In a new paper in the journal World Development (sorry I don't see an ungated version anywhere), Bart van Rijsbergen, Willlem Elbers (both Radboud University in the Netherlands), Ruerd Ruben (Wageningen University), and Samuel Njuguna (Jomo Kenyatta University of Agriculture and Technology in Kenya) compare Utz certification with Fair Trade certification, based on data from 218 coffee farmers in Kenya. Importantly, they use a propensity score matching approach (which I discussed briefly in this earlier post) to make the comparisons.
The key difference between Utz certification and Fair Trade is that Utz focuses on improved agricultural practices (that should result in higher coffee quality), while Fair Trade instead provides a price premium, as discussed in my earlier posts. Some of the surveyed coffee farmers held both certifications, some were Fair Trade only, and some were non-certified. Here's what they find:
Whereas Fairtrade clearly enhances further specialization in coffee production and more engagement in dry coffee processing, Utz-certified enhances input-intensification of coffee production and multi-certification opts for coffee renovation and the diversification of coffee outlets...
...household welfare and livelihood effects of coffee certification remain generally rather disappointing.Neither certification scheme had much effect on income, mainly because farms only derived one-quarter to one-third of their income from coffee sales, and certified coffee sales were only around one-third of that income.
Which brings me to this other new paper I read today from the journal Food Policy (ungated here), by Wytse Vellema (Ghent University), Alexander Buritica Casanova (CIAT), Carolina Gonzalez (CIAT and IFPRI), and Marijke D'Haese (Ghent University). In the paper the authors use data from coffee farmers in Colombia , where they also note that coffee is only one (of several) income sources for most farm households. Their comparisons rely on cross-sectional mean differences (rather than a matching approach), so their results need to be treated with a little bit of caution.
Again, they find little effect of coffee certification (this time the certification is mostly Starbucks C.A.F.E. and Nespresso AAA) on household incomes. However, what caught my eye about the paper was the discussion of income and substitution effects for coffee farmers:
Having farm certification reduced income from on-farm agricultural production [MC: excluding coffee production] and agricultural wage labour, likely indicating re-allocation of resources away from these activities. Such re-allocation of labour is driven by substitution and income effects. As total household labour is fixed, increased returns to one activity cause households to substitute labour away from other activities. Households are most likely to substitute labour away from activities with low return or which are considered less ’satisfying’... Income effects lead to an increased consumption of leisure, reducing overall hours worked. The negative combined impact on incomes from on-farm agricultural production and agricultural labour shows that substitution effects dominate income effects.As we discuss in ECON100, because with certification coffee production is more rewarding farmers reallocate their labour time to that activity and away from farming other products and from agricultural wage labour (substitution effect). Higher income from coffee leads them to consume more leisure, reducing their labour allocation to all farming activities (income effect). The overall effect on farm household income is negligible (Vellema et al. note that coffee income increased, but overall income did not).
One last point is important here. There appears to be an increasing proliferation of certification schemes, and many farmers hold multiple certifications (in the Vellema et al. paper, about 29% of the sample held two certifications, and 6% held three certifications). For farmers, the marginal benefit of an additional certification probably decreases as they get more certified (since a good proportion of their crop is able to be sold through their existing certified channels), while the marginal cost probably increases (the opportunity costs involved with spending time maintaining multiple, and possibly conflicting, certifications). I wonder, what is the optimal number of certifications for a given coffee farmer?