A big part of my life I worked with certification and standards for organic agriculture, both in Sweden and globally. I was also a foundning board member of the ISEAL-alliance 1999 and have consulted the development of standards and certification for fair trade, sustainable forestry, gender, eco tourism. While I see a role for those systems I believe the results of them are rarely as spectacular as the proponents claim and that there are many weaknesses and drawbacks, some of which are integral of the concepts and can't be mitigated by smarter design.
I don't often feature guests on the blog, but here is a well reasoned piece on voluntary sustainability standards by Ulrich HOFFMANN*, Senior Associate, International Institute for Sustainable Development (IISD). It is a paper prepared for World Standards Cooperation Academic Roundtable 2018, Hangzhou, China, 6-8 November 2018.
I don't often feature guests on the blog, but here is a well reasoned piece on voluntary sustainability standards by Ulrich HOFFMANN*, Senior Associate, International Institute for Sustainable Development (IISD). It is a paper prepared for World Standards Cooperation Academic Roundtable 2018, Hangzhou, China, 6-8 November 2018.
This paper aims at making a few
conceptual observations on the challenges and chances for mainstreaming the use
of voluntary sustainability standards (VSS) in global production and trade of
agro-food products. Although being very heterogeneous, the analysis in this
paper will refer to VSS as generic category, no matter how significant their
differences are in real sustainability impact and issues covered. For
illustrative purposes, if need be, the paper will use the example of organic
standards, which stand for a standard with transformational potential to real
sustainability in agriculture.
Green consumerism: what is the role
of VSS therein?
People’s despair with
political inaction or inefficiency has given rise to the ethical consumer movement,
premised on the idea that private purchasing decisions can determine what kind
of society we live in. This said, however, the decisive drivers for rising VSS
use have been hyper globalization, the outsourcing pressure of labour and
resource-intensive industries, the concept of international supply/value chains
and their governance, as well as the curtailment of the state as economic agent
and regulator. In the end, key players
in global supply chains, based on their market power and partly in concert with
NGOs that commercially benefit from standard setting and certification coin
VSS, set their agendas, and use them as management and (not rarely) unilateral
dependence tool.
There is the risk
that ‘green consumerism’ distracts from the very need for public regulation and
mandatory rules for controlling long international supply chains. It is a myth
that consumers can play the role of national policy. Individual purchasing
decisions can rather help avoid or alleviate excessive consumption
implications. Lasting changes towards true sustainability or transformational
change however require structural changes in policy, incentive systems and
economic structures (e.g. organic standards on their own are insufficient to
transform agriculture). The plea for the ‘power of sustainable consumption’
overestimates the real leverage capacity of consumers. As global production
conditions are far too complex, information on the supply chain and true
sustainability impact too nebulous, as well as alternatives rare or not
available at all, consumers may find it difficult to really buy more sustainably.
Even VSS that have the potential for some change are mostly confined to
specific products or specific product characteristics. Although many consumers
tend to think that by purchasing VSS-certified products they can already make
concrete steps towards true sustainability without waiting for policy
initiatives in this regard, on scrutiny of facts it transpires that many VSS
only represent marginal improvements or pseudo-solutions that may even hinder
or inhibit real transformation, do not or only marginally improve the situation
of producers, but often usher into higher profit margins of processors and
traders/retailers.
Key systemic pros and cons of VSS
Most VSS that emerged
in great numbers in the 1990s were triggered by government-inspired due
diligence requirements (against the background of food scares, most prominently
BSE, and the first Rio Earth Summit). A risk management, rather than a risk
prevention approach by systemic or structural changes has therefore been at the
center of the majority of VSS, particularly in the agri-food sector. This
translated into incremental, rather than transformational change and a particular
focus on management of risks related to agro-chemical use in
external-input-intensive, highly specialized and economies-of-scale-driven
agriculture.
Pros of VSS
VSS tend to be flexible tools that may encourage
material and energy efficiency, increase labour productivity, promote innovation,
improve product quality, and foster desirable shifts in production and
consumption patterns. VSS can be a tool for some internalization of
environmental and (to a much lesser extent) social externalities.
As a
business/company-level tool, VSS primarily pursue micro-economic sustainability
objectives, which in a number of respects overlap or support
macro-economic/societal sustainable development objectives. VSS may however
also imperfectly feed into, compromise or even contradict societal
sustainability goals (e.g. certification of soy as responsibly produced does
not overcome the problems of mono-culture production, nor alter the role soy
plays as high-protein feed for unsustainable factory-like livestock production).
VSS are no substitute for public regulation and enforcement of basic social and environmental requirements. VSS may however drive and serve as reference point for new or extended governmental regulation.
VSS are no substitute for public regulation and enforcement of basic social and environmental requirements. VSS may however drive and serve as reference point for new or extended governmental regulation.
If VSS are couched within frameworks of cooperative
and fair production and marketing, e.g. in the context of community-supported
agriculture, cooperative marketing boards etc. VSS may become a constituent
tool for new and much more just market relations, including fairer
international trade (yet, recent trends in the marketing structure seem to
contradict such opportunities: whereas in 2009 every second consumer bought
fair-trade products in special ‘world shops’ in Germany, which offer better
terms to producers, in 2017 only every 10th consumer used these
shops, whereas the others bought fair-trade goods in supermarkets (source:
Forum Fairer Handel)).
Cons of VSS
The
market mechanism encourages shifts/outsourcing of production to least-costly
locations (i.e. absolute competitive advantage), but also leads to shifts in
competitive position to producers that comply with VSS in the least-costly way.
This causes cost pressure, encourages specialization and increasing scale of
production and thus enhances the risk of marginalization of small-scale
producers and smallholder farmers, all things that often undermine or
contradict truly sustainable agriculture.
Assuring
the economic sustainability of VSS-compliant producers remains a key and
largely unresolved issue. Yet, economic sustainability (and thus cost
internalization) is the linchpin for achieving social and ecological
sustainability objectives. This is closely related to the power imbalance in
large international supply chains between hundreds of millions of producers, on
the one hand, and a small number of globally active traders, processors and
retailers, on the other. What is more, market consolidation in retail and the recent
formation of international purchasing alliances/cartels among some big European
supermarkets (e.g. between TESCO and Carrefour as well as between Metro,
Auchan, Casino und Schiever) compound an already lopsided position of
producers.
Most
VSS are micro-economic tools embedded in the neo-liberal logic of long
international supply chains. This raises the question of micro versus the
macro-economic sustainability perspective. Related to that is the abuse of VSS
for ‘green lies’ and a very narrow, one-sided or arbitrary definition of
‘sustainability’. This also points to shortcomings in the system of
certification: it verifies whether the concerned production practices are in
conformity with the VSS requirements, but does not tell us anything about the
validity of the claim, nor whether the conformity really improves true
sustainability at producer and societal levels.
The prevailing risk
management approach among most VSS cements incremental change within
conventional tracks, rather than transformational change. Many VSS therefore result
in locking producers into specific (very often only slightly modified
conventional) development paths, because the required capital investment would
otherwise be lost. VSS are imbedded in the neo-liberal concept of giving more
prominence to (anonymous, corporate-driven) international supply chains than to
national (government-influenced and partly democratically controlled) economies
that are bound to strive for societal, rather than corporate sustainability
objectives.
As documented in a
recent Oxfam study on a dozen of international commodity supply chains, the more
pronounced use of VSS has not resulted in increasing the share of producers in
retail prices even for products with a high share of standard-compliant
production. The historical trend of decline has rather continued (Oxfam, Ripefor change, 2018).
Can VSS-governed sustainability
markets really be mainstreamed and graduate from current market niches?
Mainstreaming of
VSS-compliant production is often simplistically perceived as a linear process,
all too often couched within the logic of business-level economics. Quite a
number of VSS protagonists believe that better information on VSS for producers
and consumers, more capacity building for producers, and two demand-related factors,
i.e. stepping up public procurement linked to VSS and VSS-compliant sales’
targets set by large companies, should be the key drivers. These factors may
well jack up the share of VSS-compliant products in global markets somewhat,
but they should be put and examined within the context of macro-economic
factors and challenges.
As market shares of
VSS-certified products increase, competition from other VSS-compliant, but also
conventional producers (with quality and sustainability claims similar to or
not remote from VSS-certified products) intensifies, which leads to a so-called
cost-treadmill effect. It is reinforced by the power imbalance between
producers and large buyers along the supply chain.[i]
As a result, internalization of externalities becomes increasingly difficult
and the economic sustainability of VSS-compliant producers is put in jeopardy.
This is the most challenging dilemma for many VSS-compliant producers (except
large-scale and well-resourced once), to which there are as yet no or only
imperfect remedies. The cost-treadmill effect applies to producers both in
developing and developed countries.
As long as a
reasonable internalization of true costs of production is not forthcoming and
thus economic sustainability of producers threatened, many producers are not at
all keen on expanding VSS-compliant production unless alternative markets are
unavailable. Faced with the ‘cost-squeeze’, producers have to step up
productivity, but are often confronted with the challenge that increased
efficiency of input use and the deployment of new technological and managerial
tools are still insufficient to even out cost increases from adapting
production to the standards, related monitoring and certification costs, as
well as the cost pressure from buyer markets. Before producers drop out from
standard systems, they often resort to ‘casual’ or illegal practices or
straightforward fraud (such as informal employment of temporary workers, mostly
women, engagement of illegal migrant workers from abroad, use of child labour
or cheating during the certification process). Achieving economic
sustainability of VSS-compliant smallholders is of paramount importance for
avoiding their drop out from certification schemes. However, in many cases smallholders
are made part of contract farming systems that lock farmers in exclusive input
purchase and product sales’ systems that create relations of unilateral
dependence, market domination and not rarely border on forms of modern slavery.
Evidence
from market-share expansion expectations for organic and fair-trade products,
for instance, suggests that increasing market shares has been slower and more
problem-laden than expected. Once markets for certified organic products, for example,
reach or surpass the benchmark of some 10% in total food sales, competition
among organic products (including low-cost imports) and from products with
similar quality/sustainability claims (such as pasture milk or fresh fruit and
vegetables from known local producers) intensifies. This puts pressure on
organic price premiums, which shrink or disappear altogether, in particular in
supermarket stores. Against this background, the further expansion of the
organic market share becomes increasingly difficult and economically unattractive
for producers. Organic agriculture certification on its own, the increase of
public procurement and higher purchase targets for certified products of key
market players cannot overcome the economic sustainability dilemma of producers
and thus some internalization of true ecological and social costs. Faced with
this dilemma, the big marketing agents often resort to launching new standard
schemes, claiming premium characteristics. Such efforts might appear
temporarily helpful for improving the position of particular standard systems in
the market, but tend to confuse consumers and producers, and undermine the
reputation and solidity of organic certification in general.
Efforts
towards an internalization of true social and ecological costs and thus the
assurance of economic sustainability of producers require a number of
governmental interventions at supply and demand level that set a framework for
harnessing the direct and indirect effects of VSS. These measures include on
the supply side:
·
Setting
or supporting minimum wages at the level of a decent living wage.
·
Guarantee
equal pay and working conditions for men and women.
·
Guarantee
adequate minimum prices for small-scale farmers.[ii]
·
Invest
in support for small-scale farmers to improve education, infra-structure, and
the use of appropriate technologies under local conditions.
·
Modify
agricultural support policies to reward the generation of environmental goods
and services by farmers, instead of subsidizing fertilizers, agro-chemicals,
and irrigation.
·
Promote
the creation and expansion of collective/cooperative/equitable business
structures in the agri-food sector.
On
the demand side, the following measures are called for:
·
Effective
use of competition law to check the accumulation and misuse of market power.
·
Ban
or drastically curtail unfair business and trading practices (as regards
contractual terms, pricing and payment systems, as well as extortion of fees
from suppliers).
·
Introduce
legislation that obliges supermarkets to enhance transparency and accountability
for human rights violations along their supply chains, as done by the UK Modern
Slavery Act of 2015.
·
Support
alternative agri-food networks, like farmers’ markets.
·
Consider
a pro-active governmental facilitating role in marketing, such as the
revitalization of marketing boards or the creation of public bodies, like the Federal
Agricultural Marketing Authority (FAMA) in Malaysia, which plays an
intermediary role between farmers and large corporate buyers.
·
Consider
the creation of international commodity-related environmental agreements
between producing and consuming countries that support through various
mechanisms farmers to achieve specific environmental and social targets with
the help of VSS.
[i] Four
companies account for 70% of global trade in agricultural commodities; 50
manufacturers account for half of all global food sales; and just 10
supermarkets account for over half of global food retail sales (Friends of the
Earth Europe, Heinrich Böll Foundation, Rosa Luxemburg Foundation (2017),
Agrifood Atlas: Facts and Figures about the Corporations that Control what we
Eat).
[ii] According to Oxfam, from Ecuador to Côte-d'Ivoire
and Thailand, some governments have already moved to reintroduce minimum
producer prices for crops like bananas, cocoa and rice. Oxfam’s analysis for a
basket of 12 products suggests that where governments have intervened in this
way, small-scale farmers receive a share in the end consumer price that is
around twice as high as that received by farmers without such support (Oxfam,
2018, op.cit).
[iii][iii] The
neo-liberal agenda preached by WTO, IMF and World Bank in the last three
decades led many developing country governments to reverse measures that
provided some level of income or price support to rural farming communities.
Marketing boards were dismantled; statutory price floors that could stabilize
prices and income for domestic farmers were overhauled; and subsidies and
investment in state-supported agricultural credit or inputs were slashed
(Oxfam, 2018, op. cit). It should also not go without comment that most African
governments have remained far behind the commitment made at an African Union
summit in 2003 to allocate 10% of state expenses to agriculture in the next few
years.
Ulrich Hoffmann holds a PhD and advanced doctoral degree (i.e. habilitation). He was a university professor on international economic and financial relations in Berlin, Germany and then worked for some 30 years in senior positions in the UN secretariat, mostly at the UN Conference on Trade and Development (UNCTAD), where he extensively published on issues of sustainable agriculture, sustainability standards and climate change economics. He was the editor-in-chief of the recurrent Trade and Environment Review, one of UNCTAD’s flagship reports. He is now a senior associate with the International Institute for Sustainable Development (IISD)(Canada/Switzerland/US). He is member of the Federation of German Scientist. ulrich.hoffmann@iisd.net
