Friday, April 26, 2013

Can we shop our way to a better world?

When you buy a cup of coffee for €2, the farmer gets 3-4 cents for the coffee in that cup. If you buy a cup of organic and fair trade coffee, you may have to cough-up €2.50 and the farmer will get 4-5 cents. The farmer’s income will increase by an impressive 20-25 percent. Looking at it from another perspective, it seems that you will need to spend 50 cents to increase the farmer’s income by 1 or 2 cents. This example throws up the question whether the market mechanism is efficient in transforming consumers’ willingness to pay for direct or indirect benefits of a product.

Voluntary sustainability standards (VSS) such as fair trade, organic, and eco-labels have emerged as part of a number of converging – and associated – trends such as:

- emphasizing the market and consumer choice as important tools to accomplish ethical, economic, environmental or social goals;

- facilitating government de-regulation, which leaves more self-regulation to the industries;

- holding those that bring products to the market place accountable for the quality of the products, a responsibility that extends to the suppliers of the products, and their suppliers in turn;

- introducing a stiff global competition which makes differentiation in the market place an essential survival strategy to escape ‘commodity hell’;

- organizing production into so-called value chains where each link is taken care of by independent companies that are under the constant threat of being exchanged, constantly competing with others.

Let me expand a bit on this last point.

In the movie The Godfather, Vito Corleone, the mafia boss played by Marlon Brando, is asked by his godson Jonny Fontane to help secure a film role that will boost his fading career. The head of the film studio has previously refused to give Fontane the part. The Godfather tells Johnny, "I'll make him an offer he can't refuse." One morning the studio director wakes up to find the head of his expensive racehorse on his bed. Fontane is subsequently given the part.

This is basically what the chain leaders, i.e. supermarkets or corporations, have done; given suppliers an offer they can't refuse – follow the standard. Suppliers in the chain, all the way to the farmers, and sometimes even the suppliers to the farmers, should follow the standards developed by the chain leaders. In many cases, the standards also shift the costs away from the chain leader to the suppliers. In order to enforce compliance, suppliers have to use verification mechanisms, normally private certification bodies, authorized by the chain leaders or auditors from the chain leader.

At a point in time, NGOs realized that consumer activism could be a tool to accomplish goals. This first took shape as boycott, that is refusal to buy products from companies because of their behavior. When companies tried to get away from their responsibilities by outsourcing, NGOs pointed out that those chain leaders had responsibilities for the whole chain. In some cases, this led to the NGOs initiating sustainability schemes, either in partnership with an industry or alone.

We don’t have VSS for social conditions for labour in Scandinavia – but there is a Food Justice Certified scheme developed in the USA now. Why? Because it is needed in the USA but not in Scandinavia (at least not in the same way as in the USA). VSS has emerged in the space between that well regulated by the markets and by the governments respectively. If we view their existence as a result of “policy failure” or “market failure”, it means that if the markets and governments did their job properly they would not be needed at all.

The example of the coffee cup shows that the market mechanism is not a particularly efficient tool for accomplishing non-market goals. Let me give a few more examples.

VSS is often presented as an option for small-scale farmers, but they are oversold in this regard. In general, only a small proportion of the farms will be able to participate in the new value chains. The sustainability schemes constitute one factor among many discriminating small producers, be it farmers or food processors. Farmers with more resources are able to capitalize more on the opportunities. The processes of certification also, almost inevitably, favor the rich over the poor, both in developed or developing countries.

I started an organic farm in 1977 in Sweden. From 1985 onwards, organic farms have been certified to voluntary standards. The number of organic farms in Sweden has grown from a few hundred in the early eighties to nearly 12,000. The market share has gone from 0 to 4-5 percent. Around 17 percent of arable land is organic. So this is a real success story. However, growth has slowed down despite the fact that a totally overwhelming majority of the population says that they want to eat organic food. Also, many farmers go organic mainly because of the compensation for environmental services that they get from the European Union and the government and not because of market demand. Looking at the bigger picture, the growth of the organic sector has done nothing to curb the rapid decline of farming in the country. The number of farms has halved in the same time that the organic market has developed.

Most VSS in the agriculture sector have regulations that production can't be approved if it is established on land that until recently was rainforest. If certified production becomes important, however, the net effect will be that the certified producers will buy existing land and other producers will continue to exploit the forest frontier with the money they get from selling land to the certified ones. This process has been ascertained in Brazil, where soya production – now certified as forest-friendly – push cattle ranchers to the forest zone. In reality, the impact of these standards is almost zero on deforestation, compared to government regulation. They do make consumers feel good, though.

They also are problematic to apply in situations caused by the sum of individual actions: for e.g. it is almost impossible to ascertain whether one farmer uses groundwater sustainably; it is the sum of water used by all farmers in the catchment area that will determine whether it is used sustainably or not. VSS in management of commons has existed for millennia, e.g. in the management of fisheries, forests, irrigation or pastures. But the modern sustainability schemes are based on the market and individual companies, which is contrary to the foundations of the long standing method of management of the commons.

When discussing the impact of a certain standard, it is often contrasted against a worst case scenario. The producers that first go for a VSS are, to a very large extent, those that have production already close to compliance, which is why there are many organic smallholders producing coffee, but almost no organic flower producers in the market place. Meanwhile, proponents of the schemes mostly contrast their affiliated production with worst cases of non-certified production.

I tell this not to make the case that organic farming and other VSS have failed, but to make the case that using the market and consumer purchase to accomplish policy goals is often less efficient than government regulations, direct subsidies, ban etc.

In general, VSS is not particularly efficient in dealing with problems that are rooted in fundamental structures of society, the market and the economy. They do normally work well when they are about a simple substitution of a technology, e.g. chlorine-free paper or CFC-free fridges. But things like that can – and should – be accomplished by mandatory regulations.

Ultimately, whether VSS delivers or not may be a sub-set of the bigger question, “Can we shop our way to a better world?” While I do think that we should buy organic and other products that are a better choice here and now – and to pay a bit more for them –I also firmly believe that this will only have small effects.

In State of the World 2013, Annie Leonard (the person making the excellent video Story of Stuff) points out that the focus on sustainable consumption “distracts us from identifying and demanding change from the real drivers of environmental decline…. Describing today’s environmental problems and solutions as individual issues also has a disempowering effect, leaving people feeling that their greatest power lies in perfecting their daily choices.” I couldn’t agree more.


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  2. As Pete Seger sang: 'The farmer is the one who feeds them all' - Yet, even in these seemingly egalitarian days of the internet the farmer is left with little recognition or reward for being the very foundation of the society.
    We need more really-pro-farmer movements.

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