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Keywords:

  • shade-coffee;
  • biodiversity;
  • conservation;
  • farmers;
  • El Salvador

Abstract

  1. Top of page
  2. Abstract
  3. Introduction
  4. Context of This Study
  5. Methods
  6. Results: Farmer Investments to Achieve Certification
  7. Additional Costs: Audits and Technical Assistance to Support Certification
  8. Return on Investments for Certification
  9. Discussion and Conclusions
  10. Acknowledgments
  11. References Cited

Might the cost of certifying coffee farms limit the capacity of certification to cover a landscape and protect biodiversity? Gobbi simulated financial viability and Taylor and colleagues asked, “Does the premium pay off?” but there is little empirical evidence. In two years, a project in western El Salvador developed such data as farmers prepared for certification under Rainforest Alliance norms or verification for Starbuck's Coffee. On 45 sample farms, major investments were shade trees, soil/water conservation, and water supply for workers. At the aggregated or landscape level, investment on-farm cost US$77 per hectare of coffee. Further, it cost US$53 per hectare for audits and technical assistance, and more than US$30 for increased operating expenses. (Average figures per hectare across farms differed considerably: US$111 per hectare.) Returns in the first year of certification were price bonuses for certified coffee (US$191 per hectare at the aggregate level) and part of unexpectedly large production increases (US$265 per hectare, aggregate), totaling US$456 per hectare. (Average per hectare across farms gross benefits differed: US$734 per hectare.) More than half of the farms did very well with certification, even in the first year. A good market, low baseline productivity, unused productive capacity, and institutional support for extension and certification contributed. Bottom line: 300 farms were certified on 11,000 hectares covering one-third of a major coffee landscape and substantial aggregate investments in conservation. Comparative or follow-on data are needed for perspective on these results, to show if benefits were sustained, and to allow financial calculations.


Introduction

  1. Top of page
  2. Abstract
  3. Introduction
  4. Context of This Study
  5. Methods
  6. Results: Farmer Investments to Achieve Certification
  7. Additional Costs: Audits and Technical Assistance to Support Certification
  8. Return on Investments for Certification
  9. Discussion and Conclusions
  10. Acknowledgments
  11. References Cited

Certifying traditional, shade-grown coffee farms has the potential to maintain habitat for birds and other species by protecting shade tree cover and patches of natural habitat with a financial return to farmers who market environmentally friendly coffee (Perfecto et al. 1996). Assuming that shade coffee certification does protect canopy and biodiversity, the next question is the extent to which certification can protect a landscape. A typical coffee farm covers only a small area, unlike parks or other large units. For results at scale, perhaps connecting parks or other protected areas in biological corridors, many actors—farmers, processing plants, marketers, exporters, and certifying organizations—must achieve certification. Insofar as certification is a business decision, albeit one that focuses on sustainable operations more than on short-term profit, many farmers must perceive that they will be benefitted as business operators, not only as citizens interested in conservation. Do farmers make money in the short term when they get certified?1

In one of the few discussions of potential monetary costs and returns of certification, Gobbi (2000) raised the issue of financial viability. Using local opinion on costs and returns for organic production, he projected that most farmers would benefit from certification in the same area of El Salvador covered by this study. Others have questioned the results of certification. Taylor et al. (2007) asked, “Does the premium pay off?”Philpott et al. (2007, 2008) found no impact on yield or price in a study of organic and fair trade coffee in Chiapas cooperatives. Bacon et al. (2008) found coffee's contribution to livelihoods to be relatively minor, though they concluded that more general outcomes from certification were positive.

Despite these positive contributions, studies do not provide detailed empirical evidence of the returns to farmers. Gobbi used opinions of apparently well-informed people about the costs of certification. Lacking empirical information about the costs and returns of gaining certification, he suggested that capital requirements for certification would be low without specifying the actual investments that real farmers would make other than planting trees. He used premiums for organic certification to stand in for returns to shade-grown certification. We know that a farmer may have to invest in social works, conservation, and productive infrastructure to meet standards, apart from audit and technical assistance costs; more detail would be useful to project planners and farmers. On the return side, we know ideal or standard prices, but rarely hear what farmers actually realize.

This report covers the experience of farmers assisted by a development project in western El Salvador in 2007 and 2008 during the first half of a three-year USAID-financed effort to promote coffee certification (and other activities). It presents information on actual investments and other costs to achieve certification, and on changes in farm revenue in the first year of being certified, generally covering the same area that Gobbi (2000) wrote about.

In this case, both costs of investments and immediate returns to the process of gaining certification surpassed expectations, very much to the benefit of most, but not all, farmers. The main costs by far were the investments made for conservation and social benefits, not the cost of audits. Half or more of the return was because of improved farm management.

For the case study area in El Salvador, this report will answer the following questions:

  • 1
    How much did coffee farmers invest in conservation measures, social improvements, and productive infrastructure to prepare for successful certification or verification audits? What are the costs per hectare? Are they the same for large and small farms? For different kinds of certification?
  • 2
    What were the costs for technical assistance and audits to gain certification?
  • 3
    How much money did the certification process and institutional support generate for farmers and for the local population? In the first year of this project, how do changes in gross income compare to the costs associated with certification?

Context of This Study

  1. Top of page
  2. Abstract
  3. Introduction
  4. Context of This Study
  5. Methods
  6. Results: Farmer Investments to Achieve Certification
  7. Additional Costs: Audits and Technical Assistance to Support Certification
  8. Return on Investments for Certification
  9. Discussion and Conclusions
  10. Acknowledgments
  11. References Cited

The USAID Improved Management and Conservation of Critical Watersheds Project (hereafter, “the Project”) provides technical services for management of selected areas of high biodiversity importance in western El Salvador while promoting economic growth. El Salvador produces about 1 percent of the world's coffee, almost all of it shade-grown, and western El Salvador is a major coffee production area. The area has several of the main parks of the country with coffee in the buffer zones, and local nongovernmental organizations are already active in promoting certified coffee. So coffee certification fits well with the objectives of the project, as long as results can be achieved at the aggregate or landscape level. In the first year of the project (January–September 2007, with the harvest running from October 2007 to March 2008), project staff helped 209 farms covering 8,165 hectares to achieve Rainforest Alliance certification or Starbucks verification, including group certifications. There were 6,826 hectares of coffee on those farms generating exports of about 89,909 quintales. In the first six months of the second year of the project, the project helped 88 additional farms covering 3,596 hectares to achieve Rainforest Alliance certification (Table 1).

Table 1.  Participating Farms and Coffee Certification Results, by Year
ActivityHarvest 2007/08Harvest 2008/09
  1. Figures on this table and later tables may differ from those of earlier draft reports due to data review completed in April 2010.

Farms assisted for certification audits or to verify improved management209 farms88 additional farms
Producers assisted (owners including cooperative members)737 individuals (some farms have multiple owners); 522 men and 215 women153 additional individuals (some farms have multiple owners); 120 men and 33 women
Audits (Rainforest Alliance) or “verifications” (Starbucks) accomplished or assisted (These are field tests for individual farms or randomly selected representatives from groups of farms to determine regulation compliance, following Rainforest or Starbucks procedures.)Five Rainforest Alliance audits covering 38 farms Two Starbucks verifications covering 198 farms (27 farms had double certification)Four Rainforest Alliance audits covering 23 farms, and two audits of the custody chain in processing plants with clients from 2006/07. No Starbucks verifications.
Physical area of assisted farms (hectares)6,826 hectares coffee3,596 hectares coffee additional
8,165 hectares total farm, including coffee, forest, et cetera4,286 hectares total farm including coffee, forests, et cetera
Courses implemented concerning conservation and biodiversity12 events15 events
386 participants240 participants
Technical assistance visits to farms450 visits125 visits
Farmer estimate of production during harvest (subject to loss, sales other than export by exporter)100,705 quintales (10,070,500 pounds) potentially exportable coffeeNot applicable
Sales of specialty coffee by exporter records89,909 quintales (8,909,000 pounds) of certified specialty coffeeNot applicable

The farms discussed in this article are located in the project area, in buffer zones around El Imposible and Los Volcanes protected areas, or in the corridor between them. Several farms outside the project area were included as part of preexisting groups with member farms in the project area. Figure 1 shows the locations of assisted farms, altitude lines (1200+meters=high-altitude coffee; 800–1200 meters=mid–level coffee; 800–400 meters=low-level coffee), and officially protected natural areas. The coverage of points between the shaded protected areas is of particular interest as it shows how canopy preserved on certified farms helps to connect the protected areas.

image

Figure 1. Farms Participating in the USAID Project.

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Methods

  1. Top of page
  2. Abstract
  3. Introduction
  4. Context of This Study
  5. Methods
  6. Results: Farmer Investments to Achieve Certification
  7. Additional Costs: Audits and Technical Assistance to Support Certification
  8. Return on Investments for Certification
  9. Discussion and Conclusions
  10. Acknowledgments
  11. References Cited

Cost of Farmer Investments for Certification

Data on farmer costs to prepare for certification come from two years of the project, and the information on harvests comes from one harvest only. The coffee team started work in the field in January 2007. They assisted only a few farms to achieve certification for the 2006–07 harvest, and those costs are not tabulated for this report. The first harvest with substantial results was that of 2007–08, and this report draws on cost and return data for that cycle. The project assisted additional farmers in its second year, which would culminate in the 2008–09 harvest, and the cost data for a sample of those farms were included in the sample for this report when written; but the harvest data were not yet available when this analysis was done.

Data on Production and Investments

Harvest data were gathered from two sources: interviews with the 209 coffee farmers or their administrators and reports from the processing plants that bought their crop for exporters. Project staff interviewed owners or administrators for each farm and obtained reports from each exporter. The exporters provided data for volume and prices for groups of participating farms, considering the data on individual farms to be confidential. The aggregated farmer data are consistent with the exporter data with the following conditions: 7 percent of the weight of the farmer crop estimates was consumed in the milling process, and a small amount (4%) diverted to other buyers.2 This article uses the farmer interviews on production, the aggregated prices provided by the exporters for each group of farmers, and the figures for loss or diversion that result in consistent aggregate results. No attempt was made to verify the latter figure systematically beyond anecdotes as the issue is too sensitive and would not affect results very much.

The costs of preparing for audit or verification are from a sample of 45 farms, half certified in the 2007/08 cycle and half in 2008/09. This sample was selected opportunistically; it consists of the farms where project technical staff were providing extension assistance at the times when the project was gathering monitoring data. This is not a random sample, but neither was it selected in a manner intended to show a particular result. After interviews, farm owners or administrators provided written and signed reports of their investments before certification audits or verification of improved practices. Costs might be in the cycle when the farm achieved certification or in the preceding year, depending on the circumstances of each farm.

The cost data presented here are almost entirely for on-farm investments. Other studies may decide to consider some costs up the value chain, such as those for water treatment by processing plants. In this case, coffee processing plants had already made changes to sell certified coffee, so there was only one investment in a processing plant (for water storage). Were such costs to be considered, it would increase the overall cost of investing for certification.

Perspectives on Costs, Returns, and Average Costs

Any analysis of costs and benefits has to decide whose costs and whose benefits are to be included in the analysis. From the point of view of a planner interested in societal benefits, the appropriate point of view is that of the population affected by a project, including workers. From the point of view of a commercial farmer, wages are a cost, and the benefit of increased employment not considered. The small-scale owner–operator or a cooperative is an intermediate case.

This report discusses both perspectives. From the point of view of a project, the gross monetary impact of the certification process is the sum of the bonus paid at the time of sale (or a higher price paid for certified coffee if there is no explicit bonus) and part of any increased harvest related to preparation for certification. From the point of view of a commercial farmer, the costs of additional wages or other costs have to be subtracted from gross benefits.

This analysis concerns simple cashflow. It is not a financial analysis. It does not, for example, take into account the residual value of the improvements made to certifying farms. Most of those investments enhance the productive capacity of the farms, as well as their aesthetic quality and potential for other activities like agro-tourism. It is plausible that the social investments enhance the productivity and stability of workers as well. The conservation and biodiversity impact of certifying farms and community impact might be calculated as well.

This report presents information on the average costs and returns for all farms, the median cost and return, and the ratio of aggregate costs to aggregate returns. These are often quite different. If one's perspective is the watershed or landscape, then the aggregate cost per hectare or return per hectare may be of greatest interest, but if one's perspective is the sustainability of the farm, the average or median may be most important.

This report presents information on subpopulations of the cost sample (n=48) only when the differences are significant at the .10 level or less.

Technical Assistance Cost

A full accounting of costs to gain certification should include the cost of the technical assistance. In this case, it was mostly provided by the project, but would otherwise have to be paid by a farmer, and it might be a constraint on disseminating an otherwise promising innovation. For this article, these costs are estimated using project staff budgets and include overhead fees. Other actors relevant to certification have costs. The exporters and brokers who decided to assist certification made their technical staff available. Their costs were relatively low. The farmers and their administrators who supervised investments expended their time and other resources. For these factors, this project uses a simple plug figure of 10 percent of investments.

Increased Operating Costs

According to farmers consulted, the differences in costs between an uncertified and certified farm include the cost of increasing the number of full-time farm workers or managers. Further, there are costs that increase for some productive activities and costs in proportion to production increases (such as harvesting costs). A concerned cooperative has estimated costs for its members who are considering certified or organic production.

Control Group and Attribution of Impact

This report will present changes in production on certifying farms. How much of the change in production can be attributed to certification or the process of preparing for certification? To compare a non-certified group of farms with the group that achieved certification, this study uses farms that did not achieve certification but many of whom were interested in certification—they are the farms that worked with the project and achieved certification in the following year. Alternatively, at the beginning of the project, staff interviewed farmers to establish farm models to estimate the results of improved management on farms preparing for certification. Based on the farm models, 37 percent of projected increases in production would be a result of improved management. Based on the comparison between assisted farms and the control group, the part of the increase due to certification and project assistance would be much higher. Somewhat cautiously, this report uses an estimate of only 40 percent of the increased production as a result of improved management.

Human Subjects

Each farmer or exporter signed an agreement that information about their farm or company might be used for reports about general project results.

Results: Farmer Investments to Achieve Certification

  1. Top of page
  2. Abstract
  3. Introduction
  4. Context of This Study
  5. Methods
  6. Results: Farmer Investments to Achieve Certification
  7. Additional Costs: Audits and Technical Assistance to Support Certification
  8. Return on Investments for Certification
  9. Discussion and Conclusions
  10. Acknowledgments
  11. References Cited

The average of all farms for physical, on-farms investments to achieve certification, without considering the cost of audits and technical assistance, was US$111 per hectare of coffee and the median for all farms was US$76 per hectare (Table 2; n=43). The aggregate ratio of costs to coffee area was US$77 per hectare.

Table 2.  Summary of Costs of Investments to Prepare for Certification or Verification on Sample Farms,* Project Years 1 and 2
 Ratio Total Investment to Aggregate AreaAverage Investment Per Coffee HectareMedian Investment Per Coffee Hectare
  1. *n=48.

Social investments/farm areaUS$28/ha  
Social investments/coffee areaUS$43/haUS$53/ha coffeeUS$38/ha coffee
Conservation investments/farm areaUS$22/ha  
Conservation investments/coffee areaUS$34/haUS$58/ha coffeeUS$35/ha coffee
Total investment/farm areaUS$50/ha  
Total investment/coffee areaUS$77/haUS$111/ha coffeeUS$76/ha coffee

On-Farm Conservation Investments

Nearly half of the investments made in preparation for the audits were for on-farm conservation of soil and water (Table 3). More specifically, farmers invested for protection of springs and water sources; measures to increase water infiltration (which also slows erosion); check dams (barriers in gullies) made with branches; fences made of trees or other plants; terraces; other water control structures; conservation training for workers; and trees planted for shade or protection. In theory, such investments improve the farm and are part of sustainable production.

Table 3.  Details of Costs of Investments to Prepare for Certification or Verification on Sample Farms, Project Years 1 and 2
CategorySubtotal (%)SubheadingInvestment TypeInvestment as % of all Investments
  • a

    Several of these items could be classed in more than one category. For example, some of the training concerned conservation or environmental topics.

On-farm conservation44.8Conservation, waterProtect water sources0.9
  Water infiltration structure4.7
 Conservation, soilCheck dam with branches0.3
  Live fences15.2
  Terraces4.7
  Water control structures6.2
  Other0.5
 Conservation trainingConservation training for workers0.2
 TreesTree planting for shade, protection, et cetera12.0
Other environmental3.5Conservation of biodiversitySigns0.3
 Waste waterWaste water management1.4
 Environmental planEnvironmental plan1.3
 TrainingTraining, environmental0.0
 WasteWaste pit0.4
Processing plant investment0.8ProductiveWater storage0.8
Social50.9Potable waterWater analysis0.5
  Water supply for residents, workers7.0
 CommunityFestival or event3.2
  Health center1.2
  Other0.8
  School2.4
  Support for village committee0.1
  Transportation7.6
  Community water supply0.0
 EnergyWorker housing0.4
 HygieneLatrines0.3
  Shower or wash facility2.5
 HousingVarious housing7.3
 MedicalMedicine or health service6.4
 OtherCommunity services0.1
 TrainingTraininga2.9
 WasteCommunity pita0.3
 Working conditionsFix roof of storage5.0
  Protective gear2.4
  Signage for workersa0.6
Total of sample   100.0

Environmental Investments with Off-Farm Result

Minimal funds were spent for investments aimed at environmental results both on and off the farm. These include signs for conserving biodiversity, waste water management, environmental planning, training workers in environmental actions, and waste pits. Unlike the purely on-farm conservation investments, these investments have relatively little return to the farmer but large returns downstream.

Social Investments

Half of the investments made in preparation for audits were for potable water supplies (analysis of drinking water, improved supplies of water on-farm), community improvements (festivals or events, health center, road maintenance, schools, financial support for a community, transportation of people, or community water supplies), improved housing for workers, hygiene (latrines, showers, washing facilities), medical services or supplies, training, community waste pits, or improved working conditions (especially for storage of agrochemicals, protective gear, and signage for workers). Such investments are good for workers and should benefit the farm as a whole by providing a healthier work force.

These broad headings may be less interesting than more specific investments, some of which might be interpreted as intermediate between the broader classes (Table 3).

Average and median costs per hectare in the first and second year of the project were rather stable. Small farms (less than 100 hectares) certified by Rainforest Alliance and those verified for Starbucks coffee had similar per hectare costs. The province in which the farm was found was not a predictor of costs. The greatest difference in costs per hectare of coffee was between large and small farms, reflecting economies of scale. The cost for larger farms was US$74 per hectare and the cost for smaller farms was US$119 per hectare (Table 4; F 2.75, significant at the 10 percent level using analysis of variance).

Table 4.  Average Costs to Prepare for Certification or Verification in Year Leading to Successful Audit
Type of InvestmentLarge (>100 Hectares) Farms Average Cost Per Hectare Coffee (US$)Small and Medium (<100 Hectares) Farms Average Cost Per Hectare Coffee (US$)All Farms, Average Cost Per Hectare Coffee (US$)
  1. *Rainforest Alliance charges for use of its seal to sell to others, but Starbucks, which is the buyer, does not. The analysis assumes that Starbucks builds its costs into calculation of the price it offers.

  2. **There may be economies of scale for larger farms, but we do not have the evidence.

Investment in on-farm conservation and other environmental measures42.261.258.1
Investment in social measures31.757.753.4
Subtotal74.0119.0111.5
Audit costs (approximate)2.004.003.00
Projected payments for use of seal*7.57.57.5
Technical assistance project costs, including vehicles, supervision, and overhead**36.6536.6536.65
Farmer, broker costs at 10% of investments7.4011.9011.15
Total127.5179.0169.8

Additional Costs: Audits and Technical Assistance to Support Certification

  1. Top of page
  2. Abstract
  3. Introduction
  4. Context of This Study
  5. Methods
  6. Results: Farmer Investments to Achieve Certification
  7. Additional Costs: Audits and Technical Assistance to Support Certification
  8. Return on Investments for Certification
  9. Discussion and Conclusions
  10. Acknowledgments
  11. References Cited

In addition to the investments made by farmers, each would have to pay the cost of an audit to achieve certification or verification. Audit costs differ from farm to farm because of the time involved and the efficiency of the auditor. Some actual cases were from US$0.50 per hectare to US$5.36 per hectare for Starbucks Coffee CAFÉ practices verification and up to US$3.61 per hectare for Rainforest Alliance audits. There are substantial economies of scale. Representative costs could be US$2.00 per hectare for a larger farm and US$4.00 for a smaller farm after including a discount that recognizes project support for farms.

In addition, Rainforest Alliance charges US$7.50 per hectare for use of its seal. Starbucks Coffee builds its costs into the price that is paid to the farmer. For this exercise, we will take the Rainforest Alliance costs as indicative.

The USAID project paid the cost of field extensionists (with salary, benefits, and overhead), training events, publications, transportation (fuel and purchase of vehicles), overnight costs (hotel and per diems), supervision, and all the indirect costs charged by implementing organizations. The budgets for the two project extension staff, one coordinator/trainer, and one certification auditor who assisted coffee producers to prepare for certification audits or verification of improvements are reported here. The project extension staff helped farmers to improve farm management, at the same time as they helped prepare for certification.

The farmer and his administrator who supervises investments expend their time and other resources. For these factors, this project uses a simple plug figure of 10 percent of investments.

The total cost to achieve certification is the sum of the farmer's investment cost, audit costs, payments for use of the certification seal, technical assistance costs (whether paid by a farmer or by a project), and the costs to administer improvements to the farm (Table 4). The average total cost to prepare for certification or verification, including project costs, was about US$170 per hectare for all farms. For the larger-scale farmers, the average was US$128 per hectare, and somewhat higher (US$179) for small- and medium-scale farmers.

Return on Investments for Certification

  1. Top of page
  2. Abstract
  3. Introduction
  4. Context of This Study
  5. Methods
  6. Results: Farmer Investments to Achieve Certification
  7. Additional Costs: Audits and Technical Assistance to Support Certification
  8. Return on Investments for Certification
  9. Discussion and Conclusions
  10. Acknowledgments
  11. References Cited

Returns from the Population Perspective (Bonuses and Production Increases Compared with Certain Costs)

From the point of view of a project that sees increased wages as a benefit, the gross monetary impact of the certification process is the sum of the bonus paid at the time of sale (or a higher price paid for certified coffee if there is no explicit bonus) and part of any increased harvest related to preparation for certification.

On the average, the 209 sellers who achieved certification in the first year of the project achieved an average bonus of US$13.23 per quintal of exported coffee and a total of US$1,305,000 from bonus prices. The figures used for bonuses or price premiums in this report are based on actual sales, often in advance of the harvest.3 There was some volatility in the bonuses. At the end of the season, the price of generic coffee had risen and the willingness of buyers to pay a bonus had decreased. Before the harvest began, the value of the bonus was US$10–US$25 per quintal. But by the end of the harvest, when world coffee prices rose and producers were getting US$140 per quintal or more, bonuses were close to non-existent (Table 5).

Table 5.  Increased Full Production from Baseline to Year of Certification, by Participation in Certification*
Change (%) Control GroupCertified or Verified
  1. *Based on farmers' reports of total production; excludes farms that claimed no production in baseline.

−50% to 0Count2836
%43%17%
0 to +50%Count1729
%26%14%
+50% or moreCount20144
% Within project status31%69%
TotalCount65209
% Within project status100%100%

In this case and in the year considered, the positive impact of the process leading up to certification turned out to be as important as the bonuses. Many farms improved their administration and the harvest that they achieved. Preparations for certification include gathering and organizing farm records, making sketch maps of the farm, and discussing operations. Improvements that lead to short-term increases in production included better agricultural practices, integrated pest management, more use of (largely organic) fertilizers, better organization of the harvest, and more complete harvest.

Using the data provided by farmers and administrators, the farms that achieved certification in the first year of the project increased their yields between 2006/07 and 2007/08 from 7.8 quintals per hectare, a low yield, to 14.8 quintals per hectare, a gross increase of 89 percent. The control group—with much less project assistance at that stage—increased its harvest volume by 25 percent over the same period, on the average. National production was increasing as coffee prices rebounded from a crisis. To further check this result, project staff reviewed production figures provided by coffee exporters for 2007/08. Exporters have data because they often advance funds to producers, so production is of interest. Five of six exporters provided data that sum to totals that do not differ from the farmers' data substantially. One large exporter had figures that were much lower than the farmers' figures. Even using the exporters' data, the harvest increased by 48 percent—much less, but still very impressive. Still, because of the special factors in this case—recovery from low prices and natural recuperation from the eruption of the Santa Ana Volcano in particular—this report only uses 40 percent of the gross differences between harvests to compare costs and returns of certification (as noted in “Methods”).

Applying the decision to count only 40 percent of changes in production as due to process of preparing for certification, including the technical assistance provided for production, the increase in harvest from 2006/07 to 2007/08 on certifying farms resulted in 16,147 quintals of coffee with a value of US$1,805,946 at prices that do not include the certification bonus, and the aggregate impact of production changes is greater than the income from bonus prices—in this particular case and year.

What about variation among farms? Of the 209 certified farms considered for this report, 69 percent increased their production by 50 percent or more (using the total increase in production, not just the 40 percent) (Table 5). Some had small decreases (probably due to the severe winds during the harvest that affected the harvest and took off enough leaves to affect the next harvest), and 17 percent lowered their harvest. In contrast, 43 percent of the control group had lower harvests, and only 31 percent increased their harvest by more than 50 percent.

The average total increased income experienced by certifying farms, including bonus prices and a portion of sales of increased production, was US$734 per hectare (Table 6).

Table 6.  Benefits from Portion of Production Increase and All Bonus Payments, Per Hectare, by Size of Coffee Area
Coffee Area on Farm (Hectare)Number of CasesMean of Farms Gross Benefits Per Hectare (US$)Median of Farms Gross Benefits Per Hectare (US$)
1–4.9641,104817
5.0–19.961562553
20–49.962678480
50+23330264
All farms209734553

As noted in “Methods,” the aggregate figures, mean farm figures, and median farm figures vary considerably in discussing costs and return, and each may be of interest to a different reader. In this case, all the figures are in accord: the first year returns to the process of certification from a project perspective are strongly positive. If only the return due to price bonus were considered, then the returns are still positive (Table 7), though much reduced.

Table 7.  Gross Increase in Income Versus Costs of Preparing for Certification, Per Hectare of Coffee, from The Perspective of a Planner or Project
Type of InvestmentBenefits Per Hectare Coffee (US$)Ratio of Total Benefit or Cost to Total Coffee Area (US$)Mean Cost or Benefit Per Hectare Coffee of all Farms (US$)Median Cost or Benefit Per Hectare Coffee of all Farms (US$)
Gross increase in income: certification bonus and harvest increaseFrom production increase265480382
From certification bonus191254188
Both456734553
Total costs to prepare for certification (all farms), including audit, technical assistance, and investment. 132112170
Difference between gross increase (bonus and production increase) and investments, per hectare 324623384
Difference between bonus only (with no production increase) and investments, per hectare 5914319

A Case History

A case history gives additional perspective on how such large increases could be possible. One of the groups that obtained certification is a land reform cooperative, having more than 5,000 people living within the cooperative's borders, according to its recent census. The cooperative was founded in 1980 as part of the country's agrarian reform. It had about 800 members and 3,500 hectares of land. Today, the cooperative has 350 active members with 160 retirees. Its land area is now 2,200 hectares, 1,500 of which are dedicated to coffee production and 400 to sugar cane (for domestic markets) and other crops. The coop provides full or part time employment to several thousand people who work the farms or in its processing plant (Figure 2).

image

Figure 2. Coffee processing at cooperative, a major source of employment.

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The cooperative began preparing for Rainforest Alliance certification in 2001. In 2004, it was audited but unsuccessful. Though disappointed, toward the end of 2006 there was a shift in leadership and its interest in certification was rekindled.

With technical assistance, the cooperative took actions to comply with the new (and stricter) standards for certification, including the prohibition on agricultural burning of sugar cane. The cooperative introduced no-burn varieties of sugar cane on 48 hectares. The new varieties drop most of their leaves at harvest time, so the farm will not burn those fields. The coop established a management plan to expand the use of these varieties each year so that in five years it would replace the old variety and agricultural burning will cease.

With technical assistance, the cooperative held a two-day, participatory spatial planning event, at which time the administration found that some coffee-producing areas had not been harvested the preceding year, and they noted a small forest of planted trees that required a management plan. They decided to plant more trees to increase shade coverage and stabilize roadsides.

In the fall of 2007, the cooperative passed its audit, with official notification in early 2008. Because notification of certification took so long, the cooperative did not sell its harvest as certified that year.

With a new management plan, the cooperative planned to harvest the area overlooked previously and obtained financing. Consequently, the harvest for 2007/08 increased by 4,000 quintals, with a value above US$400,000. This case is unusual, but other farms were recuperating from a period of low prices and external shock from the Santa Ana Volcano eruption. Even without this case, the extraordinary increases reported for the 209 farms remain the same.

This report considers the balance of costs and returns from two perspectives: that of a planner interested in broad benefits including wages to low-income farm workers (as a benefit to them, not a cost) and that of a private farmer (for whom wages to non-family are a cost).

From the perspective of a planner, the increased gross income to farms resulting from certification and preparation for certification was much higher than the costs of preparing for certification. For small farms, the balance was closer, but still positive.

Returns from the Commercial Farmer Perspective (Wages Counted as a Cost)

This report began with issue of profitability to owners in the short term as an incentive or brake on covering a landscape with certified farms. Using the estimates of a concerned cooperative (see “Methods”) and standard harvest costs, the difference between costs per hectare on a certified farm and a regular farm is US$140.82 (Table 8; since this report only counts 40 percent of increased production as a result of certification, it will also report only 40 percent of the variable costs). If the farm achieves no production gains, then its variable costs are less (US$90.82).

Table 8.  Additional Costs to Farmers Certifying, Per Hectare, from The Perspective of a Private Farmer
 Difference Between Certified and Generic Farm, Per Hectare
Full-time workers (100%)US$32
Variable costs per hectare
Labor for production of the increase due to certification (40%)US$14.25 (40%)
Inputs contributing to the increase due to certification (40%)US$44.57 (40%)
Harvest of the increased production due to certificationUS$43
Processing and transport fees for the increased production due to certificationUS$7.00
Total to achieve both production increase and bonusUS$140.82
Total to achieve only the bonus (no production increase)US$90.82

Taking into account these additional costs of US$140.82, the difference between the increased income experienced in our case and costs is still very positive, even in the first year (Table 9, scenario A).

Table 9.  Commercial Farmer Perspective: Cash Flow Per Hectare of Coffee
Type of InvestmentRatio of Total Benefit or Cost to Total Coffee Area (US$)Mean Cost or Benefit Per Hectare Coffee of all Farms (US$)Median Cost or Benefit Per Hectare Coffee of all Farms (US$)
Scenario A. Difference between gross increase per hectare (bonus and production increase) and investments324623384
Additional costs from commercial perspective per hectare141141141
Cash flow: gross increase (bonus and production increase)—additional costs183482243
Scenario B. Difference between bonus only (with no production increase) and investments, per hectare5914319
Additional costs from commercial perspective per hectare without achieving production increases90.8290.8290.82
Cash flow: gross increase of bonus alone with half of some variable costs−(31.82)52.18−(71.82)

But what if we consider only the return from the price bonus (Table 9, scenario B)? The increased variable costs are less because there is less coffee to harvest. The average commercial farmer still covers the costs of certification and a bit more, and probably the situation is even more positive in the second year. Yet the median case is not positive in the first year. Certification is still likely to be a good deal even then, but we do not have the striking situation of an investment leading to such a positive cash flow in the first year.

How Many Did Well? How Many Did Less Well?

We have developed the information on the investments to achieve certification, additional costs, returns from bonus prices, returns from increased productivity, and the balances between costs and returns in the first year of certification, from the perspectives of a population and a commercial farmer. This allows a simple calculation of the balance between costs and returns in the first year of individual farmers' certification (Table 10). More than half of farmers achieved positive cash flow in the first year from the perspectives of the population as a whole or of a commercial enterprise.

Table 10.  The Bottom Line: Estimate of Farms' Cash Flow after One Year, from Project and Commercial Farmer Perspective
 Project PerspectivePercentMedian Cash Flow, Project PerspectiveCommercial Farmer PerspectivePercentMedian Gain or Loss, Commercial Perspective
Negative cash flow, more than US$−5004120US$−2,7156933US$−3,807
Little change cash flow (−499 to US$+499)2411US$−28199US$+171
Positive cash flow, more than US$+50014469US$+4,71712158US$+3,839
Total209100US$+2,389209100US$+1,014

Discussion and Conclusions

  1. Top of page
  2. Abstract
  3. Introduction
  4. Context of This Study
  5. Methods
  6. Results: Farmer Investments to Achieve Certification
  7. Additional Costs: Audits and Technical Assistance to Support Certification
  8. Return on Investments for Certification
  9. Discussion and Conclusions
  10. Acknowledgments
  11. References Cited
  • 1
    With assistance from a development project, farmers in western El Salvador substantially expanded the area of farms that are certified or have verified improvements. On the average, price bonuses for certified coffee and a portion of increased production after just one year covered the cost of investments to achieve certification and the increased farmer costs. From the point of view of the population of the project area, certification was highly advantageous because it generated income and stimulated conservation measures. From the point of view of most of the private farmers, the results of the certification process more than covered costs. In addition, the program led farmers to improve their farms with better conservation of resources and better facilities for workers. The land reform cooperatives benefitted doubly, because cooperative staff value generation of employment for members, and they increased income for the cooperative to pay debt, for example.
  • 2
    The improvements required for certification may generate benefits for many years, and their costs could be amortized over a long period. That would facilitate more complete analysis of costs and returns. But one year's data are insufficient to generate costs and returns to calculate a rate of return, and one of the lessons from this case is that costs and returns can develop in unexpected ways.
  • 3
    Certification of coffee farms was an effective way to generate funds for on-farm measures to enhance soil and water conservation and social investments that are intended to improve quality of life. The process generated >US$500,000 in conservation and social measures funded by farmers, exporters, coffee importers, and consumers. In this case, project beneficiaries invested more in conservation and social improvements than the development project spent, even including indirect costs. Insofar as there is an environmental service being provided (support for agricultural production, receipt of waste, perception of biodiversity, aesthetic) and a payment by consumers for those services, this could be considered a payment for environmental services.
  • 4
    The bonuses for certified coffee were nearly half of total benefits to farmers and increased production (probably due to improved management) was the other half. There were certainly special conditions at work here, such as low productivity in the baseline period, and such increases should not be expected everywhere or always. We need more information to judge how common productivity gains are.
  • 5
    Both larger farms and smaller farms did very well from this experience. Smaller farms had larger costs per hectare for certification, but they also increased productivity to compensate. Small farms also benefitted from being grouped for certification or verification. Poor people benefitted substantially as owners of land reform cooperatives, as workers (farmers, harvesters, processing plant workers) and as small-scale farmers; but it should be noted that El Salvador has less of the extremely marginal farmers that are found in some neighboring countries.
  • 6
    In the first two years of the project, the area of certified farms has increased by more than 12,000 hectares (of which 10,000 is under coffee, with remnant forest on part of the rest), or about 35 percent of the total area under coffee in the project area, contributing to conservation goals, specifically linking parks and protected areas.

Project planners may note that several factors led to success in certifying a substantial number of farms:

  • Farmers were already aware of certification because some neighbors had been certified by SalvaNATURA/Rainforest Alliance or were selling to Starbucks Coffee, and they had some knowledge of the general kinds of investments required to achieve it. A few farms had been certified, but had lost certification. Several land reform cooperatives in the area had been trying unsuccessfully to certify; when one succeeded, it added greatly to the area certified.
  • The strategy of combining production technical assistance with preparation for audits worked out very well for farmers. The USAID project to promote conservation worked at the field level to assist farmers interested in certifying their coffee farms without charging farmers for the service. The supportive role of the extension agents was clearly distinguished from the neutral role of auditor. Project staff worked very well. They stayed in the field most nights of the week. They had sufficient transportation and funds for living expenses in the project area.
  • Most farmers were enthusiastically cooperative. Both wealthy and low-income farmers tend to be affiliated with a cooperative or exporter in El Salvador. The project contacted farmers via exporters (companies or cooperatives) that had already sold certified coffee and thought they could sell more. The staff of the exporters told established farmer-suppliers that they were interested in certified coffee. This made outreach to farmers very efficient.
  • Both Rainforest Alliance and Starbucks now accept group certification or verification, under which they require audits for only a sample of farms. Before the USAID project, both had developed relations with institutions able to do audits and promote certification within the project area. Local NGOs were knowledgeable and ready to take on this role.
  • There was good weather for coffee production, except the extraordinary windstorms during the coffee harvest (December 2007 and January 2008). During the period covered by this study, farms continued to recover from the effects of the Santa Ana Volcano eruption of 2005. Farmers were emerging from a period of low-to-moderate coffee prices. The net result was that farms had excess production capacity and improved management resulted in gains within a single year.
  • Continuing project monitoring will develop new information to answer several questions: Will same-farm investments decline? Will the new farms preparing for certification invest at the surprisingly high rates seen so far? Will the yield increases achieved be replicated among new farms, and will same-farm yields grow, since even the current improved yields are well below potential? As more buyers compete for certified coffee, will the bonus for certified coffee increase substantially? When the project is complete, it should generate information on investment during three years and two harvests, and estimate harvests for the third year. If the first year is an indication, the next report should show novel, unexpected results. But one hopes that the larger conclusion remains unchanged: certification can cover a landscape when conditions are right.

Acknowledgments

  1. Top of page
  2. Abstract
  3. Introduction
  4. Context of This Study
  5. Methods
  6. Results: Farmer Investments to Achieve Certification
  7. Additional Costs: Audits and Technical Assistance to Support Certification
  8. Return on Investments for Certification
  9. Discussion and Conclusions
  10. Acknowledgments
  11. References Cited

The project implementation team is led by Development Alternatives. working in association with non-governmental organizations and subcontractors SalvaNATURA, CLUSA–El Salvador, the Academy for Educational Development, EplerWood International, and Social Impact. The project has two principal components: Conservation of Biodiversity and Increased Income from Environmentally Sustainable Activities and Services.

Steven Romanoff authored an unpublished report covering some of the material presented here in October 2008 for USAID under the title “Shade Coffee in Biological Corridors: Potential Results at the Landscape Level in El Salvador.” A slide show on these results was presented at a conference sponsored by Nespresso. The current report uses the same data but after the project conducted a quality review, so specific figures differ, though the conclusions do not. From November 2006 to February 2009 he directed the IMCCW project and undertook various technical and monitoring studies.

Staff of the USAID Improved Management and Conservation of Critical Watersheds project contributed to that report. Moises Ernesto Cerritos of DAI collected the information on conservation investments and processed the data. Edgardo Molina of DAI and Ricardo Mejia, Salvador Flores Klee, and Luciano Magaña, all of SalvaNATURA developed the data on coffee production. The report benefitted from detailed review and comments by Oliver Komar of SalvaNATURA. Marvin Dreyer of Social Impact at that time contributed expertise to development of the project monitoring system, reviewed the use of data on coffee sales for participating farms and the control group, and reviewed the project monitoring system in 2009 and 2010. Mary Latino de Rodriguez of USAID reviewed a draft of the original report to USAID and suggested edits. An abstract of that report was published in the Mesoamerican Biological Congress held in San Salvador in November 2008.

The author's views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development, the United States Government, or Development Alternatives.

Notes
  1. 1. For this report, “certification” refers to internationally sanctioned certification of coffee farms by Rainforest Alliance (RA), “verification” of improved practices under CAFÉ Practices for sales to Starbucks Coffee Company, and any other program that requires preservation of shade cover with verification, such as certain organic certifications. Participation in Fair Trade is not considered, since that program does not require shade cover. Sale of “gourmet” coffee in El Salvador is not considered, as there is no formal verification program.

  2. 2. An earlier version of this paper presented at a Nespresso conference in 2009 used data on 183 of the 209 farms. Further, the project audited its monitoring data in late 2009. While figures in this article change somewhat from the earlier version, the conclusions do not.

  3. 3. Starbucks Coffee does not pay an explicit bonus but its buyers do calculate prices taking into account the market and the equivalent of bonuses.

References Cited

  1. Top of page
  2. Abstract
  3. Introduction
  4. Context of This Study
  5. Methods
  6. Results: Farmer Investments to Achieve Certification
  7. Additional Costs: Audits and Technical Assistance to Support Certification
  8. Return on Investments for Certification
  9. Discussion and Conclusions
  10. Acknowledgments
  11. References Cited
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