Speaker
Description
KEYWORDS: Voluntary Sustainability Standards; Institutional context; Producer welfare; Cocoa; Indonesia
Introduction
Although voluntary sustainability standards (VSS) promise to deliver improved sustainability outcomes, recent review studies (1-3) reveal that socio-economic outcomes of VSS are ambiguous and that contextual factors are key in determining the sustainability impacts of certification. Impacts not only differ between VSS and crops, but also critically depend on the institutional and economic environment, such as prevailing livelihood situations, market structures, and cooperative or farmer group organization. Yet, the existing impact literature is strongly biased towards two VSS (Fairtrade and organic certification), one crop (coffee), and the Latin-American and African continents (2-4). In addition, only a small number of studies explicitly examine the role of contextual factors in shaping VSS outcomes. Some studies compare sustainability outcomes over different certification schemes in a single setting (e.g.5-7), while others examine the impact of a single VSS over different settings (countries and/or crops) (e.g.8-10). Institutional factors influencing certification outcomes are most often disregarded or ill-described (2). At the same time, scholars (11,12) argue that the operationalization of VSS influences standard compliance by producers, and as a result, their outcomes. Although many VSS set out specific rules on training, audits, and/or premium payments, the ‘operators’ who implement a VSS certificate might differ in capacities and interests, and as a result, the operationalization of a single VSS might differ substantively between different certification schemes. Yet, the heterogeneous effect of VSS operationalization has slipped empirical attention till date.
Objective
In this paper, we investigate how the operationalization of VSS shape their effectiveness in delivering improved welfare effects. To do so, we study the impact of two VSS, Rainforest Alliance (RA) and Cocoa Life (CL), on different economic performance indicators for cocoa producers in South-Sulawesi, Indonesia. We exploit the fact that the regional cocoa sector is dominated by four multinational food-processing companies, each of which institute a VSS scheme as part of their sustainability program. Mars, Cargill, and OFI operate RA certification schemes (hereafter A/B/C-RA), albeit operationalized differently; while Barry Callebaut implements a Cocoa Life program, Mondelez’ in-house VSS (hereafter D-CL).
Our contribution to the VSS-literature is two-fold. First, we expand the evidence base of the VSS impact literature by covering two VSS that are under-represented in the impact literature in a sector and region that also have received relatively little attention. Second, we look at VSS operationalization as a new source of institutional heterogeneity shaping sustainability outcomes of VSS.
Method
We use a mixed methods approach. We rely on primary survey data from 598 cocoa producers in three districts in South-Sulawesi, collected between October and December 2022. We applied a purposive sampling strategy that allows us to identify heterogeneous effects between four VSS operationalization schemes. We empirically investigate how the effect of VSS certification for producers differs between certification schemes, in terms of intermediate (cocoa yields, prices, and costs per hectare) and final economic performance indicators (cocoa income, return to land and household labor, and total and per adult equivalent household income). We study the overall impact of VSS certification, not distinguishing by certification scheme, as well as the heterogeneous impact over the different VSS schemes. We control for endogeneity issues, arising from (unobservable) selection bias and reverse causality, using an inverse-probability-weighted regression-adjustment estimator and heteroskedasticity-based internal instruments (Lewbel, 2012). We complement this quantitative data with qualitative data, collected through over 50 key-informant interviews and four focus group discussions with certified producers, to investigate how the operationalization differs between the four VSS schemes.
Findings
Despite finding some evidence supporting improved price effects, overall certification, not distinguishing by VSS scheme, does not seem to carry any significant income, nor yield or cost effects. However, these insignificant overall effects hide heterogenous effects by VSS scheme. At the intermediate welfare level, we find a significant positive yield effect of certification under the B-RA scheme, a positive cost effect for the A-RA certification scheme, while certification under the A-RA, B-RA and D-CL seem to yield improved price effects. However, when controlling for the form of sale (wet vs dry) this increased price effect only remains for the B-RA scheme.
Further towards the final welfare indicators, we note that these intermediate effects carry limited income effects. We only find significant positive effects of certification on cocoa income and return to land under the B-RA scheme. Yet, this increased cocoa income effect does not translate to improved return to household labor, signaling increased labor requirements, nor to improved household income effects.
Interviews revealed that the increased price effect under the B-RA could potentially be attributed to the fact that the B-RA operator pays certified producers the required RA price premium in cash while under the A-RA and C-RA premiums are (most often) paid in kind. Surprisingly, in-kind premiums under A-RA are linked to increased costs. Although all operators organize (at least) yearly group training and one-to-one coaching sessions – often focused on GAP practices - , these only seem to improve yields under the B-RA scheme. One notable difference between the schemes is that B-RA outsources its training program to a specialized company with strong roots in the region. This intermediary structure might be more effective in transferring knowledge to producers compared to the training operationalization in the other VSS schemes, which rely on their own field staff and more cascading learning structures.
Conclusions
We draw two main conclusions. First, we highlight the importance of the operationalization of VSS for their sustainability outcomes as even for a single VSS, standard operationalization differs substantially, shaping economic certification implications for producers differently. Our findings emphasize the responsibility of companies in generating improved sustainability outcomes in certification schemes by way of advantageous VSS operationalization. Secondly, although intermediate welfare improvements are found, the potential of certification in the Indonesian cocoa sector to improve producer welfare seems limited, while conversion of cocoa plantations to other land uses is increasing. If processor companies want to secure a steady supply of cocoa beans, more structural change, beyond certification, is required.
