The Value Of Coffee Certification
Friday, September 22nd, 2017
With most coffee certification schemes developed by northern-based businesses and NGOs, it is questionable whether these standards correspond to the preferences of coffee farmers in the south. Based on the preferences of farmers in Indonesia, sustainability certification of coffee is weakly institutionalised. By Muhammad Ibnu, Pieter Glasbergen and Astrid Offermans, Maastricht University, and Bustanul Arifin, Lampung University
Sustainability certification has been introduced as a governance model since the mid-1990s and regulates food production in Southern countries. Global certification programs address sustainability issues through the use of social, economic and environmental indicators as the basis for their standards. Combined with certification rules and codes of conduct, these global sustainability standards function as ‘non-state regulations’ that govern food supply chains.
Regarding coffee certification, there are numerous global certification schemes, including Rainforest alliance, UTZ certified, 4C, Organic, Fairtrade and Smithsonian Bird Friendly. Next to these global, voluntary and private certification initiatives are local certification schemes and public certification schemes.
What these standards have in common is that they attempt to cover the entire value chain from farmer to consumer and that their impacts on farmer’s livelihoods are heavily debated.
Many empirical studies have been conducted to analyse the impact of certification. Results, however, often seem to be contradictory, misleading and fluctuating between attributing positive effects to certification, attributing insignificant benefits, and attributing negative consequences on livelihoods due to certification.
Karthik Dwarakanath, Bangalore, India
Indonesia is the third largest coffee exporter in the world and the world’s second largest exporter of Robusta coffee. Notwithstanding its reputation as a Robusta exporter, only 25 percent of the certified Indonesian coffee covers Robusta coffee. The majority of certified coffee, 75 percent, is Arabica.
Organic, as a global certification scheme, was among the first schemes in the Indonesian (Arabica) coffee sector. It was implemented in Aceh in the 1990s and still covers the majority of certified, exported coffee from Indonesia.
The Indonesian Standard Coffee certificate (ISCoffee) was initiated by the Indonesian Ministry of Agriculture and implemented by the government. In the future, the government may require that Indonesian coffee producers are certified according to the national standard.
ISCoffee was not only triggered by the existence of global certification schemes, but also by the increase in domestic coffee consumption and emerging export markets, particularly the markets in Africa and Asia.
In 2013, 56 percent of total Indonesian coffee exports was targeted at these newly emerging markets and the Indonesian government wanted to attach a ‘national identity’ to the new coffee markets in the form of local (or national) certification.
Other local certification schemes that were not initiated by the Indonesian government have been established in Indonesia as well. For example, the INOFICE standard, managed by the Indonesian Organic Farming Infection and Certification Agency encompasses an organic certification scheme which refers to the National Standard of Indonesia.
The global coffee certification schemes that are present in Indonesia are developed by, and based on, the preferences of Northern consumers and implemented through multinational roasting companies and/or exporting firms.
The Indonesian farmers’ participation in the global certifications is mainly the result of the buyers’ requirements rather than the farmers’ interest. Reliable data on the smallholder farmers’ preferences for coffee certification programmes in Indonesia are currently not available.
Several studies suggest that understanding farmer’s preferences is vitally important to target a certification programme effectively, to design more acceptable programs, to choose the right strategies for improving farmers’ productivity and income, and to improve the pertinence of the programs.
Certification schemes, however, pay little to no attention to the role of farmer preferences in the formulation and adoption stage of standards. Perhaps as a consequence, most of these programmes reach their intended goals only partially.
If certification schemes do not correspond to farmer’s preferences, they may not be dedicated to comply with the certification principles, and some may even not be willing to participate.
The main research question is: What are Indonesian smallholders’ preferences regarding coffee certification schemes, and what characteristics does the most preferred scheme—according to their opinion—contain?
In A Farmer’s Shoes
In order to evaluate farmer preferences regarding the most preferred certification scheme, a conjoint analysis was conducted. Conjoint analysis is a powerful and robust method for understanding farmer preferences. It is a multivariate technique that is useful to examine trade-offs made by individual respondents when they are facing a range of options.
Conjoint analysis encompasses several iterative steps of (re)defining and verifying so called attributes, interpretations (or attribute levels) and profiles. An attribute is a characteristic inherent to the variable that will be measured.
The results of the conjoint analysis are twofold. First, it indicates the strength of the preferences for each attribute, or in other words, it reveals which attributes are considered most important in coffee certification schemes.
Second, the analysis offers utility (part-worth) scores and standard errors for each attribute level. These part-worth scores provide a quantitative degree of preferences for each attribute level; the larger these values, the greater the preference for the specific attribute level.
These two results combined, indicate which attributes are considered important and how the most preferred interpretation of these attributes look according to the smallholder farmers.
The most important attribute in the overall farmer preferences is the ‘price premium’ with a relative importance of 21.9 percent. Also highly preferred is the attribute of ‘environmental focus’ (14.1 percent) and ‘price differential between certified and uncertified coffee’ (13.1 percent).
The latter is particularly valued by INOFICE certified and uncertified farmers, whereas the global certified farmers attach more value to ‘the important goal’ (fairness or sustainability) of the certification scheme.
This means that price premium, environmental focus and price differentiation between certified and uncertified coffee beans are important certification attributes for most farmers and that a scheme’s focus is particularly important for globally certified farmers.
The attributes of ‘certification target’ (12 percent), ‘important goal’ (11.6 percent) and ‘price differential based on the coffee bean sizes’ (10.3 percent) all have an overall relative importance between 10 percent and 13 percent and can be interpreted as relatively important attributes in coffee certification.
At the bottom of the list are the attributes of ‘marketing schemes” (9.9 percent) and ‘credit option’ (seven percent), which can therefore, be considered less important in farmer’s preferences for coffee certification.
In general, the different farmer groups are rather comparable in terms of their preferences. The presence of a price premium is the most preferred attribute level with a utility score of +0.343.
Next, smallholders prefer environmental conservation, a price differential against uncertified coffee, farmer groups or cooperatives as target, emphasis on fairness, price differentials based on coffee bean sizes, no contract and no pre-finance.
The preferences for the attribute levels are very comparable across the respondent groups, except for the environmental-focus attribute. While all farmers prefer the attribute level of environmental conservation, the smallholders certified under INOFICE prefer organic input.
Further, where the global certified farmers prefer fairness over a price differential based on certified and uncertified coffee, this is opposite for uncertified and INOFICE farmers.
Related to the importance of the presence of a price premium, it was found that the poor farmers have a high expectation of the tangible economic benefits of the certification programs through a price premium.
They perceive the price premium as a reward for following, or complying with the activities and practices as required by the scheme. Interviews reveal that it was not only the price premium as such that was highly preferred, but also a more direct relation between the farmers and certificate holders to ultimately gain a stronger bargaining power and guaranteeing a (higher) price premium for the certified coffee beans.
Certifying For The Better
Currently, the global certified respondents hold no certificates themselves. Roasting companies and exporting firms (Nestle, NedCoffee, and Indo Cafco) hold the certificates because they pay the certification costs. The farmers have an indirect relationship with these certificate holders as they collectively or individually deliver their harvests to KUBEs (Kelompok Usaha Bersama).
KUBEs are joint business groups consisting of different producer groups that partner with a specific certificate holder and transport the coffee beans to the roasting companies or exporters after cleaning and drying the coffee beans.
This procedure results in lower prices for the farmers as around 30 percent of the premium prices goes to the KUBEs. Every transaction with exporters or roasters has to be conducted through KUBEs, although they also have relatively little bargaining power against the big buyers.
Within the INOFICE scheme, certificates are held by joint farmer groups called ‘Gabungan Kelompok Tani HuluHilir’, or Gapoktan Hulu Hilir, to whom the INOFICE farmers directly sell their coffee beans without the intervention of a KUBE. The uncertified smallholders commonly sell their coffee beans to local traders and local roasters with lesser requirements.
Farmers highly value the environmental focus of a certification scheme, in particular the focus on conservation. This can partly be explained by their understanding of conservation, namely beyond the coverage of forests, soil and biodiversity protection, and partly by their feeling of being connected to nature.
Regarding the former, farmers value the preservation of historical heritage such as the Inscription of Batu Bedil and the Megalithic Siteof Batu Gajah, and consider this to be part of the attribute of environmental conservation.
Regarding the latter, the interviews reveal that farmers feel strongly connected to nature. They realise that for their coffee farming practices, and therefore also their income, they depend on the state of the environment.
Price Versus Quality, And Fairness
Certified and uncertified respondents indicate a high preference for price differentials between certified and uncertified coffee. Their underlying reasons are nevertheless different.
On the one hand, the uncertified smallholders value their freedom to sell coffee to any buyer offering a high price or quick cash. Besides, if they manage to produce good quality coffee, they can sell this to the KUBEs and cash a higher price. According to them, coffee quality should be more important than whether the coffee is certified or not.
On the other hand, the INOFICE organic producers feel that they are participating in a certification programme which uses strict environmental criteria. The certification program should therefore give a significant price differential for their ‘exclusive’ coffee beans.
Surveys reveal that the INOFICE farmers obtain 3,000 rupiah (around US$0.225) per kg more than the prevailing local market price for uncertified coffee. This desire for gaining a financial reward for more exclusive coffee could also be recognised among the global certified farmers (although they only receive a financial reward of 200-300 rupiah per kg of coffee).
Fairness is an important issue for most respondents, especially for the global certified farmers. This can again be related to their indirect relationship with the certificate holders (roasters and exporters).
Farmers lack understanding on how prices are formulated by the certificate holders and—more importantly—have the feeling that they may not receive the prices they have the right to. The lack of negotiation opportunities contributed to lower trust and a feeling of unfairness.
Furthermore, the smallholders perceive a lack of transparency about the advantages and content of the certification programmes and the initiators behind these programmes, which generates doubts about the fairness of these programs as well.
Lastly, as being one of the most important actors within the certification scheme, the farmers consider it unfair that things are simply decided upon for them.
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