Sustainability certification is big business for cash crops all around the world. When it comes to coffee, for example, Indonesia exports around 47,000 tons of certified coffee annually with an estimated value of US$ 91,000,000. Depending on the scheme, certification promises premium prices, training and investments in infrastructure or agricultural equipment, with the idea of improving the livelihoods of smallholders. However, the benefits to Indonesia's farmers appear marginal.
In 2015, a four-day workshop, organized by the International Centre for Integrated Assessment and Sustainable Development (ICIS), Maastricht University, and funded by the Royal Netherlands Academy of Arts and Sciences (KNAW) and Indonesia's Directorate General of Higher Education (DIKTI), brought together a number of Indonesian and Dutch experts on the matter. Participants shared insightful and interesting ideas about the pitfalls and successes of private and public certification and agreed that more needs to be done to improve the certification process and ensure farmers reap the rewards.
From the 1980s, non-governmental organizations (NGOs) and businesses from the Global North began to set voluntary private standards to regulate crop production in the Global South. The intention was to increase the sustainability of production through contributing to safer, environmentally friendly and more efficient agricultural practices. The development of certification schemes followed a steep growth curve and, currently, we see around 465 eco-label schemes in 199 countries, covering 25 industries, including agriculture (www.ecolabelindex.com). In the ICIS research programme “Global Certifying Partnerships: A Southern Perspective”, there is explicit focus on certification of cash crops. Examples include the certification of coffee (UTZ certified, Fairtrade, 4C, Coffee and Farmer Equity (CAFÉ) practices, Rainforest Alliance), palm oil (Roundtable on Sustainable Palm Oil (RSPO)), and cocoa (Sustainable Agriculture Network (SAN), UTZ certified, Fairtrade).
Sustainability standards for these cash-crop schemes range from factors such as ending child labour to the construction of wastewater ponds, to limiting the use of pesticides and fertilizer. The standards are generally accompanied by education and training programmes for farmers.
The impact of these standards on smallholders is ambiguous, but research reveals moderately positive effects on the environment and farmers' health. Certified farmers also receive slightly higher prices for their products compared to uncertified farmers. However, in other ways, farmers remain vulnerable. Around 90 per cent of the 1.24 million hectares of coffee plantations in
Indonesia are owned and cultivated by smallholders. These smallholders generally own plots of 1-2 ha and often face economic hardship. Farmers are sometimes in debt and their incomplete understanding of market pricing and price-setting mechanisms, as well as their limited access to markets, puts them in a weak position (Hidayat et al., 2015).
ICIS's research results reveal that under certification schemes, profits to farmers do not increase significantly because certification involves higher costs. Also, the slightly higher farmgate prices result from improvements in the quality of the products rather than from the certificate (Sri Astuti et al., 2015). Most Indonesian smallholders still do not participate in any certification scheme.
The Government's response
The growing number of certification schemes also implies that the Indonesian Government is increasingly confronted with Northern-based initiatives to regulate the production of Indonesian crops. The proliferation of different certification initiatives and standards has brought confusion.
The Government is also sensitive to how global certification schemes impact on Indonesia's sovereignty over its own agricultural markets and on their dependency on foreign powers (Wijaya and Glasbergen, 2016).
According to Atika Wijaya from ICIS, liberalization of the agricultural market that accompanied reformasi initially encouraged the Government to adopt a passive attitude towards the standards and leave implementation to the market and private actors. However, the Indonesian Government has become increasingly active. In response to RSPO, the Minister for Agriculture issued Law No. 19/2011, which instituted a national standard, Indonesian Sustainable Palm Oil (ISPO). The goal was to reach more smallholders and increase the competitiveness of Indonesian palm oil in the global market. Similar initiatives can be observed for cocoa and coffee and in Malaysia. These public standards are comparable to the private standards, though they tend to be compulsory instead of voluntary and less strict in terms of requirements. The question is, however, whether these public standards will do a better job than the private standards in improving the vulnerable position of farmers.
The benefits of organizing
Farmer organization is important for the livelihoods of coffee, cocoa and palm oil farmers. Farmers who are organized in cooperatives, or who are linked to a company, generally hold a stronger position than those farmers who are less effectively organized, or who do not belong to any type of organization. They also profit from economies of scale, a more powerful position in the market and opportunities for credits, learning and training.
Certification is one way to organize farmers, but does certification lead to more benefits than being organized? PhD researcher Ibnu Muhammad from ICIS found that certified farmers experience more benefits regarding representation/negotiation, capacity-building, networking, economy and community support compared to the uncertified farmers. However, he also found that organization has a stronger influence on the perceived benefits than certification. This means that farmers experience a higher increase in their perceived benefits when they evolve from being unorganized to organized, compared to evolving from uncertified to certified.
The Indonesian Government could consider empowering farmers to form cooperatives, or support cooperatives that function well already. This does not necessarily mean governmentinitiated cooperatives, as these may not fully correspond to farmers' needs or guarantee farmers' motivation to participate. Rather, an investment in collective processing and value adding (which implies more focus on end products instead of only intermediate products) could further help to empower farmers to improve their livelihoods.
What does 'adding value' actually mean? In supermarkets, uncertified coffee is generally less expensive. If you pay more for certified coffee compared to uncertified coffee, where does this additional price end up?
According to coffee experts Surip Mawardi and Esther Sri Astuti, roasters benefit most from the additional price being paid for certified coffee (see Figure 1). In the robusta coffee value chain, and only looking at Indonesian actors, Sri Astuti found that certified coffee – on a kilogram basis – cost around 29,331 Indonesian Rupiah (US$ 2.50) more than conventional coffee. Farmers only receive 1.36 per cent of this additional price (US$ 0.034). The roasters receive 95.47 per cent (US$ 2.386), traders receive 1.47 per cent (US$ 0.036), and the exporters receive around 1.7 per cent (US$ 0.042).
Smallholders benefit more in the arabica value chain (around US$ 0.15 for 1 kg certified coffee) compared to the robusta value chain. This is because of the high coffee quality and the high demand for this type of coffee in the domestic market. Indonesian consumers are willing to pay more for good quality arabica coffee. The fact that the coffee is certified is not an important factor for them. The certification process, however, and particularly the training that is part of it, leads to higher quality coffee beans and higher prices in the domestic market.
The fact that roasters benefit most from certification makes sense from an economic point of view as the roaster adds value to a raw product and transforms it into a consumer product. However, it is the farmer that adjusts his/her practices to make the product more sustainable, and yet farmers receive a smaller financial benefit. Also, as most roasters are located abroad, financial benefits of value creation hardly benefit Indonesian actors.
Cocoa expert Soetanto Abdoellah argues that value creation in Indonesia could help to keep the younger generation motivated and anthusiastic
about taking over their parents' cocoa plantations, instead of migrating to the cities to search for alternative job opportunities. While the younger generation lacks pride in being a cocoa producer, they demonstrate an interest in processing, trading in end products and using small mechanical technologies.
Figure 1. Percentages of the overall additional price paid for certified coffee compared to conventional coffee divided per actor.
The roasters in this study only cover Indonesian-based roasters.
Plantation instead of crop certification
Most coffee and cocoa smallholders grow at least two to three crops at the same time. The current certification system is highly inefficient (both private and public) because it demands a separate certification process (with separate certification costs) for all different crops. According to Soetanto, exploring possibilities for plantation or farmerbased certification, instead of crop-based certification, could be worthwhile. This could even develop into a new niche market for the Indonesian Government following recent trends towards the so-called landscape and commodity-driven approaches towards certification.
Currently, certification costs are too high for poor smallholders. In some cases, exporters (for coffee) or companies (for palm oil) take over the certification costs. Consequently, these exporters or companies hold the certificates, creating a dependency relationship for the smallholders. Alternatively, traders pay the certification costs. But when traders pay, farmers are locked into trading with them to repay the debts. This lock-in leads to higher costs for farmers, as the involvement of traders implies the addition to the value chain of another actor trying to make profit. In the usual certification process, where farmers are able to pay for certification themselves, the traders are ruled out or work for the exporter. Experts at the 2015 workshop organized by ICIS suggested that the Government could offer subsidies for certification costs so that farmers can avoid engaging with middlemen.
Using farmers' knowledge to increase sustainability may be a way to include impoverished and excluded farmers in the governance system. Jacqueline Vel of the Van Vollenhoven Institute has emphasized that many farmers are left behind, particularly those living in areas prone to conflict, or in areas where companies decide to withdraw. They may lose part of their production and do not have a chance to fulfil the certification criteria and become certified. Currently, the author observes a lack of knowledge about the ideas of these impoverished farmers regarding the creation of more sustainable agricultural production. Better use of their knowledge regarding possibilities, opportunities and barriers for more sustainable agriculture may lead us, step-by-step, towards improving the economic, social and environmental prospects of production, with or without certification.
Although the results of ICIS' research reveal moderately positive impacts of certification, we cannot avoid being somewhat critical about
certification and its effects on smallholders. Increasingly, we wonder whether positive results of certification cannot be more efficiently and more inclusively realized in different ways, for example through organization and the provision of training that may allow smallholders to reap the rewards that seem to go along with certification, without being confronted with the negative effects such as new dependency relations, higher costs, administrative burdens and impacts on long-lasting sociocultural relationships.
(List of references can be made available upon request)