overcome challenges while ensuring the long-term sustainability of Ethiopia’s coffee sector.
Authors
Tesfaye Berihun
Researcher, Addis Ababa University
Voluntary Sustainability Standards (VSS) have gained prominence in the pursuit of sustainable development. These standards are believed to help achieve the 2030 Agenda for Sustainable Development goals. However, assessing the true impact of these standards on smallholder coffee farmers remains a challenge. An IGC study conducted in Ethiopia’s Sidama region sheds light on the economic implications of VSS certification for smallholder coffee producers. In this blog, we discuss the study’s findings and their significance in promoting sustainable farming practices and improving smallholder farmers’ livelihoods.
Increased VSS adoption offers smallholder farmers access to premium markets and income
Ethiopia relies heavily on coffee for its economy, with the sector contributing a significant portion of the country’s export earnings and supporting a large portion of the population. Declining coffee prices have led to a recent spike in the country’s exports of VSS-certified coffee. Certifiers such as Fairtrade, Organic, and UTZ/Rainforest Alliance have entered the Ethiopian market, increasing the adoption of sustainability standards. While the adoption has been slower than the global average, the share of VSS-certified coffee exports from Ethiopia has increased, offering smallholder farmers opportunities to access premium prices, markets, and livelihood support. Recent policy reforms and liberalisation of Ethiopia’s coffee industry aim to increase value chain incomes, especially for smallholder farmers.
Findings
- Certified farmers realise benefits but face higher costs.
The study’s findings reveal that certified coffee farmers in the Sidama region experience noticeable benefits compared to non-certified farmers. Fairtrade-Organic double certification increases coffee yields, prices, and dividends for certified coffee producers, which is attributed to improved market access and premium prices associated with VSS certification. Additionally, certified coffee producers have higher coffee income, household income, and consumption expenditure, improving their living standards. However, the study also notes the increased production costs associated with certification, primarily driven by labour expenses related to higher labour demand and adherence to labour standards.
Most coffee farmers practice organic farming even without certification. Still, a notable proportion of farmers lack awareness regarding other certifications they have obtained, thereby hampering the effective implementation of VSS. The study highlights that the outcomes of VSS implementation can vary depending on contextual factors, with some producers facing challenges in meeting specific certification criteria.
- Strong cooperatives enhance benefits from certification for member farmers.
The study underscores the importance of cooperative organisations in determining the impact of VSS. Cooperatives are vital in facilitating market access and providing farmers with technical assistance, training, and resources. According to the study, farmers in higher-performing cooperatives benefit more from certification in terms of dividends and coffee yield but less in terms of prices. The immediate price benefit may trade-off with most cooperative performance indicators, resulting in higher profits paid out as dividends to members at the end of the year, which could explain why certified farmers in underperforming cooperatives received higher prices.
Balancing certification costs and diversified income sources
While the study highlights the positive impact of VSS certification, it acknowledges that non-certified farmers may have higher levels of non-coffee income, indicating a diversion of resources away from coffee farming. On the other hand, certified farmers may earn more income from coffee because they devote more resources to it. It is critical, therefore, to weigh the trade-offs between investing in coffee certification and diversifying income sources by carefully assessing the marginal returns on resources. Additionally, the increased costs associated with certification, such as compliance with standards and certification fees, can hinder smallholders from accessing global value chains. These costs may disproportionately affect farmers with limited resources and infrastructure. Balancing the short-term costs with long-term benefits is critical for farmers and policymakers. Institutional support programmes are necessary to assist smallholders in overcoming these challenges and seize the opportunities presented by sustainability standards.
Tailored support programmes to help smallholder farmers reap VSS benefits
The findings of this study have important implications for policymakers, producers, cooperatives, and value chain actors. Best practices in sustainable production and marketing methods can be advanced as scalable and practical solutions for these stakeholders. By embracing sustainable production and trading systems, Ethiopia can further enhance its position in the global coffee market while improving the livelihoods of smallholder farmers. Supporting the adoption of VSS and providing the necessary resources and technical assistance will contribute to developing resilient production systems, efficient supply chain management, and sustainable trade. Tailored support programmes that address the specific needs of smallholder farmers, such as cost-sharing arrangements and support mechanisms for increasing productivity and economic efficiency, which include capacity-building initiatives, credit and finance access, and infrastructure development investments, can all help coffee farmers benefit from VSS and improve their livelihood.
Conclusion
The study on the economic impact of sustainability standards on smallholder coffee producers in Ethiopia’s Sidama region provides valuable insights into the benefits and challenges of Voluntary Sustainability Standards certification. While certification leads to improved yields, prices, and incomes for farmers, it also entails higher costs. Policymakers and stakeholders should consider tailored support programmes to address these challenges and ensure the long-term sustainability of the coffee sector. By promoting sustainable farming practices, Ethiopia can attract environmentally conscious consumers and build a thriving coffee industry that uplifts its smallholder farmers and contributes to global sustainable development efforts. Moreover, these findings contribute to the ongoing discussion on the effectiveness of Voluntary Sustainability Standards certifications in promoting sustainable agriculture and improving farmers’ livelihoods.