Takeaway: As consumer goods labeled “Fair Trade” or “organic” proliferate, companies must be aware of the actual social impacts of supply chain decisions to support products labeled as such. Recent research suggests that grower participation in cooperatives does not result in increased economic viability, and may in fact decrease grower welfare.
Researchers analyzed the benefits and risks associated with joining a cooperative for growers of coffee in Mexico and Peru including household and production costs, yields, and records of sales from cooperatives certified sustainable by Rainforest Alliance. Results suggest that certification norms create costs that growers do not recover in statistically significant cash net returns, making membership in cooperatives unsustainable for the small, household grower.
The analysis suggests that yields rather than price premiums are most important for increasing net cash returns for coffee growing households and that certification norms that permit improving yields are essential for improving grower welfare and attracting and maintaining growers. Certification schemes must be flexible and incorporate potential income gains on both the price and productivity side of efforts to improve producer welfare and their continuing participation in certified schemes.
- Participation in cooperatives result in negligible income increases: Fair Trade/organic growers received 12.8 cents per pound more than independent growers. However, this increase is less than the median remittance received from family members living elsewhere in Mexico and much less than the median remittance received from a family member in the United States.
- Cooperatives have strict standards and include restrictions which may dissuade growers from joining
- Cost associated with affiliation: Yearly renewal costs, costs to change product to meet organic-certified requirements
- Limits on fertilizers used affects production rate and yield
- The only practices that increased yield growth and net cash returns and thus, the economic viability of growers, were systematic pruning and appropriate fertilization
- While certification did not positively impact net cash returns, there is evidence that it contributed to grower welfare in other ways:
- Children (especially girls) from households with access to certified markets achieved more years of schooling
- Certification norms address externalities of coffee growing by requiring the proper treatment of waste water from processing coffee cherries, which benefits downstream households (but not budget)
If citing please refer to the original article: “Economic Sustainability of Certified Coffee in Mexico and Peru.” World Development Volume 40, Issue 6, June 2012, Pages 1269–1279, Bradford L. Barham and Jeremy G. Weber