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 Group||Certified or Verified|
|−50% to 0||Count||28||36|
|0 to +50%||Count||17||29|
|+50% or more||Count||20||144|
|% Within project status||31%||69%|
|% Within project status||100%||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$734 per hectare (Table 6).
Table 6. Benefits from Portion of Production Increase and All Bonus Payments, Per Hectare, by Size of Coffee Area
|Coffee Area on Farm (Hectare)||Number of Cases||Mean of Farms Gross Benefits Per Hectare (US$)||Median of Farms Gross Benefits Per Hectare (US$)|
As noted in “Methods,” the aggregate figures, mean farm figures, and median farm figures vary considerably in discussing costs and return, and each may be of interest to a different reader. In this case, all the figures are in accord: the first year returns to the process of certification from a project perspective are strongly positive. If only the return due to price bonus were considered, then the returns are still positive (Table 7), though much reduced.
Table 7. Gross Increase in Income Versus Costs of Preparing for Certification, Per Hectare of Coffee, from The Perspective of a Planner or Project
|Type of Investment||Benefits Per Hectare Coffee (US$)||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 increase||From production increase||265||480||382|
|From certification bonus||191||254||188|
|Total costs to prepare for certification (all farms), including audit, technical assistance, and investment.|| ||132||112||170|
|Difference between gross increase (bonus and production increase) and investments, per hectare|| ||324||623||384|
|Difference between bonus only (with no production increase) and investments, per hectare|| ||59||143||19|
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).
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 certification||US$43|
|Processing and transport fees for the increased production due to certification||US$7.00|
|Total to achieve both production increase and bonus||US$140.82|
|Total to achieve only the bonus (no production increase)||US$90.82|
Taking into account these additional costs of US$140.82, the difference between the increased income experienced in our case and costs is still very positive, even in the first year (Table 9, scenario A).
Table 9. Commercial Farmer Perspective: Cash Flow Per Hectare of Coffee
|Type of Investment||Ratio of Total Benefit or Cost to Total Coffee Area (US$)||Mean Cost or Benefit Per Hectare Coffee of all Farms (US$)||Median Cost or Benefit Per Hectare Coffee of all Farms (US$)|
|Scenario A. Difference between gross increase per hectare (bonus and production increase) and investments||324||623||384|
|Additional costs from commercial perspective per hectare||141||141||141|
|Cash flow: gross increase (bonus and production increase)—additional costs||183||482||243|
|Scenario B. Difference between bonus only (with no production increase) and investments, per hectare||59||143||19|
|Additional costs from commercial perspective per hectare without achieving production increases||90.82||90.82||90.82|
|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.