Social & Economic Effects of Value Chains of Tropical Agrocommodities. Initiatives. Final Report

Transcription

1 Social & Economic Effects of Value Chains of Tropical Agrocommodities & Sustainability Initiatives. Final Report

2 Social & Economic Effects of Value Chains of Tropical Agro-commodities & Sustainability Initiatives. Final Report Jan Joost Kessler, Johan Brons, Lenneke Braam, Marijke van Kuijk and Pim Pelders Commissioned by Planbureau voor de Leefomgeving (PBL) February 2012 Project number A2243 Aidenvironment Donker Curtiusstraat JL Amsterdam The Netherlands + 31 (0) info@aidenvironment.org

3 Social & Economic Effects of Value Chains of Tropical Agro-commodities & Sustainability Initiatives. Final Report Contents Executive Summary 5 1. Introduction 9 2. Methodology and baseline information Introduction Approach and main activities Analytical framework Quality of the available studies Baseline characteristics of selected agro-commodities Baseline social and economic effects Effects at household level Introduction Household level economics Labour conditions Natural capital Human development Market access Conclusions Effects at Regional Level Introduction Empirical evidence on regional effects Causal relations between effects at regional level Conclusions Results from review of public policies Introduction Income and agricultural productivity Labour conditions: child labour, gender, health and safety Natural capital Human development Market access Conclusions 48 Project number A2243 3

4 6. Main conclusions Social economic effects at the household and worker level Social economic effects at regional level National and international monitoring and evaluation systems Towards a set of indicators to assess sustainability 54 Appendices 61 Appendix I: Terms of Reference 63 Appendix II: Timber, Soy, Palm Oil, Cocoa, Coffee, Cotton 65 Appendix III: Overview of social and economic monitoring and evaluation systems 165 Appendix IV: Sources of information that describe the relation between sustainable socio-economic development indicators and selected effect categories of sustainability initiatives 187 Publicatienummer A2243 4

5 Executive Summary This study has the objective to identify social and economic effects and related indicators of value chains of tropical agro-commodities, for both conventional production methods and sustainability initiatives by private sector, civil society organizations (CSO) and governments. The study also aims to find out to what extent relevant effect and impact indicators are already being reported or monitored at international or national levels. The aim is to propose a set of indicators that is useful in producer countries to monitor the main social and economic effects of sustainability initiatives for agro-commodities. The research questions are: 1. What are the main sustainability initiatives for the selected agro-commodities, and what are the social and economic effects at regional level? 2. Do sustainable production and trade initiatives in specific regions lead to improvements of social and economic development, especially incomes and its distribution? 3. How do public institutions, private sector and civil organizations evaluate social and economic effects of trade on producers and other target groups? Which international monitoring systems exist to do so? 4. Which indicators are used for sector policies with respect to production and trade of tropical commodities and the social and economic effects in production areas? The analysis of available studies on effects of sustainability initiatives lead to the following conclusions for five different effect categories. On household income and wages, some robust studies are available, especially from small-scale production systems. Here, effects are variable, but if positive, the income improvements will be limited (in scale, in terms of proportion of incomes or low premium prices). Effects are also highly context dependent, e.g. the starting position of the producers (especially income level and potential for production improvement). Especially from small-scale production systems there is some evidence for higher yields, cost reduction, access to credit and limited income increase. There is some evidence of positive effects on wages and employment. For palm oil and soy, it is plausible that income benefits will emerge for smallholders once smallholder programmes are more developed. In forestry there is evidence of some increase of SME employment by local timber processing. For the other effect categories, in general few if any robust studies are available. However, in all cases there is qualitative information and supporting expert opinion of plausible positive effects: On labor conditions, there is weak but plausible evidence for improved labor conditions related to security, health and safety. In timber there is some evidence for improved employment opportunities. In cotton, there is evidence of improved health conditions. There is evidence of reduced child labor in cocoa. With respect to natural capital, studies provide some evidence for improved land management and weak but plausible evidence of community involvement and land rights, especially for small-scale production systems. For timber there are plausible effects of improved forest management and stakeholder relations. Concerning human development, available studies provide some evidence for improved skills, organizations and management systems, generally summarized as enhanced empowerment. Again, the evidence is strongest for small-scale production systems. Apart from plausible effects for improved management, technical and marketing skills, there is in fair trade systems some evidence for improved education due to community investments in education systems. Concerning access to markets, there is evidence for access to certification, improved access to markets, and as a result more income stability. Project number A2243 5

6 Especially noted should be the evidence for reduction of child labor (cocoa), improved employment (timber), improved wages (coffee), improved health by reduced use of agro-chemicals (cotton), improved land management (coffee, cocoa, timber), improved income stability and market access (coffee, cocoa, cotton, timber). There are no robust data and remaining doubts for soy and palm oil, mainly because these standards are still less accessible for smallholders and experiences are so far limited. We also looked at potential negative effects. Negative effects could be expected in terms of externalities, especially reduced demand from farmers not involved in the sustainability initiative, reduced prices or increasing competition, but no empirical evidence was found of this occurring in practice and in fact in most cases positive influence on local market prices were observed. Other negative effects might be the increased labor tasks for women as compared to men, due to the increased labor required for organic fertilizers. This might indeed be an issue and is recorded for several small-scale production systems. At regional level, there is some evidence showing negative social and economic effects of conventional production systems for soy and palm oil, and mixed effects for coffee. An enabling governance context and time for local development to take shape appear to be important success factors. However, attribution remains difficult. There are very few studies available with information about the effects of sustainability initiatives on poverty reduction and sustainable economic development at regional level. In coffee, there is qualitative evidence for positive spin-off by the demonstration effect, whereby non - affiliated farmers adopt new techniques from affiliated farmers. It is plausible to expect such dynamics for other commodities (cocoa, cotton, smallholder soy, palm oil). Also in coffee, a range of impacts which reach beyond individual producers and their Fair Trade organizations were mentioned for Bolivia, such as additional transport and tourism services, higher export taxes and creation of additional employment. In cocoa, large scale impacts in the Dominican Republic were due to the government promoting the sustainable cocoa production systems. Important in that case are technical and financial (credit) support services, land security and the general attractiveness of agriculture for the young generation. In cocoa, sector-wide policies and initiatives (by the International Cocoa Initiative and national governments) have been effective in reducing the incidence of child labor. Such sector wide initiatives can have significant impact if delivered at a major scale. For timber, there is some evidence of increased regional employment by the application of the FSC standard, and the stimulating effect on small and medium enterprises (SMEs) for local processing. Regional effects are context dependent. From available studies we identified as relevant context factors land right security, policies in favor of smallholder involvement and effective decentralization. Several studies indicate that sustainability initiatives need to be supplemented by changes in development policies and coordination with other development actors, funds and initiatives to raise rural livelihoods to a more sustainable level. There is some evidence that participation in sustainability initiatives, especially in coffee fair trade and cocoa (case of Dominican Republic) has enabled smallholder producer organizations to increase their influence at a national level. Positive results for local farmers seem to be achieved from this increased national influence, from the increase in self-confidence of co-operative members and through policy changes achieved by lobby. In general and irrespective of the studied sustainability initiatives we have investigated whether there is evidence for positive relations between the main effect categories and poverty reduction (see below scheme). If yes, this would provide arguments for assuming that sustainability initiatives will contribute to poverty reduction, even if the available studies do not provide strong evidence. Indeed, we found several robust studies with positive evidence on the relation between improved labor conditions (including reduced child labor), improved education or increased agricultural productivity with poverty reduction indicators, both at household level and at regional level. Several studies Publicatienummer A2243 6

7 demonstrate a positive effect of improved education or increased agricultural productivity on income (GDP per capita). One study showed that education interventions, especially at primary level, can also have important equity benefits (less unequal distribution of income). In all cases contextual conditions are of utmost importance to achieve and sustain such effects. There is very limited information on the relationship between enhanced capacities of farmers and of organizations (i.e. cooperatives) and poverty alleviation at household or regional level. It must be noted that different studies use different concepts of poverty reduction (i.e. improved annual earnings, increased employment opportunities, improved standard of living, improved health and education, reduced vulnerability, empowerment or a combination of these). The study confirms the before mentioned studies on environmental impacts of multi-stakeholder initiatives (MSIs), namely that robust impact studies are scarce and available evidence of positive social and economic effects is mixed (Blackman and Rivera, 2010; KPMG, 2012; WWF, 2010). However, while there is weak evidence for direct economic income benefits, the study also found some evidence and plausible causality for improvements on the other four sustainability issues, especially land productivity, labor conditions, human development and market access. For each of these dimensions there is also plausible causality of a contribution to poverty reduction and regional development in the medium- or long term. This is based on a theory of change that has gradually emerged among the organizations involved in sustainability initiatives, whereby non-material components of poverty reduction are at least as important as the monetary ones. International studies show significant relations between these effect categories and poverty reduction. The importance of these effects varies per production system and is, again, context dependent. Current monitoring and evaluation systems by national governments and international organizations cover similar sustainability issues, in particular, economy and poverty, labor conditions especially the prevalence of child labor and health and safety issues, and natural capital, land rights and community rights. These monitoring and evaluation systems provide useful information on contextual conditions, benchmark information and reference to international standards. In many cases existing evaluation systems have just established a baseline. The systems are less apt to adequately monitor the effects of sustainability initiatives. The existing systems should be supported and improved to be more specific for commodities, areas and target groups in order to serve the purpose of assessing progress of sustainability initiatives in terms of realizing their main effects. The following effects and indicators are considered useful to be included in monitoring and evaluation work, with reference to the institutions and systems involved. Categories Possible indicators Institutions and systems Crop productivity, and land / forest management, and income level Labor conditions Employment opportunities Yield per hectare Investments in land management Amount of credit used Quality rating of product Wage levels (farm, plantation, SME) Health and safety labor conditions Health of producers (# of claims by use of agro-chemicals) Incidence of forced labor Incidence of child labor, school enrolment # of registered farm labor # of SMEs in the sector # of permanent employees Commodity / sector agencies and agricultural extension services Reporting by sustainability initiatives / certification schemes Surveys by ILO with national authorities Reporting by sustainability initiatives / certification schemes Sector agencies Publicatienummer A2243 7

8 Land rights and rights of communities and indigenous peoples Human and organizational capacities / empowerment Market access Poverty and human development at regional level Area of land with regulatory clarity # of land conflicts not solved Registered producer organizations Longevity of producer organizations # of farmers using sector guidelines # of laborers who know their rights # of producers certified # of smallholder certified Time it takes to sell for a good price Sales per year Sales price ratio to global market Poverty levels GDP/capita Gini index UNHCR and UN special eur surveys NGO networks and surveys National agencies / registers NGO networks Reporting by sustainability initiatives / certification schemes Sector agencies in collaboration with by sustainability initiatives / certification schemes UNDP, national statistics and specific surveys, with specifications at local level Publicatienummer A2243 8

9 1. Introduction This study has as main objective to identify social and economic effects and related indicators of value chains of tropical agro-commodities, for both conventional production methods and sustainability initiatives by private sector, CSO and governments. The study also aims to find out to what extent relevant effects are already being reported or monitored at international or national levels. Finally, the main objective is to advice on which indicators would be best monitored in producer countries in order to know the main social and economic effects of sustainability initiatives for agro-commodities. The overarching question is whether sustainability initiatives contribute to poverty reduction. Poverty is a comprehensive notion, including issues of incomes, capabilities and empowerment. To assess such changes we are generally dealing with impacts. While it is relatively easy to measure the outputs and direct outcomes that result from certification, and while these are generally (partly) being recorded in audit systems of certification systems, it is more difficult to measure or know indirect outcomes and impacts and even more difficult to attribute these to certification. The focus of the study is especially on the long-term and large-scale (regional, not only household) effects and impacts. This is relevant because at this level we should expect significant changes in poverty. The main research questions can be summarized as follows (see Appendix 1 for the terms of reference for this study): 1. What are the main sustainability initiatives for the selected agro-commodities, and what are the social and economic effects at regional level? 2. Do sustainable production and trade initiatives in specific regions lead to improvements of social and economic development, especially incomes and its distribution? 3. How do public institutions, private sector and civil organizations evaluate social and economic effects of trade on producers and other target groups? Which international monitoring systems exist to do so? 4. Which indicators are used for sector policies with respect to production and trade of tropical commodities and the social and economic effects in production areas? Focus The focus of the study is at tropical agro-commodities, classified into three categories or archetypes : 1. The exploitation of communal natural resources, with timber and FSC certification as the example; 2. The production chains with relatively many small scale producers and mixed production systems, with cotton, coffee and cocoa and the sustainability initiatives involved as examples; 3. The production chains with relatively large-scale production methods and round table initiatives for enhancing sustainability, with palm oil and soy and the mainstream sustainability initiatives involved as examples. The analyses of the social and economic effects of sustainability initiatives of the six selected agrocommodities (timber, cocoa, coffee, cotton, palm oil and soy) focused on the countries in which the selected agro-commodities are mainly produced. With respect to the international and national monitoring and reporting systems, the focus has been on the following countries: Ghana (cocoa), Brazil (soy) and Indonesia (palm oil). This report Chapter 2 outlines the methodology of this study and also provides baseline information for the six selected commodities. Publicatienummer A2243 9

10 Chapter 3 provides the results of the first two research questions. It lists the main sustainability initiatives for the six selected agro-commodities, and then gives the results of our analyses of the social and economic effects of these production chains, and if possible the added value of the sustainability initiatives. Chapter 4, reviews effects at regional level and available literature for relations between identified effect categories and sustainable development indicators, in order to know to what extent observed effects of sustainability initiatives can be expected to contribute to poverty reduction. Chapter 5 gives the results of research concerning the third question. It lists the impact monitoring and evaluation systems at international and national level (for selected countries), and the systems and (categories of) indicators that may be useful for understanding the social and economic effects of sustainability initiatives. Chapter 6 gives the match between (categories of) indicators for which information would be required, and available (categories of) indicators at international and/or national level. This leads to an advice on which (categories of) indicators monitoring would ideally be focused or supported in developing countries. A series of appendices are included providing more detailed information: Appendix 1 gives the terms of reference of the study Appendix2 gives the six separate studies of the six selected agro-commodities Appendix 3 gives the four separate studies of social and economic reporting and evaluation systems at international and national levels Appendix 4 gives the analysis of the relations between a number of effect categories and sustainable economic development indicators. Publicatienummer A

11 2. Methodology and baseline information 2.1 Introduction This chapter on the methodology first gives the overall approach and main activities that were carried out, before we move to the analytical framework which was used for analysis of the social and economic effects of sustainability initiatives, in order to generate reliable, objective and convincing results and insights. We then present an analysis of the quality of the available information and data that were available for this study. Lastly is presented the baseline information for each of the six researched commodities, with a summary of the main social and economic sustainability issues which are of concern in the conventional production systems and which are being addressed in sustainability initiatives. This constitutes the starting point for our assessment of the main social and economic effects. 2.2 Approach and main activities The methodology can be described in three main clusters and associated six main activities, as described below. This sequence of activities also structures the report: the first level of analysis is the household level (Chapter 3), next we study whether household effects can be traced back in regional effects (Chapter 4), and lastly the study makes an inventory of available monitoring systems at national and regional level (Chapter 5). Analysis of social and economic effects of sustainability initiatives in commodities at household and regional level 1. Inventory of sustainability initiatives 2. Interviews and inventory of relevant data and information 3. Analysis to define effects Analysis of reporting, monitoring and evaluation systems of social and economic indicators at international and national level 4. Inventory at international level 5. Inventory for selected countries, with conclusions on usefulness Identify suitable monitoring systems and indicators 6. Conclusions on main (categories of) social and economic effects and impacts, with associated indicators for monitoring The methodology and execution of each activity is briefly elaborated below. Activity 1: Inventory of sustainability initiatives Per value chain and selected agro-commodity, an inventory was made of the relevant sustainability initiatives. To do so, we used primarily earlier work done by Aidenvironment, and especially work done for IDH. Relevant sustainability initiatives can be found in three categories: initiatives by private sector, public sector and by NGOs. In addition, many relevant sustainability initiatives are the result of round tables. For each agro-commodity the analysis of effects focused upon a limited number of initiatives, for which impact studies are available (see Table 1). Publicatienummer A

12 Table 1: Sustainability initiatives focused upon in the case studies Chains Private NGO Government Timber FSC Soy RTRS (round table) Palm oil RSPO (round table) Cocoa Coffee WCF, ICI (publicprivate) BSCI, GLOBAL GAP, SAI Platform, Nestlé Solidaridad, UTZ Certified, organic, Rainforest Alliance, FairTrade Solidaridad, UTZ Certified, organic, Rainforest Alliance, FairTrade, 4C Cotton SA8000, ISO Organic cotton, fair trade cotton, Better Cotton Initiative (BCI) Cocoa WCF, ICI (publicprivate) Solidaridad, UTZ Certified, organic, Rainforest Alliance, FairTrade ICCO, ICI (publicprivate) Integrated pest management (IPM) ICCO, ICI (publicprivate) For all selected agro-commodities an overview is given of the main production and trade characteristics and the main sustainability initiatives, based on desk studies (see also Box 1 below). Activity 2: Interviews and inventory of relevant data and information For selected agro-commodities and sustainability initiatives, we contacted relevant organizations to get information about impact assessment studies and the monitoring, reporting and impact assessment systems that are available. This showed that on the subject of impact assessment, a consistent and systematic approach is still in development. ISEAL has developed a code of conduct for undertaking impact assessment on sustainability standards, and this methodology is now being applied by some organizations (Mallet, 2007) 1. Apart from that, we interviewed relevant persons on their expert knowledge on theories of change and knowledge on effects and impacts of sustainability initiatives. Thus, relevant data and information were acquired from different sources: scientific publications, evaluation studies, monitoring reports, annual reports and expert knowledge. Activity 3: Analysis of available data and information From available sources of data and information, a selection of the most relevant ones was made, to assess the social and economic effects. The main selection criteria was the quality of the information, especially whether use was made of reliable assessment methods and well defined indicators, and whether long-term and large-scale (regional) effects were recorded. Most important were studies that make a comparison between the effects of conventional production and trade, with that of sustainable trade initiatives. The focus was on impact studies with quantitative data and those using controls. Apart from that, expert knowledge was used for insight in causality and theories of change associated with the sustainability initiatives. To undertake this analysis an analytical framework was used that was developed for this study (see next section 2.3). 1 Mallet, P. (2007) ISEAL Emerging Initiatives - Module 7: Measuring Impacts of Certification. ISEAL Publicatienummer A

13 For each of the six agro-commodities, Appendix 2 provides the detailed results of view of literature. The table of contents for each commodity report is indicated in Table 2. Table 2: Structure and table of contents of commodity studies 1. Introduction value chain commodity Key indicators: area, producers, involvement of small scale producers and communities Type of production system: natural resources; small scale producers, large-scale producers Trade statistics, main production countries, main consumption countries Supply-demand, boom-bust characteristics + causes Changes in commodity prices, price fluctuations, price volatility Characteristics of the value chain: structure, main companies, proportion of value for producers Relevant trade barriers, relevant regulatory initiatives 2. The main sustainability initiatives General impression (many/few, scattered, mainstream, types NGO, private, public, sector, ) Main trends of initiatives (e.g. moving towards mainstream, or one focus) Main initiatives (date of start, volume / market share, certification system, price premium, ) Overview of relevant supportive public policies in producer countries 3. Studies on socioeconomic effects Main sustainability issues from conventional production systems Studies on effects of conventional production systems (baseline) and sustainability initiatives General overview: many/few, old/recent, overview study, reliability Choice of studies: overview studies, studies making comparison between normal and sustainable Variability of methodology and results 4. Socioeconomic effects Effects of sustainability initiatives compared to baseline, for all indicators Effects at production / household level (see types of indicator below) Effects at regional development 5. Analysis / conclusions social and economic effects Main effects / impacts, using man categories of indicators Main cause-effect chains Relation with relevant context factors 6. Indicators Main indicators that describe the socioeconomic effects - see Table 2. Activity 4: Inventory of monitoring/evaluation systems at international level An overview was made of the available monitoring, reporting and evaluation systems by international institutions, initiatives and conventions, on social and economic effects and related indicators. The relevance for assessment of social and economic effects of sustainability initiatives was determined in three categories: limited, moderate and useful. Activity 5: Inventory of monitoring/evaluation systems at national level For selected production countries, an overview was made of the monitoring, reporting and evaluation systems on social and economic indicators relevant for value chains of tropical agro-commodities. To do so, we selected three important producer countries, being Ghana (cocoa), Brazil (soy) and Indonesia (palm oil). For each country we focused the analysis on four types of indicators: poverty (income level), general labor conditions, child labor and land rights. Context information was given Publicatienummer A

14 on international obligations, national laws and regulations, implementation and practice, and then information as given on existing monitoring systems and experiences. Usefulness was again classified in three categories: limited, moderate and useful. Activity 6: Defining main effects and relevant indicators This last activity is the matching of the results of the analysis of the effects of sustainability initiatives, with the results of the analysis of monitoring / evaluation systems, to indicate main (categories of) effects and related indicators. These may then be used to monitor the most important social and economic effects. At this stage we propose concrete indicators, and noted the institutions responsible for monitoring these indicators and the possible added conditions required to generate useful monitoring results for the purpose of this assignment. 2.3 Analytical framework For the assessment of the social and economic effects of sustainability initiatives, an analytical framework was developed in order to generate reliable, objective and convincing results and insights. To do so, one important source of information was the ISEAL code of good practice to assess impacts of social and environmental standard systems, providing a list of economic and social sustainability effect categories (ISEAL, 2011) 2. For our analytical approach, we made a distinction between effects at household and at regional level. At household level the following five categories of effects were distinguished: 1. Household economics: do producers and workers experience an improvement in cost-benefit balance? Issues are: product productivity, product quality, employment, input incomes, wages, access to credit, food security. 2. Labor conditions: do producers and workers involved experience an improvement in labor conditions? Issues are: forced labor, child labor, health and safety, labor security. 3. Natural capital: do local producers and communities have adequate ownership rights and are externalities controlled? Issues are: land improvements, land tenure, share cropping, land rights and land conflicts. 4. Human development: do producers feel empowered by improved capacities and organizational development? Issues are: education, health care, organizational and management skills. 5. Market access: do producers feel empowered by improved market access, information and bargaining skills? Issues are: market linkages, information organization, bargaining position, certification systems. At regional level we looked at effects and related indicators that give information about the aggregated value of effects at household level. Most important are the following: poverty level, income per capita, food security, level of education, employment. To assess the effects within each of the above categories, we identified indicators at different levels of the cause-effect chain. To do so, we used the commonly known framework for evaluation of policy interventions which distinguishes between different levels of effort and effects, described as input, output, outcome and impact (IOB, 2011) 3. Similar concepts are used to understand changes, and underlying theories of change, and to link policy interventions and evaluations with stakeholders and 2 ISEAL (2011) Assessing the Impacts of Social and Environmental Standards Systems v1.0. ISEAL Code of Good Practice ISEAL 3 IOB (2011) Facilitating resourcefulness. Synthesis report of the evaluation of Dutch support to capacity development. Publicatienummer A

15 development processes (Nelson and Martin, 2011) 4. Therefore this study categorizes social and economic effects and related indicators of sustainability initiatives as follows: Outputs, defined as the direct result from products or services provided by the initiative in terms of realized activities. Outcomes, defined as the direct results of the activities (outputs) in terms of behavioral change or environmental consequence. We also distinguish indirect outcomes which would be the consequences of behavioral change, e.g. change in systems or institutions. Impacts, defined as the benefits in terms of final values of human well-being. At regional level we mainly looked at the level of impacts. How did we approach the analysis of information? The assessment of effects of sustainability initiatives faces two challenges. One is the quality of information. During the review, we were soon faced with the challenge of a lack of sources with robust methodologies used for determining the social and economic effects of sustainability initiatives. However, more in general there is a lack of good impact assessment studies and insight in the effects of sustainability initiatives. Second is the problem of attribution and challenge of drawing firm conclusions. Here it is useful to make a distinction between proven effects and plausible effects. Thus, our approach to the analysis of effects departs from different angles: 1. Quality of information. We noted the presence or absence of data and information in the sector, in three different categories of robustness. This indicates the relative availability of robust studies and other types of information; 2. Proven effects. We have drawn conclusions on the basis of the available robust information, on the available evidence for specific effects. 3. Plausible effects. We have drawn conclusions with respect to plausible effects, on the basis of clear theories of change and expert opinions, supported by less robust information (e.g. from annual reports and qualitative information from evaluation studies). To do so, for each agro-commodity and category of effects we have illustrated the main effects by story-lines and cause-effect chains. Lastly, we searched the available literature for relations between identified effect categories and sustainable development indicators, in order to know to what extent observed effects of sustainability initiatives can be expected to contribute to poverty reduction at regional level. 2.4 Quality of the available studies Of the six selected agro-commodities, numerous studies indicate the negative socioeconomic and environmental effects of conventional production systems. Most of these studies date from the 1990s and early 2000s. The findings of these studies have been at the basis of sustainability initiatives for these agro-commodities, focusing at the elimination of negative effects of conventional systems. Sustainability initiatives in coffee have the longest history, dating from the 1980s, and this explains why for this agro-commodity most studies are available on socioeconomic impacts of sustainability initiatives. Most of the available studies in coffee deal with the effects of fair trade initiatives (launched in 1988). For cotton, most studies are available on organic cotton (no use of agrochemicals), which was launched in the 1980s and now has a 1.1% global market share. Few studies are available on more recently introduced certification systems. For timber and cocoa some useful studies are available, but for soy and palm oil, no studies exist on the effects of sustainability initiatives. 4 Nelson, V. and Martin, A. (2011) Impact Evaluation of Social and Environmental Voluntary Standard Systems (SEVSS): Using theories of change. NRI Publicatienummer A

16 The available studies on the effects of sustainability initiatives all focus at household level and do not evaluate wider scale effects. A general limitation of the available studies is that no correction is made for differences in farm household characteristics, by comparison with a baseline and/or a control of a subset of farmers with similar characteristics but not involved. We made use of three meta studies. One is the study by Blackman and Rivera (Blackman and Rivera, 2010) 5 who undertook a study on the evidence base for environmental and socioeconomic impacts of sustainability initiatives. They conclude that from 134 available studies only 37 meet the following criteria for a sound evidence base: 1. Focus on certification of the production process of agricultural commodities, not including processing or manufacturing; 2. Focus on socioeconomic and environmental impacts of certification (rather than consumer demand for certified products, the drivers of certification, or certification design recommendations); 3. Focus on ex post empirical analysis, i.e. an analysis of an actual experience with certification (rather than an ex ante simulation or general discussion). Of the 37 studies, only 14 were studies that constructed a reasonably credible counterfactual and could therefore be considered a test of the causal impact of certification (A). The remaining 23 studies did not construct a reasonably credible counterfactual but did focus on the assessment of impacts (B). Of the 14 category A studies, all identify certification impacts by comparing certified and matched noncertified entities using cross-sectional data. Only three studies in the evidence base identify certification impacts using a before-after comparison. No studies compare certified and noncertified entities both before and after certification (i.e., before-after-control-impact ). Several other studies could be relevant because they shed light on certification impacts in a general or qualitative way (C). These studies can also be important by providing evidence of the causality of theory of change in a qualitative way, leading to conclusions with respect to plausible effects. The second meta study is by the Natural Resources Institute 6 on the impacts of fair trade. They listed 33 reliable case studies of which 25 are on coffee, but their criteria for inclusion in the evidence base is less strict, so these would mostly fall within the category B above. Apart from that, this study provided a range of useful information from studies classified as category C. Much evidence was also on the way by which sustainability initiatives have strengthened empowerment of fair trade producers and their organizations. The third meta-study is by Ruben 7, who brings together nine recent studies on the socio-economic impacts of fair trade initiatives in coffee and banana sectors. We have classified the studies that were used in a similar system as Blackman and Rivera (2010), and also noted the number of relevant studies that were not selected for this study (D). The results are listed in below table 3. 5 Blackman, A. and Rivera, J. (2010) The Evidence Base for Environmental and Socioeconomic Impacts of Sustainable Certification. Resources for the Future 6 Nelson, V. and Pound, B. (2009) The Last Ten Years: A Comprehensive Review of the Literature on the Impact of Fairtrade. Natural Resources Institute (NRI), University of Greenwich, 7 Ruben, R. (2009) The impact of fair trade. Wageningen Academic Publishers, Wageningen. Publicatienummer A

17 Table 3: The evidence base, with a classification of the case studies that were used in 4 categories. A: oriented at impacts, counterfactual B: oriented at impacts, no counterfactual C: mainly qualitative on impacts D: impact studies not selected (A+B) Timber Palm oil Soy Coffee Cocoa Cotton The above table demonstrates the challenge we faced in this study, as a result of the poor evidence base that is available. It shows that of the 14 studies classified at the highest (A) level, 6 were on coffee and 1 on timber (and the others on agro-commodities that are not part of our study). The evidence base is most scarce for palm oil and soy, not surprisingly because these agro-commodities only applied sustainability standards since the last few years. For these two commodities it was therefore especially difficult to identify impacts of sustainability initiatives. We would like to draw attention to three particular types of evidence that were used: For the forestry sector (FSC), two studies have made use of the review of audit reports and the most commonly identified corrective actions. This approach results in insights with respect to issues that most commonly require corrections, and thus can be expected to show improvements. We listed these studies as category B. For palm oil and soy we tried to undertake such a study, but we only had access to a few audit reports and the number of corrective actions per criterion was not available. In a more general sense, it can be expected that the presence of clear criteria of the available sustainability standards on certain aspects (e.g. labor issues) is part of the theory of change as it will most probably lead to improvements as the number of certified producers shows progress. This type of evidence was classified as category C. NGO annual reports on progress of the implementation of sustainability initiatives often provide qualitative information on effects, and is in line with their information on theory of change. This information has been classified as category C. All the above studies deal with the effects at household level, and have hardly looked at wider effects at community level or at regional level. Even as regards conventional commodity production, there are hardly studies available on regional effects. The study by Aidenvironment (Aidenvironment, 2007) 8 focuses at impacts at regional level by using national statistics mainly, and the results were used as a baseline. 2.5 Baseline characteristics of selected agro-commodities Six agro-commodities were selected for detailed study of effects. These commodities represent different types of production systems: Timber represent direct harvesting from natural or semi-natural ecosystems Palm oil and soy represent large-scale production systems Coffee, cacao and cotton represent small-scale production systems 8 Aidenvironment (2007) Analysis of socio-economic impact of trade of selected commodities Amsterdam Publicatienummer A

18 In below boxes an overview is given of the main characteristics of each commodity, including production system, involvement of people and smallholders in particular, economic parameters, value chain characteristics, main sustainability initiatives and market share of sustainability products. Details can be found in the separate reports per agro-commodity in Appendices 2A to 2F. Timber Production system: Direct harvesting of natural products, mainly large-scale, increasing importance of plantations, some community-based production, labor intensive in harvesting and processing Number of people engaged: 1.6 billion people depend in varying degrees on non-timber forest products from forest; 47 million people are employed in the forestry sector of which 30 million in the informal sector Production countries: Numerous, especially SE Asia, Congo basin and Amazon region Economic importance: Very important for several tropical developing countries, more than 10% of GDP Demand-supply-prices: Increasing demand as well as consistent increase of prices, little affected by economic crisis Value chain: Relatively simple, fragmented, while dominated by large multinational companies, small and medium-sized enterprises, including those owned by communities, are most numerous; processing in production countries or countries with cheap labor Main sustainability initiatives: Forest Stewardship Council (FSC) established in 1993, widely accepted by private sector and NGOs Program for Endorsement of Forest Certification Schemes (PEFC) established in 1999 Several national standards such as Malaysian Timber Certification Council (MTCC) in Malaysia and Lembaga Ekolabel Indonesia (LEI) in Indonesia Approaches to combat illegal trade, including the EU s Forest Law Enforcement, Governance and Trade (FLEGT) program and Voluntary Partnership Agreements (VPA) Market share of sustainability initiatives: More than 147 million ha are now certified by FSC worldwide, of which nearly 16 million in the tropics, less than 5% are community-owned. It is not possible to give the FSC proportion of total forest production. Publicatienummer A

19 Palm oil Production system: Large-scale plantation-based production systems mainly (several tens of thousands hectares per plantation), commonly with smallholders in outgrower schemes who depend upon processing factories, cultivating a few hectares up to ha of land, not labor intensive in processing Number of people engaged: An estimated 3 million smallholders, either as independent farmers or as part of outgrower schemes Production countries: Mainly Indonesia and Malaysia, expansion in Asia, Africa (Nigeria, Ghana, Liberia, Gabon) and Latin America (Brazil, Colombia, Ecuador, Honduras) Economic importance: Increasingly important for several tropical developing countries Demand-supply-prices: After a period of turbulence, price is expected to remain relatively high and stable, as a result of the continuously high and increasing demand, also for biofuels Value chain: Consolidated value chain, processing at production locations, complex chain due to various end-products, production with some 50 companies that control 75% of world production Main sustainability initiatives: The Roundtable on Sustainable Palm Oil (RSPO), initiated in 2002 by WWF, Unilever, and the Malaysian Palm Oil Association Indonesian Ministry of Agriculture has started in 2010 to develop its own standard, the Indonesian Sustainable Palm Oil System (ISPO) Mid 2011, the Malaysian Oil Palm Board has announced to develop also its own mandatory Malaysian Sustainable Palm Oil (MSPO) Voluntary initiatives, none of which has so far developed a standard, including the Palm Oil Support Initiative (POPSI), which is a market-driven initiative initiated by Solidaridad, WWF and the RSPO, and the Palm Oil Buyers Scorecard. Market share of sustainability initiatives: As of December 2011, the RSPO has 558 members representing 40% of the world s production and has certified 1.1 million ha, representing circa 7% of the global cultivated area. RSPO certified palm oil entered the market since Coffee Production system: small-scale production system mainly, 70% of world coffee production by small producers with less than 10 hectares of land; 50 % have less than 5 hectares Number of people engaged: 25 million small scale coffee farmers, 75 million laborers Production countries: mid- and south America, several African countries, Vietnam, Indonesia Economic importance: 2nd largest export crop worldwide, high dependency in some developing countries Demand-supply-prices: demand relatively stable increasing by 1-2%, supply variable causing variable prices; importance of speciality coffee varieties; there was an important drop in coffee prices in with dramatic effects on some producers. Value chain: relatively simple, market becoming more concentrated, especially in the roaster market. Main sustainability initiatives: Longest history of sustainability initiatives, including: Fair trade standards, launched by NGOs in 1988 Organic production, launched in 1972 Rainforest Alliance (RA), developed in 1995 UTZ Certified program, developed in 1997 The Common Code for the Coffee Community (4C), established in 2003 Initiatives and schemes by private companies such as Starbucks and Nestle. Market share of sustainability initiatives: now estimated at about 10% of worldwide coffee trade, estimated at 45% in the Netherlands. Publicatienummer A

20 Soy Production system: mainly large-scale plantations, with an average size of 1,000 hectare up to 50,000 hectare, and highly mechanized farming practices; soy is also grown as mixed cropping with small family farms of 2 to 50 hectare; crushing of soy is mainly local, not labor intensive Number of people engaged: 8.4 million small-scale farmers and 1 5 million laborers Production countries: USA, Brazil and Argentina jointly produce 80% of global soy production Economic importance: high dependency of farmers in above countries Demand-supply-prices: demand increasing and during recent years prices mainly increasing due to increasing demand, also for biodiesel use Value chain: Complex due to large number of end-products; hourglass structure both for food and industrial products as for meat and dairy products, with a high concentration of players in a few links of the chain, supplying the food and feed industry dominated by a few manufacturers Main sustainability initiatives: Basel Criteria/ProTerra, from 2004 onwards, with criteria for sustainable non-gm soy. Round Table on Responsible Soy (RTRS), a mainstream initiative, providing in 2010 the final version of the RTRS Principles and Criteria Soy Plus, developed in 2010 by several representatives of large soy producers who left the RTRS and criteria that are less comprehensive than the RTRS Organic, relying on regulations for organic farming provided by IFOAM EcoSocial, a certification system developed in Brazil, especially with social norms Fairtrade, since 2008 with a standards for soybeans Soy Producer Support Initiative (SOYPSI), mainly adhering to RTRS and possibly other criteria such as non-gm, organic or derived from family farms, to serve added value to family farms that cannot compete in scale or volume with large, mechanized farms. Market share of sustainability initiatives: In June 2011 the first shipment of 85,000 tons of RTRS certified soy was sold to Dutch industry; certified organic soy is 0.1% of world production of soy. Cocoa Production system: small-scale production system, 90% of global production by smallholders with farm sizes between 3 and 4 hectares Number of people engaged: 3 million producers, highly dependent on cocoa Production countries: Ivory Coast, Ghana, Cameroon; expansion also in south America Economic importance: very important for above countries Demand-supply-prices: increasing demand while supply is dwindling, volatile prices, high prices in last 5 years. Value chain: relatively simple, dominated by large multinational companies active in cocoa processing and chocolate manufacturing. Main sustainability initiatives: Fair trade standards, with a focus on social issues, launched by NGOs in 1990s Organic cocoa production, launched in 1985 Rainforest Alliance standard with emphasis at environmental issues, developed in 1995 UTZ Certified program with emphasis at sustainable production methods, developed in 2007 Sector initiatives, including in 2002 the International Cocoa Initiative (ICI), a partnership of companies, labor unions and NGOs, working especially to eliminate child labor, and since 2007 the Roundtable on Sustainable Cocoa Economy by the International Cocoa Organization Market share of sustainability initiatives: now estimated at 3% in 2009 and 6% in 2011, and the target of 100% certified in the Netherlands by Publicatienummer A

21 Cotton Production system: small-scale production system mainly, with ha for cotton in mixed farming systems; garment sector mainly small and medium enterprises Number of people engaged: 100 million small scale farmers in 70 countries; at least 24 million workers in garment sector, mainly women Production countries: India, Pakistan, China (both production and garment); Bangladesh (garment only); cotton production in West Africa is very important for local economy Economic importance: cotton is main traded agricultural raw material worldwide, high dependency in some developing countries Demand-supply-prices: demand relatively stable increasing by 1-2%, supply variable causing variable prices; importance of GM varieties; there was an important drop in cotton prices in with dramatic effects on producers. Value chain: complex and fragmented, market becoming a bit more concentrated, especially in the textile sector. Main sustainability initiatives: Longest history of sustainability initiatives, including: Integrated pest management (IPM), since 1980s, to reduce high use of pesticides in cotton Organic cotton, since the 1980s Fair trade cotton, since 2005 Better Cotton Initiative (BCI), with a standard available since 2009 and now starting production volumes In garment sector application of SA8000 and ISO standards on labor issues mainly. Market share of sustainability initiatives: organic cotton now estimated at 1.1% of worldwide cotton production; for garment sector rapidly increasing number of companies that comply to social standards, but not possible to say what proportion meets social standards. Publicatienummer A

22 2.6 Baseline social and economic effects On the basis of the available studies on the social and economic impacts of conventional production of the 5 selected agro-commodities, we can establish an overview of the key sustainability issues that constitute areas of concern. These issues are most likely being addressed by the sustainability initiatives that have been developed for these sectors. Table 4a and 4b give an overview of the priority issues, developed by Aidenvironment for IDH as a starting point for monitoring progress on solving sustainability problems in these value chains. Table 4: Priority social and economic sustainability issues considered as most problematic for the selected agro-commodities People / social Agro-commodity NRs Large-scale Small-scale Timber Soy Palm Cocoa Coffee Cotton* Food security Child labor / Forced labor Health and safety issues / Poor working conditions (job insecurity, discrimination, bad housing) / Land right conflicts Profit / economic Agro-commodity NRs Large-scale Small-scale Timber Soy Palm Cocoa Coffee Cotton* Low incomes / wages / Yield performance (smallholders) / - Price volatility / - Insecurity of supply / - Trade barriers / - otton production and garment sector respectively From Tables 4 it can be observed that for all commodities there are problems of low wages, poor yields and low incomes of smallholders involved in the conventional production systems. For timber low wages are an issue of concern for laborers involved. For cotton low wages and labor conditions are a problem in the garment sector. There are also some specific problems for each cluster: Timber (natural resources exploitation) has few problems associated with smallholders because these are not much involved, but mainly labor issues (in timber harvesting and processing); Soy and palm oil (large-scale production systems) have specific problems of land right conflicts (due to large-scale land clearing and expansion) and food security (due to land competition with food production), as well as involvement of smallholders; Cocoa, coffee and cotton (small-scale production systems) have problems of child labor (on family farms), price volatility and insecurity of supply (due to the marginal situation of producers in the value chain). Publicatienummer A

23 3. Effects at household level 3.1 Introduction For each category of indicators, we note the main findings, highlighting general insights and specific information per commodity, if available. A scheme summarises the main findings in a cause-effect chain, with a distinction between (i) availability of robust information (i.e. impact studies with counterfactuals), (ii) conclusions on proven effects and (iii) conclusions on plausible effects. 3.2 Household level economics On the issue of household economics the central question is whether producers and workers experience an improvement in income and cost-benefit balance. Indicators at subsequent levels in the result chain are listed in Table 5. Table 5: Household economics indicators Result chain Definition Indicators Inputs and outputs Direct and indirect outcomes Impacts Product or service provided by initiative Result of the product or service provided Direct consequence by using the results Resulting change of behavior or systems Resulting improvement in final values Provision of premium price Provision of inputs Provision of subsidies Provision of credits Generation local employment Access to premium Access to and use of inputs Access to credit Local employment (farms, workers, SMEs) Incomes by premiums Agricultural management( inputs, investments) Local employment (farms, workers, SME) Yield levels Product quality Input efficiency Incomes by local employment Household cost-benefits Workers incomes / wages Diversity of incomes Food security For the conventional production systems of each of the six selected agro-commodities, low incomes is an issue of concern, especially for smallholders. This is mainly related to the production system (low yields, low quality) or market factors (low prices, low proportion of the value added for primary producers). Wages are also low for the laborers involved in large-scale production systems, in processing or in the garment sector (cotton). For timber, few smallholders are involved in production, as large investments are required to harvest timber, but many are involved as laborers and in SMEs. For soy, production is mainly large-scale while for palm oil smallholders are involved as Project number A

24 outgrowers and in processing (mills), and for both sectors smallholders may also produce directly for the market. Robust information on the effects on economics at household level is available for smallholder systems (coffee, cocoa, cotton). Studies in the coffee sector are most numerous, few are available on cocoa and cotton, as well as timber. These studies look at incomes, land productivity, access to credit and the effects of premium prices. The studies mainly look at fair trade and organic initiatives (being initiatives with the longest history). These initiatives also provide improved access to inputs and credits and possibly provide pre-financing, and are specifically focused at smallholders. However, certification systems oriented at timber and large-scale production systems of soy and palm oil are in the first place mainstream initiatives and have entry barriers for smallholders. The available robust studies provide variable evidence for direct positive effects by sustainability initiatives on household incomes of producers involved, for smallholder systems (Figure 1). The effects may be positive or negative, but in the case of positive impacts the increase in incomes is modest. Underlying reasons are that production volumes and marginal cost benefits are limited (Valkila, 2009)9, yields may not be much higher and price premiums are limited or may not exist at all. Even if revenues are higher due to price premiums, there may also be higher costs, e.g. costs of certification. For organic cotton, the increase in incomes is more significant (30-40% increase), which is mainly due to a substantial cut in input costs (on pesticides mainly) and increase in prices. There is evidence that fair trade and organic certification leads to increased labor demands in rural areas that have limited job opportunities outside agriculture. However, this labor comprises backbreaking shoveling and carrying of heavy sacks of organic materials with no mechanical assistance. Working conditions in Fair Trade organic coffee production in Nicaragua are not superior to the working conditions in rural Nicaragua in general (Valkila, 2009). For organic cotton, there is no increase in labor demand, but there is a shift from labor in pesticide use to labor for organic fertilizer use. Other issues regarding labor conditions are discussed in the next section. There is no information as regards the influence of sustainability initiatives on employment in other parts of the value chain or at plantations. The direct income effects of fair trade and organic production systems depend upon the starting situation of the producers. Improved farmer incomes can be expected in the case of poor farmers with low-intensity production systems (low yields), hence potentials for improvement. However, the increase in income will be modest, since low volumes are produced. In the case of more intensive production systems, there is limited potential for yield improvement and the benefits of premium prices are marginal at best. Direct income benefits also depend upon price differences of fair trade / organic with those in the mainstream markets. If commodity prices are lower than fairtrade or organic minimum prices, income effects may be considerable, depending on the proportion of a farmer s produce sold as fairtrade / organic. Clearly, this is difficult to predict. In cotton, the benefits are highest where farmers can save most on use of expensive agro-chemicals. Also, prices of organic cotton have been 20-50% higher than conventional cotton, but with the global drop of cotton prices, the price difference has dropped to a mere 5% difference. The conclusion that income benefits are variable and at best modest, are in line meta-studies from Ruben (2009) and Blackwell and Rivera (2010). Our conclusions are not in line with those from Nelson and Pound (2009), who conclude that higher returns and more stable incomes are the predominant impact enjoyed by Fairtrade producers as compared to conventional producers. 9 Valkila, J. (2009) Fair Trade organic coffee production in Nicaragua - Sustainable development or a poverty trap? Ecological Economics 68, Publicatienummer A

25 In timber, in most cases certified wood does not result in higher prices. In many of the researched enterprises, the profit margin of certified products has fallen below acceptable levels (De Lima et al., 2008) 10 and (Keppe et al., 2008) 11. Access to credit is an essential condition as forest operations require high investments, while the cost of certification can be a barrier and certification systems tend to favor large-scale operators at the expense of small ones (WWF, 2010) 12. Blackman and Rivera (2010) also conclude on the basis of available studies on socioeconomic impacts of FSC that certification provides none to negligible premiums and no income benefits. Figure 1: Main elements of cause-effect chain direct household economics due to sustainability initiatives (applicable to coffee and cotton mainly, less so for cocoa and timber) Outputs Premium price high (cotton), low or absent Yield increase possible Reduction of input costs Costs of certification Access to credits Outcomes Robust studies available Variable evidence for improved farm productivity and improved cost-benefit balance Impact Robust studies available Weak evidence of improved household incomes, at best modest benefits, and context dependent For large-scale production systems no robust studies are available. For both sectors the available standards (RTRS and RSPO) are of recent date and are not very accessible to smallholders. For both sectors a task force for involvement of smallholders in certification systems is being implemented. For palm oil, smallholders can also be involved in outgrowers schemes. Both for palm oil and soy, significant direct income benefits are not very plausible (Figure 2). On employment, soy production units are large-scale and highly mechanized, with limited labor demands. In palm oil labor demand is high. In both soy and palm oil sectors, initiatives are taken to better engage smallholders and create opportunities for smallholders to become certified. The RTRS also refers to Fair opportunities for employment and provision of goods and services are given to the local population. However, it is observed that the issue of mechanized soy farming employing few people is impossible to address through sustainability certification schemes that work at farm-scale level (GM Watch, 2011) De Lima, A.C.B., Keppe, A.L.N., Palmieri, R., Corrêa Alves, M., Maule, R.F. and Sparovek, G. (2008) Impact of Sustainable Agriculture Network (SAN) certification on coffee farms. Case study in the southern region and cerrado areas of the State of Minas Gerais, Brazil /Imaflora. Instituto de Manejo e Certificação Florestal e Agrícola (Imaflora), 11 Keppe, A.L.N., de Lima, A.C.B., Alves, M.C., Maule, R.F. and Sparovek, G. (2008) Impact assessment of FSC certification on forest enterprises in southern Brazil.. Instituto de Manejo e Certificação Florestal e Agrícola (Imaflora), 12 WWF (2010) Certification and roundtables: do they work? WWF review of multi-stakeholder sustainability initiatives. WWF 13 GM Watch (2011) Certified responsible? Critical assessment of the Round Table on Responsible Soy. GM Watch, Friends of the Earth, Corporate Observatory Publicatienummer A

26 Figure 2: Main elements of cause-effect chain direct household economics due to sustainability initiatives (applicable to soy and palm oil) Outputs Premium price absent Yield increase possible Reduced costs for inputs unclear Costs of certification Access to credits unclear Outcomes No robust studies Plausible effects of improved farm productivity and improved cost-benefit balance for smallholders Impact No robust studies Not plausible impacts of improved household incomes, at best modest improvement SME employment opportunities A separate section deals with the possible influence of sustainability initiatives in creating employment for the small and medium sized processing industries, for instance in timber processing, garment industry (cotton) and palm oil processing mills. In the timber sector, there is evidence of improved employment opportunities and higher salaries for locally employed people in the case of FSC (Peña-Claros et al., 2009) 14 (De Lima et al., 2008) 15. The higher salaries may have to do with the fact that FSC requires payment of the minimum wage. In some cases the workers may have been receiving below minimum wage salaries before certification. There are no impact studies available on SME employment in cocoa, coffee, palm oil or soy. Moreover, these effects are not very plausible as processing will be mainly large-scale or abroad (Figure 3). However, for cotton the garment sector is very important in offering employment to SMEs. There is evidence that due to attention for decent labor conditions, minimum wage levels have increased, but wage levels are still below the (desirable) living wages levels and contract workers do not always receive minimum wages (IDS, 2006) 16. Figure 3: Main elements of cause-effect chain on SME employment opportunities (applicable to timber and cotton) Outputs Criteria for local employment opportunities and better wages (timber) Criteria on minimum / living wages (cotton) Outcomes Some robust studies Evidence for increased employment opportunities in timber and improved wages (timber and cotton) Impact Some robust studies Some evidence on increased employment for local SMEs in timber No significant employment improvements in garment sector 14 Peña-Claros, M., Blommerde, S. and Bongers, F. (2009) Assessing the progress made: an evaluation of forest management certification in the tropics. nr , Wageningen UR, Wageningen 15 De Lima, A.C.B., Keppe, A.L.N., Palmieri, R., Corrêa Alves, M., Maule, R.F. and Sparovek, G. (2008) Impact of Sustainable Agriculture Network (SAN) certification on coffee farms. Case study in the southern region and cerrado areas of the State of Minas Gerais, Brazil /Imaflora. Instituto de Manejo e Certificação Florestal e Agrícola (Imaflora), 16 IDS (2006) The ETI code of labour practice: Do workers really benefit? IDS, Sussex Publicatienummer A

27 3.3 Labor conditions On the issue of labor conditions the central question is whether producers and workers involved experience an improvement in labor conditions. Indicators in the result chain are listed in Table 6. Table 6: Labor condition indicators Result chain Definition Indicators Inputs and outputs Direct and indirect outcomes Impacts Product or service provided by initiative Result of the product or service provided Direct consequence by using the results Resulting change of behavior or systems Resulting improvement in final values Norms on labor conditions Norms on labor security Norms on health and safety measures Written contracts Respect of labor conditions Respect of labor security Respect of health and safety measures Inclusion in social security Living or minimum wage Child labor measures taken Forced labor measures taken Labor safety measures taken Labor security measures Management of labor conditions Labor safety Labor health Labor security Child education In the production systems of all six selected agro-commodities, there are significant problems in conventional production systems as regards labor conditions, especially child labor, forced labor, labor health and safety and labor security, in line with ILO conventions and national legislation in producer countries. There are hardly any studies that focus at evaluation of the effects of sustainability initiatives on labor conditions (Figure 4). In coffee, there is some evidence for improved labor conditions at household and cooperative level, as well as processing factories, but not from plantations. Also, wages at household level may remain too low. In cocoa, there is evidence of reduced incidence of child labor, not only due to sustainability initiatives but also sector initiatives. In timber, FSC certification has a positive effect on working and living conditions, including health and safety, housing, wages, employment opportunities and training and capacity building. In palm oil and soy, there remain doubts by NGOs on the effective application of the RSPO and RTRS standards on this subject, so that malpractices are expected to persist. The absence of impact studies on labor conditions is possibly due to the fact that all certification schemes have strong criteria on compliance with labor regulations. Thus, it is plausible that these conditions will improve in relation to the rate of application of these standards and the volume of certified products. Audit reports would be expected to provide such information. Publicatienummer A

28 Figure 4: Main elements of cause-effect chain labor conditions due to sustainability initiatives (applicable to timber, cocoa and coffee) Outputs Application of criteria on labour conditions, labour security, health and safety, child labour Outcomes No robust studies Evidence for measures to improve labour conditions, security, health and safety in line with criteria Impacts No robust studies Plausible impacts of improved labour conditions, security, health & safety and well being of workers (less accidents in timber) In cotton, there is a separate story (Figure 5). With cotton production, there have been important changes in labor tasks, from much reduced use of pesticides to more labor in the use of organic fertilizers. The cotton case study summarises the evidence for a shift from men to women s jobs. Secondly, there is direct and indirect evidence for important health improvements of farmers as a result of the reduced use of pesticides. This is also the main effect of the application of integrated pest management (IPM). Similar improved health effects can be expected if sustainability measures are being applied in other sectors where many pesticides are used, such as soy and palm oil. In the garment / textile sector, there is some robust evidence of improved labor conditions, and qualitative evidence from evaluation studies. Figure 5: Main elements of cause-effect chain labor conditions due to sustainability initiatives (applicable to cotton) Outputs Application of criteria on reduced use of pesticides, improved labour conditions, health and saferty Outcomes Some robust studies Reduced use of pesticides Increased proportion of labour for women Some improvements in labour conditions Impacts Some robust studies Evidence for improved health due to less use of pesticides Plausible impacts of improved, health & safety and well being of workers 3.4 Natural capital On the issue of natural capital the central question is do local producers and communities have adequate ownership rights and are externalities controlled. Indicators at subsequent levels in the result chain are listed in Table 7. Publicatienummer A

29 Table 7: Natural capital indicators Result chain Definition Indicators Inputs and outputs Direct and indirect outcomes Impacts Product or service provided by initiative Result of the product or service provided Direct consequence by using the results Resulting change of behavior or systems Resulting improvement in final values Norms on land security (for affected stakeholders) Norms on land contracts / shareholders arrangements Norms on free, prior and informed consent Land management and improvement Use of mechanisms for enhanced land security Use of procedures for free, prior and informed consent, Use of procedures on stakeholder consultation Services and training on improved land management Land security measures Participation by local communities Application of and investments in improved land management practices Access to land Incidence of land conflicts Respect of the rights of local and indigenous peoples Public participation and information supply Sustainable land management systems Tenure security Land quality Biodiversity status Autonomy of local communities and indigenous peoples With respect to natural capital, conventional production systems show problems of land conflicts and lack of land tenure security, especially with large scale plantations (soy and palm oil) and timber exploitation. There is evidence that land conflicts between indigenous peoples and local communities and plantation companies result from the lack of adequate consultation and agreement amongst the parties, and application of the principle of free, prior and informed consent (FPIC). We also find problems of poor land management, mainly due to lack of skills and investment capacities by smallholders. Sustainability initiatives address these issues and thus improvements would be expected to occur if certification is progressing. Free, prior and informed consent (FPIC) and stakeholder consultation is a criterion of all sustainability standards. However, there is no concrete evidence from impact studies, e.g. on land tenure security. From smallholder systems (coffee, cocoa), there is evidence of the use of improved land management practices (figure 6). Especially conservation techniques associated with more sustainable farming are widespread, and associated farmers are also inclined to maintain more shade trees. From cocoa, there is some evidence that agro-forestry and a combination of forest vegetation, alternative crops and cocoa production can have a positive impact on soil and water (and landscape) restoration. This Publicatienummer A

30 improves the resource base for cocoa farmers and may be expected to have positive effects on yields and cocoa quality. Figure 6: Main elements of cause-effect chain natural capital due to sustainability initiatives (applicable to all sectors except for cotton Outputs Mechanisms for dealing with disputes Support to improve sustainable land / forest management Mechanisms on stakeholder consultation and FPIC Outcomes No robust studies Some evidence improved land / forest mngt. Plausible effects of improved relations and less conflicts Plausible that noncompliance remains (palm oil, soy) Impacts No robust studies Plausible impacts of: - Communities more in control of their land - More respect of rights local and indigenous peoples - Improved land / forest qualities 3.5 Human development On the issue of human development the central question is do producers feel empowered by improved capacities building and organizational development. Indicators at subsequent levels in the result chain are listed in Table 8. Human development refers to capacity building, skills development, organizational development, self confidence and social services. These effects are commonly referred to as contributing to empowerment (e.g. Nelson and Pound, 2009). Empowerment is generally considered to be a major component of poverty reduction, apart from the economic (incomes) angle. Table 8: Human development indicators Result chain Definition Indicators Inputs and outputs Direct and indirect outcomes Impacts Product or service provided by initiative Result of the product or service provided Direct consequence by using the results Resulting change of behavior or systems Resulting improvement in final values Training on agricultural practices and business skills Education services Health services Organizational development services People trained to improve skills Education facilities Health facilities People trained on organizational support Use of acquired skills Use of education facilities Use of health services Use of skills on organizational management Improved agricultural practices / management Improved business skills Democracy in producer organization Self-confidence Level of education Level of well-being Publicatienummer A

31 Few robust studies are available indicating evidence of effects on human development. However, relatively much qualitative evidence is available (e.g. based on questionnaires). The qualitative information generally provides strong indications of improved human development by sustainability initiatives, which is also plausible given the theory of change and inputs being provided (Figure 7). In fair-trade initiatives in coffee, there is qualitative evidence that fair trade participants and their communities benefit positively from social investments using fair trade premiums. There is evidence of higher investments and higher levels of education by fair trade and organic farmers, positive effects on participation in primary education as well as access to medical care. Various training inputs lead to improved skills of the producers involved, especially on agricultural (best) practices, on business skills and organizational (financial) management skills. There is variable but generally positive evidence on the resilience of fair trade producer organizations against external shocks. For cocoa and (community) forestry these effects may be expected but there is no evidence. Lastly, there is evidence that Fairtrade participation has enabled smallholder producer organizations to increase their influence at a national level, and positive results for local farmers do seem to be achieved from this increased national influence, from the increase in self-confidence of co-operative members and through policy changes achieved by lobby (Nelson and Pound, 2009). In cotton, application of the labor code has lead to some improvements within households and communities of workers in the garment sector (IDS, 2006). Some of the women stated that working in the factories had led to an increase in their status and decision making at the household level, for example they could now decide on the kind of schools their children attend. They also reported better health of family members. Improved educational opportunities for the children of workers are also reported (Hordijk et al., 2010) 17. For palm oil, the RSPO s Task Force Smallholders has put smallholder development on the agenda, but it is too early to show impacts of the RSPO on education and training. Several sustainability initiatives address training in areas of agronomy, business skills and health and safety. For soy there is evidence of training activities under the SOYPSI program having positive effects on farm production and household expenditure. Figure 7: Main elements of cause-effect chain human development due to sustainability initiatives (applicable to all products; very limited evidence for soy and palm oil) Outputs Training inputs Social and health services (fair trade) Organisational support Management support Outcomes No robust studies, but qualitative evidence of: - use of acquired skills - use of social services (fair trade) - improved management skills Impact Some evidence improved education (coffee) Qualitative and plausible evidence of: : - Improved capacities - Improved farm practices and management systems - Improved organisational management, resilience 17 Hordijk, A., Jonkers, I. and Van Dok, Y. (2010) Evaluation Fashion Programme Solidaridad Nyenrode Business University and Motion Consult, Publicatienummer A

32 3.6 Market access On the issue of human development the central question is do producers feel empowered by improved market access, information and bargaining skills. Indicators are listed in Table 9. Table 9: Market access indicators Result chain Definition Indicators Inputs and outputs Product or service provided by initiative Result of the product or service provided Provision of secured markets Provision of market information Provision of certification systems Access to secured markets Access to market information Access to certification Direct and indirect outcomes Impacts Direct consequence by using the results Resulting change of behavior or systems Resulting improvement in final values Successful marketing of produce Ability to negotiate traders Market and export knowledge Successful certification Proportion of products traded Turn-over / sales Price received on marketed products Resilience of organizations Household incomes from marketing Market share of sustainable products Poor market access and low prices for producers are major causes for low and unpredictable incomes. Improving market access is a main component of sustainability initiatives, either directly (by offtake through secured niche markets) or indirectly (through enhancement of marketing skills, access to certification and access to market information). The evidence is summarized in Figure 8. Figure 8: Main elements of cause-effect chain market access due to sustainability initiatives (applicable to cocoa, coffee, cotton and timber mainly) Outputs Access to certification Access to secured markets and market information Training on marketing skills Outcomes No robust studies Qualitative evidence of improved product marketing, better prices, improved skills, more ownership by producers However, niche markets are not secure Impact No robust studies Some qualitative evidence for improved market share by producers therefore plausible impact of higher incomes Coffee, cocoa and cotton farmers involved in sustainability initiatives have secured access to niche markets, and create vertical integration in the market with improved relations between producer organizations and traders. There is some evidence that these effects lead to increased incomes, but more important is income stability, resilience of the organizations to external shocks, and income diversification. The evidence shows that fair trade and organic coffee farmers are positive about Publicatienummer A

33 improvements in the bargaining power of their organization, are more satisfied about service provision and have an improved sense of security (Ruben, 2009) 18. They are more willing to invest and take risks and have a larger time horizon. There is also an insurance function of markets for certified products which triggers local investment and asset accumulation. Important conditions for improved market access are access to credit, pre-financing and credit worthiness as well as improved producer organizations that enhance market access. The aspect of quality improvement and access to specialized quality markets in coffee is important (Kolk, 2011) 19. There is no robust evidence of the relation between improved access to markets and improved incomes or other economic benefits, but this relation is plausible. However, markets and prices for certified products may not always be so secure, as for instance experienced by organic cotton farmers who have experienced in recent years a collapse of the organic cotton market and premium price. The incentive remains where the production system has been improved and organic cotton can still be marketed with a profit on the mainstream market. A number of studies suggest that there might be negative externalities, for instance reduced demand from farmers not involved in the sustainability initiative, reduced prices or increasing competition, but no empirical evidence was found of this occurring in practice and in fact a higher number found positive influence on local market prices for non-fairtrade farmers (Nelson and Pound, 2009; Ruben, 2009). For timber, due to certification management systems are improved and a better understanding of the market is realized. There is evidence that this leads to improved market access for certified operations which is often a reason for an operator to go for certification. However, improved market access does not automatically lead to higher prices and incomes. A high degree of dissatisfaction was registered among certified community producers (De Lima et al., 2008) 20 in relation to wood sales and the corresponding economic returns, because of the difficulty to access the market for certified wood, and the absence of aggregated value in certified wood. In palm oil, smallholders do not have easy access to markets for palm oil as they highly depend on mills and/or nucleus estates. Within the RSPO a smallholder task force is operational, with emphasis on training, access to credit, and other support measures to ensure certification. It is assumed that these activities will lead to better market access. In the near future it is expected that smallholders will receive more support in their market access through support in certification procedures, training on compliance, access to credit and improved management. In soy, similar developments are ongoing. 3.7 Conclusions Based on the above review of effects and impacts, we can now summarize the main types of indicators that will be useful to assess the impacts of sustainability initiatives, especially at a regional (meso) level, for the three categories of production systems (Table 10). 18 Ruben, R. (2009) The impact of fair trade. Wageningen Academic Publishers, Wageningen. 19 Kolk, A. (2011) Mainstreaming sustainable coffee. Sustainable Development. 20 De Lima, A.C.B., Keppe, A.L.N., Palmieri, R., Corrêa Alves, M., Maule, R.F. and Sparovek, G. (2008) Impact of Sustainable Agriculture Network (SAN) certification on coffee farms. Case study in the southern region and cerrado areas of the State of Minas Gerais, Brazil /Imaflora. Instituto de Manejo e Certificação Florestal e Agrícola (Imaflora), Publicatienummer A

34 Table 10: Summary table on indicators use in impact studies and reports on sustainability initiatives Effect category Household economics Labor conditions Natural capital Human development Market access Regional development Indicators Farm production / yield levels Quality of the product Household income Access to credit Employment opportunities Food security Wages of workers Working conditions Discrimination against women Child labor Labor security Labor health and safety Investments in land / forest management, e.g. shade trees Land conflicts Access to land / ownership security Rights of local communities and indigenous peoples Investments in social services Access to education Access to health services Organizational / marketing skills Level of producer organization Longevity or stability of the producer organizations Access to market information Access to markets (e.g. time it takes to sell for a good price) Access to markets smallholders Market price / sales realized GDP/capita Poverty level Employment Average wage levels Relevance NRs Large-scale Small-scale timber soy palm coffee cocoa cotton Publicatienummer A

35 4. Effects at Regional Level 4.1 Introduction The previous chapter identified a range of effects from sustainability initiatives, and associated indicators at household level. However, in this study we are particularly interested in effects at a wider scale, which surpasses the household level, as this could imply significant impacts in terms of poverty reduction. Therefore, in section 4.2 we first review regional effects of conventional production systems and sustainability initiatives. In section 4,3, we review studies on the causal relations between observed effects at regional level, in order to explore whether this could lead to more robust insights on expected wider impacts. 4.2 Empirical evidence on regional effects Effects of conventional production systems There are very few studies available on wider regional (sub-national level) effects. For the regional effects of conventional production systems, studies carried out by Aidenvironment could be considered as a baseline. For methodological reasons, the studies by Aidenvironment were limited to regions where a certain agro-commodity clearly dominates the local economy. Some conclusions for coffee, soy and palm oil are presented here. For coffee, in Honduras, departments with coffee as the main source of income showed a more positive trend of several development indicators than the national average, so that the development gap with the national average was reduced. This suggests that coffee growing can have a positive regional development impact. In Vietnam coffee was vigorously introduced in the province of Dak Lak. Here, economic and social indicators showed a strong increase in the 1990s, but when in the early 2000s the international coffee price collapsed, the reverse was true. This suggests that the poverty reduction was not sustainable and directly dependent on (high) coffee prices. For soy, in Brazil conventional soy has a negative impact mainly in the areas of expansion (the frontier areas). This leads to an increasing number of land conflicts and reduced employment, relatively low average income levels and high levels of poverty. However, the data show that the trends are more positive once soy production systems are well established. This may be the result from the fact that over time local development takes off, with urbanization and social services improving. For palm oil, in Indonesia, in 1995 the selected palm oil producing provinces in Indonesia had a 20% lower GDP/capita than the national average, but this difference increased to about 30% in spite of high palm oil production volumes over this period from these provinces. In the frontier province of west Kalimantan the economic development was even negative. In the same period the human poverty index did not show positive changes while at national level there was a considerable improvement. Thus, rapidly expanding palm oil production in the selected provinces did not contribute to increased economic growth or to poverty reduction in the period of 1995 to Effects of sustainability initiatives With respect to wider impacts of sustainability initiatives, it is generally observed that impact studies do not address this issue and do not provide data. There is some information on plausible effects for specific commodities. Project number A

36 In coffee, there is no evidence for a negative demand externality for other (not involved) producers. On the contrary, there is evidence of positive spin-off, as farmers not involved benefit from raised prices as a result of competition induced by Fairtrade. Secondly, local community members may benefit from Fairtrade investment in community infrastructure. Thirdly, non- affiliated farmers adopt new techniques from the affiliated farmers, for coffee as well as other food crops (e.g. composting techniques, live plant barriers, terrace building), with a spread of organic practices to neighbors food production. This demonstration effect was also found in other studies (Ruben, 2009). (Aguilar, 2007) 21 also mentions a range of impacts which reach beyond individual producers and their fair trade organization in Bolivia, such as additional transport and tourism services, higher export taxes and creation of additional employment. In cocoa, both Conocado in the Dominican Republic (Laroche and Guittard, 2009) 22 and Maquita in Ecuador (Collinson and Leon, 2000) 23 are organizations that were able to upscale their ethical trading practices. Maquita s elevated buying price became the regional standard and Conocado was able to invest in micro-enterprises for cocoa processing and marketing, which leads to improved employment. Due to its size and influential position in the Dominican cocoa industry, Conocado was able to lobby for more producer-friendly policies, which contributed to upscale the impacts. These successes also depend on a favorable context, including especially technical and financial (credit) support services that are well adapted and appropriately targeted at smallholder producers. Land security and the general attractiveness of agriculture for the young generation is also mentioned as a success factor. Also in cocoa, sector-wide policies and initiatives (by the International Cocoa Initiative and national governments) have been effective in reducing the incidence of child labor. Such sector wide initiatives can have significant impact if delivered at a major scale. For timber, there is some evidence of increased regional employment by the application of the FSC standard, and the stimulating effect on small and medium enterprises (SMEs) for local processing. For soy and palm oil, there is no information about regional effects of employment. 4.3 Causal relations between effects at regional level We have now explored to what extent the effects at household level can be expected to contribute to wider-scale poverty reduction effects, especially at regional level. To do so, we looked at available studies on the relations between the identified main effect categories and associated indicators on the one hand, and poverty indicators on the other hand. The following effect categories are selected because these effects were found to be positively related with sustainability initiatives: Increased agricultural productivity Improved labor conditions Improved primary and secondary education Enhanced capacities of producers and producer organizations. On the other hand, to assess the relation with poverty reduction, we looked at different components of poverty, i.e. annual earnings, employment opportunities, standard of living, health and education, vulnerability, empowerment, or a combination of these. 21 Aguilar, H. (2007) Evaluación de Impactos del Comercio Justo en la Gestión de Coraca Irupana por el Desarrollo de la Cadena Agro Exportadora del Café Ecológico.. 22 Laroche, K. and Guittard, B. (2009) The Impact of Fairtrade Labelling on Small-scale Producers: Conclusions of the First Studies. 23 Collinson, C. and Leon, M. (2000) Economic Viability of Ethical Cocoa Trading in Ecuador. Natural Resources Institute Publicatienummer A

37 We now present the results on the relation with poverty reduction for each of the four effect categories. Increased agricultural productivity There is evidence that increases in agricultural productivity (including labor productivity) is related with poverty reduction indicators at household level (income changes, employment generation, rural non-farm multiplier effects) and at macro level (GDP per capita) (Bravo-Ortega and Lederman, 2005) 24, (Lin et al.) 25, (Schneider and Gugerty, 2011) 26.There are direct relations (on poverty reduction of farmers) and indirect relations (by spin-off at the value chain). However, the positive effect for the poor depends on a number of contextual factors such as population growth, the initial distribution of poverty, barriers to technology adoption, asset endowments, strengths of market linkages and the strength and nature of the poor s participation in the agricultural sector. Improved labor conditions There is evidence that improved labor conditions (i.e. through the implementation of codes) are related with poverty alleviation at household level (the physical and social wellbeing of workers, income and employment security). However, little impact on empowerment of workers could be demonstrated (Barrientos and Smith, 2006) 27, (Martin et al., 2006) 28. Regular workers may benefit more than casual workers. Impacts cannot be attributed to code implementation alone: much depends on the critical mass of multiple companies implementing the labor codes as well as the social, legal, political environment. There is qualitative evidence for community impacts of codes but these are difficult to assess. The elimination of child labor can have a positive impact on improved labor conditions, employment opportunities and better wages for adult labor, and can therefore contribute to poverty reduction, even within a short period of time, i.e. 4 years (Venkateswarlu and Ramakrishna, 2010) 29. Combined interventions by Government, civil society organizations (local, international) and an enabling legal, social, political environment are necessary conditions. There is also evidence for a positive impact of the elimination of child labor on poverty reduction, through improved education, improved productivity and earning capacity as well as health benefits, i.e. reduced illnesses and injuries associated with the worst forms of child labor (ILO, 2004) 30. A protracted period (approximately 15 years) of net costs (education supply, interventions in worst form of child labor, cost borne by households due to the value of child labor forgone) is followed by an even longer period of net benefits (20 40 years). The net economic benefits as a percentage of the annual Gross National income are demonstrated to be high. 24 Bravo-Ortega, C. and Lederman, D. (2005) Agriculture and national welfare around the world, causality and international heterogeneity since Lin, L., McKenzie, V., Piesse, J. and Thirtle, C. Agricultural productivity and poverty in developing countries. 26 Schneider, K. and Gugerty, M.K. (2011) Agricultural productivity and poverty reduction: Linkages and pathways. The Evans School Review Barrientos, S. and Smith, S. (2006) The ETI code of labour practice: Do workers really benefit? Institute of Development Studies 28 Martin, A., Nelson, V., Ewert, J., Omosa, M. and Morris, M. (2006) Comparative livelihoods impact of codes of practice in the Kenyan cut flower and South African wine industries. Natural Resources Institute 29 Venkateswarlu, D. and Ramakrishna, R.V.S.S. (2010) No child labour - better wages: Impact of elimination of child labour on wages and working conditions of adult labour: Case study of the cottonseed sector in Andhra Pradesh. ICN and FNV Mondiaal 30 ILO (2004) Investing in every child: An economic study of the costs and benefits of eliminating child labour. International Labour Organization - International Programme on the Elimination of Child Labour Publicatienummer A

38 Primary and secondary education There is much evidence for a positive relation between educational attainment and poverty reduction at the household level (by improved annual earnings), particularly for girls and more for urban residents than for rural ones (Orazem et al., 2008) 31 and also at the macro level (ILO, 2004) 32. At macro level improved education can have a positive impact on levels of per capita income (GDP) and rates of economic growth, and education interventions, especially at primary level, can have important equity benefits (less unequal distribution of income) (Mertaugh et al., 2009) 33 and (Soto, 2009) 34. In order for human capital to attain its highest returns, important conditions are economic freedom: labor must be able to adapt to disequilibria (moving to industries / areas with the strongest labor demand, adopting new technologies or switching occupations). Other conditions include interventions in the worst form of child labor, public investment in education, quality of education, education available at short distance, provision of nutritional and health services at school. Enhanced capacities farmers / organization There is limited evidence and information on the relationship between enhanced capacities of farmers and organizations (e.g. cooperatives) and poverty alleviation. One study indicates that employment opportunities and improved income for families and greater economic and social stability for producers lead to improved standard of living (Murray et al., 2003) 35. However, the evidence for the relationship has not been sufficiently described. Specific conditions which are necessary to ensure such relationship include producers level of knowledge, active and democratic participation of members and good market opportunities. 4.4 Conclusions Several robust studies are available with positive evidence on the relation between improved labor conditions (including reduced child labor), improved education or increased agricultural productivity with poverty reduction indicators, both at household level and at regional (macro) level. Several studies demonstrate a positive effect of improved education or increased agricultural productivity on income (GDP per capita). One study showed that education interventions, especially at primary level, can have important equity benefits (less unequal distribution of income). In all cases contextual conditions are of utmost importance to achieve and sustain all such effects. There is very limited information on the relationship between enhanced capacities of farmers and of organizations and cooperatives and poverty alleviation at household or regional level. It must be noted that different studies use different concepts of poverty reduction, such as improved annual earnings, increased employment opportunities, improved standard of living, improved health and education, reduced vulnerability, empowerment or combinations of these. R 31 Orazem, P.F., Glewwe, P. and Patrinos, H. (2008) The challenge of education. 32 ILO (2004) Investing in every child: An economic study of the costs and benefits of eliminating child labour. International Labour Organization - International Programme on the Elimination of Child Labour 33 Mertaugh, M.T., Jiminez, E.,, and Patrinos, H.A. (2009) The global challenge in basic education: Why continued investment in basic education is important. World Bank 34 Soto, M. (2009) The causal effect of education on aggregate income. Instituto de Analisis Economico, Barcelona 35 Murray, D., Reynolds, L.T. and Taylor, P.L. (2003) One cup at a time: Poverty alleviation and fair trade coffee in Latin America. Colorado State University, Centro de Investigaciones y Estudios Superiores en Antropologia del Sureste, Desarrollo Alternativo, AC Publicatienummer A

39 5. Results from review of public policies 5.1 Introduction This chapter provides an inventory of methods and databases used by governments, international institutions and civil society organizations to monitor, evaluate and report on social and economic trends. Our analysis is done of the 5 effect categories and focuses on those themes that were considered to be important effects of sustainability initiatives, notably issues of poverty, land productivity, labor conditions, in particular prevalence of child labor, and land rights. For each thematic area the following sections present relevant information on social and economic evaluation systems by international and national institutions and systems. With respect to international systems, the main sources of information are the UNDP and the IFAD on poverty issues and human development; the ILO and the UNHCR on labor conditions; the FAO on agricultural productivity and land rights; and the World Bank on generic development issues. The US Department of state reports for useful overviews of different human rights issues (U.S. Department of State, 2012) 36. Various CSOs and statistical organizations cover these issues commonly on a more integrated manner. With respect to national evaluation systems, we reviewed those from Ghana, Brazil and Indonesia. The detailed analyses are given in the Appendix 3, about respectively international systems, and national systems in Ghana, Brazil and Indonesia. The focus of the overview is to evaluate whether social and economic effects as identified in the previous chapter is being monitored and evaluated by available public monitoring and evaluation systems. Recommendations are given to what extent the available monitoring and evaluation systems can be useful to monitor and evaluate performance of sustainability initiatives. Effects and indicators are specified with respect to the level in the result chain: direct and indirect outcomes, and impact. 5.2 Income and agricultural productivity International and national institutions and systems The World Bank reports on economic indicators that measure outcomes in the structure and change of output, trade, and macroeconomic performance (World Bank, 2011) 37. Data are gathered from national statistical organizations and central banks by World Bank missions and from data made available by the International Monetary Fund. Relevant indicators are the gross national income (GNI) per capita, either expressed by the Atlas method or by purchasing power parity (PPP) rates, divided by midyear population. Indicators are compiled every 4 years. Key indicators on the agricultural sector are based on FAO data. The UNDP provides a useful information that is easily accessible (UNDP, 2012) 38. Maps and tables allow for comparison across countries and assessment of trends. All data concern national level information. The International Fund for Agricultural Development (IFAD), a specialized agency of the United Nations, provides country reports on management of natural resources, especially secure access to 36 U.S. Department of State (2012) Human Rights Reports World Bank (2011) World Development Indicators (WDI) UNDP (2012) International human development indicators,. Project number A

40 land and water, and improved natural resource management and conservation practices; on agricultural technologies; on markets for agricultural inputs and produce on local and national policy and programming processes (IFAD, 2012) 39. The FAO reports on food and agriculture statistics, at national level, using national statistics of the countries concerned. This may include information on yields and production levels of specific commodities. Data on all countries in world are available on (FAO stat) while more specific and more useful information for selected countries is available on (FAO, 2012a, b) 40. The availability and reliability of this information depends upon the quality of the national systems. See for example national agricultural statistics from Ghana ( The FAO also reports on food security, and provides special mission reports for specific countries by the UN Special eur on the Right to Food (De Schutter, 2012) 41. These mission reports include specific information on agricultural policies and products, see for an example on Brazil (De Schutter, 2009). Ghana, Brazil and Indonesia have national statistical systems and reports on the progress to reduce poverty, as a commitment to report on MDGs. The annual reports commonly provide data at national and regional level on poverty, employment, and, in some cases, on income distribution. Depending upon the country, the reports include an analysis of the trends and information on relations with agricultural development. For instance, the Indonesian Statistical Office reports by province also provide information on community forestry initiatives (Badan Pusat Statistik, 2011,). For countries national reports on poverty condition as are available, for example for Ghana (Ghana Statistical Service, 2008) 42 and for Brazil (IPEA, 2004) 43. Several CSO initiatives provide more insight into local development and needs for poverty alleviation. An example is the Better by the year initiative in Brazil (Better by the year, 2012) 44. It is estimated that more than 40 million people continue to live in poverty in Brazil. There are severe inequalities between the poor North East and rich South West. Many black and mulatto people are amongst the poorest and the number of young unemployed people is increasing. Such information is commonly not included in sustainability initiatives within production chains. Useful indicators and systems household and regional economics The direct outcomes of agricultural policies and sustainability initiatives on crop production and productivity are highly relevant, but need to be evaluated by sector agencies for distinct commodities, such as in the case of the International Coffee Organization (ICO) on coffee yields. Public organizations could support the monitoring of farm production in relation to sustainability initiatives. In particular, in regions with a relatively large importance of a specific sector, such as 0il palm in Sumatra, regional aggregate effects appear and public agencies will have an interest to support sector development. The indirect outcomes on regional employment are relevant because the creation of local employment is an important benefit and indirect driver, including farm labor, local SME processing 39 IFAD (2012) Rural Poverty Portal FAO (2012a) CountrySTAT. FAO (2012b) FAOSTAT De Schutter, O. (2012) United Nations Special eur on the Right to Food Ghana Statistical Service (2008) GHANA LIVING STANDARDS SURVEY REPORT OF THE FIFTH ROUND (GLSS 5). 43 IPEA (2004) Brazilian monitoring report on the millennium development goals. Institute for Applied Economic Research IPEA, and National Institute of Geography and Statistics IBGE 44 Better by the year (2012) Publicatienummer A

41 and thus contributes to regional spin-off developments. Commonly, UNDP and national reports on employment are not sufficiently specific. Nevertheless, these monitoring systems are useful to improve chain policies and need support to monitor employment at farm level, SMEs, and other labor indicators. More important, yet less adequately covered at sector level, are impacts on food security. Food security, or the right to food, is of general concern in developing areas and may be threatened in particular in areas with large-scale production systems. Although evidence of impacts are generally difficult to obtain, CSO initiatives to evaluate food security issues provide useful information. Impacts on economic development and income distribution can usually not be attributed to changes within the production chain and to sustainability initiatives. Generic monitoring systems provide information that is only moderately relevant for sector polices, and, consequently, rarely referred to in the literature on production chains (see previous chapter). A better match between chain policies and regional policies could possibly be generated by a monitoring design at the local level and related to sustainability initiatives. In addition, such monitoring systems would need to be more specific on income distribution by including outcome indicators such as payment of minimum wages, gender differences in income levels and sub national GINI coefficients. Table 11. Summary of monitoring and evaluation systems for relevant economic indicators Effects and indicators Direct outcomes: farm production (volumes, yield), product quality and farm income Indirect outcomes: regional employment and food security Impact: household income, poverty indicators and inequality Institutions and systems Sector organizations reporting on production economics and sector statistics. Potential support by international organizations such as IFAD and FAO and national agricultural organizations. On-going public monitoring systems could include sector statistics. CSOs provide information and enhance capabilities of local stakeholders. On-going monitoring systems may focus on poverty issues (decent minimum wages and gender equity). CSOs provide information and enhance capabilities of local stakeholders. International organizations such as WB, FAO and UNDP provide national benchmark information. 5.3 Labor conditions: child labor, gender, health and safety International and national institutions and systems Labor conditions in the production systems of international agro-commodities are of continuous and widespread concern of national and international organizations. In the producer countries, governments have generally ratified the majority of relevant ILO conventions and report on implementation. However, enforcement is poor in many countries and reporting is not very reliable. The focus of this study is on prevalence of child labor, gender related issues, and health and safety. Publicatienummer A

42 Child labor On child labor there are various relevant international initiatives, for example The ILO s International Programme on the Elimination of Child Labor (ILO, 2012a) 45. Numbers on the extent, characteristics and determinants of child labor are provided by the Statistical Information and Monitoring Programme on Child Labor (SIMPOC), which is the statistical arm of IPEC. In addition, the ILO-FAO Partnership on child labor in agriculture, undertaking surveys and rapid assessments in specific countries and on specific agricultural sectors (ILO/FAO, 2012) 46. Example reports cover issues such as child labor in cocoa cultivation in Ghana (Zdunnek et al., 2008). Academic initiatives that provide useful information on child labor are, the Tulane University (Payson Center; USA) with research on child labor in the cocoa sector in Cote d Ivoire and Ghana (Tulane University Payson Center, 2011a, b) 47 and the International Research on Working Children (IREWOC) in Leiden, the Netherlands (IREWOC, 2012) 48. There are several sector initiatives on child labor and reporting systems have variable quality, with the best ones showing linkages to target groups and specific sectors, e.g. (International Cocoa Initiative, 2012b). The International Cocoa Initiative undertook an independent evaluation of ICI programmes (partnerships with government, civil society, companies) and focused on increased school enrolment and attendance, and child labor indicators (International Cocoa Initiative, 2012a) 49. Gender, health and safety ILO initiatives undertake country surveys and rapid assessments on forced labor and discrimination of women (ILO, 2012c) 50. The surveys are in some cases linked to specific sectors (e.g. cotton) or to target groups e.g. certain ethnic groups. The ILO program TRAVAIL reports on legal databases on conditions of work and employment programme but does not provide monitoring or evaluation reports (ILO, 2012b) 51. The site is particularly useful to match national with international (ILO) policies. ILO-LABORSTA undertakes surveys on labor conditions, health and safety issues, labor security. Other issues included in surveys are workers wages, working hours, occupational injuries, and strikes and lock-outs (ILO, 2012d) 52. No such surveys have been undertaken recently. In many countries, government agencies and CSOs are active in monitoring law enforcement on labor issues. In Brazil Reporter Brazil and the Biofuel Watch Center undertake surveys on labor conditions and land rights in relation to the production of biofuel crops, at national and at district levels. These surveys do not provide data in relation to specific crops, but are highly relevant (Gomes et al., 2009). 45 ILO (2012a) Child labour statistics. en/index.htm 46 ILO/FAO (2012) Child Labour in Agriculture Tulane University Payson Center (2011a) Oversight of Public and Private Initiatives to Eliminate the Worst Forms of Child Labor in the Cocoa Sector in Côte d Ivoire and Ghana 48 IREWOC (2012) The Foundation for International Research on Working Children (IREWOC) International Cocoa Initiative (2012a) Working towards responsible labour standards for cocoa growing ILO (2012c) Forced labour ILO (2012b) Conditions of Work and Employment Branch (TRAVAIL). en/index.htm 52 ILO (2012d) ILO LABORSTA internet. Publicatienummer A

43 In addition, for Brazil statistics are made available by IGBE (IGBE, 2012) 53 and IPEA. (IPEA, 2012) 54. Indonesia has an extensive ILO collaborative program to prevent and to monitor child labor (ILO Indonesia, 2009, 2011a, b) 55. Useful indicators and systems labor conditions Labor conditions with respect to productions systems of agricultural commodities are highly relevant for all production systems. Child labor is a frequently encountered negative effect of conventional production systems, and thus target of national initiatives. Improvements of labor conditions, health and safety and security aspects are important elements of sustainability initiatives. Forced labor and discrimination against women is a frequently encountered negative effect of conventional production systems, and thus target of national initiatives. Wages of farm workers, workers on plantations and in processing industries must be up to ILO norms. Available national and international surveys are useful for monitoring effects of sustainability initiatives on labor conditions, but commonly rather general and on ad hoc basis. ILO, sector and academic programs have undertaken surveys for specific sectors, using a range of indicators including children school enrolment; working hours and wages, occupational injuries, strikes and lock-outs. Existing surveys can be supported, upgraded and continued to assess the impacts of sustainability initiatives. Relevant information could also be obtained from audit reports. In some countries baseline surveys are undertaken by public services, e.g. on child labor in palm oil sector in Indonesia by the National Labor Inspection service. These surveys could be followed up to show trends and impacts. The Netherlands is a donor for ILO Indonesia, and possibly for other countries, so it might be possible to directly support relevant surveys. In some countries NGO initiatives exist and can be supported to undertake more specific surveys, for example ONG Repórter Brasil (2012) 56 and CIESPI (CIESPI, 2012) IBGE (2012) Labor Unions: Social Indicators m 54 IPEA (2012) Bolotins - Ipea. Políticas Sociais - acompanhamento e análise nº 19, ILO Indonesia (2009) Working children in Indonesia 2009., ILO Indonesia (2011a) Child labour in plantation ONG Repórter Brasil (2012) Repórter Brasil CIESPI (2012) International Center for Research and Policy on Childhood. Publicatienummer A

44 Table 12: Summary of monitoring and evaluation systems for relevant indicators on labor conditions Effects and indicators Direct outcome Respect of minimal wage levels Impact Prevalence of child labor School enrollment Labor conditions, health and safety aspects Prevalence of forced labor Discrimination against women Institutions and systems National governments in legislation and monitoring. International organizations in dissemination of international standards and support to national governments Private sector in reporting 5.4 Natural capital International and national institutions and systems On access to land and land rights there are national reports on UN conventions CEDAW, CCCPR, CESCR, and by the UN Human Rights Council (OHCHR). Special reports may be commissioned on particular items and countries, such as women s land rights and access to credit in Kenya or on land rights in Brazil (see appendix 3). These studies are valuable, but generally give a baseline only and are commonly ad hoc initiatives. On Rights of minorities and indigenous peoples reports are produced by the UN Special eur, on the situation of the rights of Indigenous People in specific countries. There may be links to agricultural investments (not sustainability initiatives) and to specific target groups (smallholders) and regions within a country. These studies are generally one-time and set a baseline (UNHCR, 2012) 58. In Ghana, the Ghana Commission on Human Rights and Administrative Justice undertakes surveys on land titling and land related cases brought for settlement ( ) (Crook et al., 2007) 59 In Brazil, forced evictions disproportionately affect Afro-Brazilian communities, indigenous peoples, women, and the poor. Most conflicts occur between indigenous and non-indigenous persons and are about land ownership or resource exploitation rights. Reporter Brazil and Biofuel Watch Center systematically report on the incidence of land conflicts, at country and district level (Gomes et al., 2009) 60. The Land Pastoral Commission (CPT) undertakes systematic surveys on land conflicts in relation to soy (CPT, 2012) UNHCR (2012) Search engine: 59 Crook, R., Affou, S., Hammond, D., Vanga, A.F. and Owusu-Yeboah, M. (2007) The Law, Legal Institutions and the Protection of Land Rights in Ghana and Côte d Ivoire: Developing a More Effective and Equitable System. 60 Gomes, M., Biondi, A., Brianezi, T. and Glass, V. (2009) Brazil of Biofuels: Impacts of Crops on Land, Environment and Society - Soybean and Castor Bean Biofuel Watch Center and NGO Repórter Brasil 61 CPT (2012) Crescem os conflitos pela terra, ao mesmo tempo em que diminuem as ocupações e acampamentos. Comissão Pastoral da Terra (CPT) Publicatienummer A

45 In Indonesia, several NGOs also report on the incidence of land conflicts (e.g. Sawit Watch), the monitoring is generally less rigorous but provides very useful reports on trends and background information (Sawit Watch, 2010) 62. Useful indicators and systems natural capital The direct outcomes of investments in land and forest management (e.g. shade trees) are moderately relevant for all production systems. The investments in land management are expected to lead to production improvements and more sustainable practices. No specific surveys on this subject are available and it is doubtful whether and difficult to monitor. On specific items related to tree cover, radar images may be used. The indirect outcomes on land conflicts are highly relevant for NR and LS. Land conflicts often emerge as a result of poor stakeholder consultation and non respect of FPIC principles. These are priorities for sustainability initiatives. UN surveys on these issues are not very useful because they are not specific and usually incidental (one-time, setting a baseline). NGOs undertake surveys but often not systematic (exception is Brazil). There is a promising potential to strengthen and set up reliable NGO monitoring systems on land conflicts, possibly in connection with authorities. However, the indicator is difficult to define in such a way as to measure real progress. The indirect outcome indicator of access to land is moderately relevant. Improved access to land for producers may result from adequate stakeholder consultation, FPIC and the solving of land conflicts. Information on to land rights and land titling are available in most countries, but may not be very reliable. This indicator is probably too complex to monitor in a systematic way. The indirect outcome indicator of rights of local communities and indigenous peoples is highly relevant for all production systems. The respect of rights of local communities and indigenous peoples is a principle for sustainability initiatives, and if respected this is a good indicator for progress. Existing UN reports on this subject are moderately useful to give a situational baseline but so far not report on the effects of initiatives. There is a need to support existing surveys focused on areas and situations where commodity production and sustainability initiatives are concentrated. Table 13: Summary of monitoring and evaluation systems for relevant natural capital indicators Effects and indicators Direct outcomes: investments in land / forest management, e.g. shade trees Institutions and systems Difficult to monitor, on specific items related to tree cover, radar images may be used. Indirect outcomes: land conflicts, access to land Indirect outcomes: rights of local communities and indigenous peoples Surveys by UN special eur and UNHCR Potential to strengthen and set up reliable NGO monitoring systems on land conflicts, possibly in connection with authorities. Need to support existing surveys focused on areas and situations where commodity production and sustainability initiatives are concentrated 62 Sawit Watch (2010) Case on Land Rights and the Right to Food: Indonesia: palm oil development on indigenous peoples lands. Publicatienummer A

46 5.5 Human development International and national institutions and systems Sustainability initiatives invest in human development commonly at a limited scale and effects are beyond the scope of involved producers. Conversely, public organizations provide indicators at national and sub-national level which show general trends. The public sector (for example The World Bank and the UNDP) commonly evaluates at the broader regional level and therefore social economic effects of production chains can usually not be traced back in public evaluation systems. Nevertheless, sustainability initiatives in production chains can make use of and possibly reinforce public systems of monitoring and evaluation of social economic development in production regions. Useful indicators and systems human development As a direct outcome indicator, investments in social services are relevant only for Fair Trade initiatives which have positive effects on local education levels. Monitoring systems are available but only limited useful, because no specific surveys exist on this subject. The indirect outcome indicators of access to education, education level, and access to health services are moderately relevant for sector issues. Adequate education levels are a condition and possibly an effect (of fair trade investments mainly), but attribution is difficult. Education levels are regularly being monitored at different levels, but the available information is limited useful. It would be possible to strengthen the monitoring of education levels, but this has limited usefulness in view of difficulty of attribution. The indirect outcome indicator of organizational and marketing skills is relevant for all production systems. The improvement of organizational and marketing skills will contribute to improved marketing and incomes. No relevant monitoring systems are available and it is doubtful whether this indicator is possible to monitor in a clear way. The indirect outcome indicators of level of producer organization and longevity or stability of the producer organizations is relevant for all productions systems. Improvements of producer organizations, in terms of management mainly, are an important indirect effect leading to more stable incomes. Existing monitoring systems provide moderately useful information. Registers on producer organizations are available in several countries. Further work on this indicator is promising; the registration of producer organizations involved in sustainability initiatives may provide useful information. This can also be obtained from the certification systems. Publicatienummer A

47 Table 14: Summary of monitoring and evaluation systems for relevant human development indicators Effects and indicators Direct outcomes: investments in social services Indirect outcomes: access to education, education levels and access to health services Indirect outcomes: organizational and marketing skills Indirect outcomes: level of producer organization and longevity or stability of the producer organizations Institutions and systems On-going monitoring systems may focus social services CSOs provide information and enhance capabilities of local stakeholders. International organizations such as UNDP provide national benchmark information. It would be possible to strengthen the monitoring of education levels, but this has limited usefulness in view of difficulty of attribution Difficult to monitor in a measurable and objective way The registration of producer organizations involved in sustainability initiatives may provide useful information. This can also be obtained from the certification systems 5.6 Market access International and national institutions and systems On the functioning of markets, for example the World Bank provides information per country of the business climate, including information on getting credits, trading across borders and starting a business (IFC/The World Bank, 2012) 63. This information is not sector specific, and certainly not specific for the target groups of major sustainability initiatives, e.g. smallholders. In addition, international sector agencies report on main trade statistics, such as price levels (of different qualities or grades), exports of types of products and processed products, from which an indication can be obtained of added value activities, for instance in the coffee sector (ICO, 2012) 64. Useful indicators and systems market access Access to information on markets, as a direct outcome indicator is critical for successful marketing for all value chains. This information is provided by national and international sector agencies. Whether producers have access to such information is not known. This would need to be monitored by specific surveys, or could be part of sector audits Access to credit (smallholders) is an important direct outcome indicator for all value chains because it is an important condition for involvement in sustainability initiatives and certification. This type of information is not being monitored and it would need to be monitored by specific surveys, or could be part of sector audits The indirect outcome indicator of access to markets (e.g. time it takes to sell for a good price) is highly relevant for all value chains. The time it takes to sell for a good price is an indicator for 63 IFC/The World Bank (2012) Doing business. Measuring business regulations ICO (2012) Publicatienummer A

48 market access, and is expected to improve due to sustainability initiatives as a result of a range of indirect outcomes. This type of information is not monitored; possibly specific surveys or sector audits could include this indicator. The indirect outcome indicator of market price and sales realized is highly relevant for all value chains. The market price and sales realized are expected to increase and more stable due to sustainability initiatives. Available data is limited useful but could be used as a benchmark; sector organizations provide price and sales statistics, but not specific for target groups. This could be monitored jointly by sector agencies and sustainability initiatives Table 15: Summary of monitoring and evaluation systems for relevant access to markets indicators Effects and indicators Direct outcome indicator Access to market information Access to credit (smallholders) Indirect outcome indicator Access to markets (e.g. time it takes to sell for a good price) Access to markets smallholders Indirect outcome indicator Market price / sales realized Institutions and systems Monitoring by sector agencies, by sustainability initiatives, by specific surveys, or could be part of sector audits 5.7 Conclusions The sustainability issues of poverty, labor conditions, natural capital, human development and market position are of evident public concern as reflected in the description of national and international monitoring and evaluation systems. Most countries carry out regular surveys on living standards and report at subnational level on development trends in economy, agriculture, education and other human development aspects. International organizations such as the FAO and the ILO provide updates on status and trends of developments with respect to international standards that usually provide the basis for principles and criteria in sustainable chain initiatives. The review of the information provided by national governments and international organization provides insight, first, into the potential role to support sustainability initiatives by means of legislation or by providing benchmark information. Secondly, the review provides insight in the necessity and the opportunities to support and to improve national and international monitoring and evaluation systems. Research methods can be improved and attuned to specific sector issues and attention should be given to the dissemination of research results and policy implications. The usually ad hoc research and evaluations by civil society organizations additionally needs further attention. Their work provides often anecdotal evidence on unsustainable production practices or on persistent issues of poverty, inadequate labor conditions and low human development issues. The concerns of the civil society organizations need to better taken into account in policy making and sustainability initiatives. Publicatienummer A

49 6. Main conclusions There are few robust studies on the social and economic effects of sustainability initiatives, i.e. those that meet criteria of scientific and statistical rigour. Most robust studies are available for coffee, some for cocoa, cotton and timber, and virtually none for palm oil and soy. The available robust studies for coffee and cocoa are focused at fair trade and organic sustainability initiatives, and at farm (household) level (smallholders). There is little information on the impacts on laborers (e.g. in plantations, in processing industries, or otherwise indirectly involved in the market chain). There are also some valuable meta-studies. Lastly, use was made of studies providing qualitative data and information, as well as expert opinions based on interviews. The social and economic effects of sustainability initiatives were assessed for five effect categories at household level, with related relevant sustainability issues: Household economics: do producers and workers experience an improvement in cost-benefit balance? Issues are: product productivity, product quality, employment, input incomes, wages, access to credit, food security. Labor conditions: do producers and workers involved experience an improvement in labor conditions? Issues are: forced labor, child labor, health and safety, labor security. Natural capital: do local producers and communities have adequate ownership rights and are externalities controlled? Issues are: land improvements, land tenure, share cropping, land rights and land conflicts. Human development: do producers feel empowered by improved capacities and organizational development? Issues are: education, health care, organizational and management skills. Market access: do producers feel empowered by improved market access, information and bargaining skills? Issues are: market linkages, information organization, bargaining position, certification systems. Apart from that, we looked at the wider effects at regional level, where aggregation of effects at household level may lead to significant poverty reduction. 6.1 Social economic effects at the household and worker level The social and economic effects of sustainability initiatives for the selected commodities are summarized in Table 16. This study focused at the levels of (direct and indirect) outcomes and impacts. We made a distinction between proven effects (i.e. based on robust studies) and plausible effects (i.e. based on qualitative information and expert opinions). Plausible effects are also based on theories of change. To demonstrate the effects we constructed cause-effect relations with linkages between outputs, outcomes and impacts. On household income and wages, the effects of sustainability initiatives are limited. Most robust evidence is available from the small-scale production systems. Here, effects are variable, but if positive, the income improvements will be limited (because of scale, limited proportion of incomes or low premium prices). Effects are highly context dependent, e.g. the starting position of the producers (i.e. potential for production improvements). There is some evidence of positive effects on wages and employment. For palm oil and soy, it is plausible that income benefits will emerge for smallholders once smallholder programmes are more developed. In forestry there is evidence of some increase of SME employment by local timber processing. For the other effect categories, in general few if any robust studies are available. However, in all cases there is qualitative information and supporting expert opinion of plausible positive effects, i.e. on labor conditions, natural capital (land improvement and land rights), human development Project number A

50 (empowerment, skills and organizational development) and market access. This leads to plausible positive effects on these effect categories. Especially noted should be the strong evidence for reduction of child labor (cocoa), improved employment (timber), improved wages (coffee), improved health by reduced use of agro-chemicals (cotton), improved land management (coffee, cocoa, timber), improved income stability and market access (coffee, cocoa, cotton, timber). There are no robust data and remaining doubts for soy and palm oil, mainly because these standards are still less accessible for smallholders and experiences are so far limited. Publicatienummer A

51 Table 16: Summary of evidence and findings with respect to social and economic effects of sustainability initiatives at household level, classified in five effect categories, for three different types of production systems Effect categories 1. Household economics 2a. Labor conditions 2b. Employment SME opportunities Overall evidence Some robust studies Variable evidence for improved productivity and improved incomes, context dependent. Some evidence of improved wages Few robust studies Plausible effect of improved labor conditions, security, health & safety No robust studies Plausible effects of improved employment 3. Natural capital No robust studies Plausible effects of improved land management; improved community involvement and land rights 4. Human development 5. Access to markets No robust studies Plausible effects of improved skills, organizations and management systems, also increased self respect and confidence Few robust studies Mainly plausible effects of access to certification, improved market access and income stability, possibly higher incomes Details for agro-commodity production systems Natural resources (timber) Plausible: sustainable yields, greater efficiency, improved wages Some evidence: improved labor conditions, security, health & safety Some evidence of improved SME employment in processing Plausible effect of improved forest management and stakeholder relations Plausible effect of improved management, technical and marketing skills Some evidence of improved access to certification and markets Large-scale (palm oil, soy) Plausible: improved productivity and efficiency No evidence and doubtful plausibility Plausible effects of employment in outgrower schemes and smallholders Plausible and scare evidence for improvements, especially for soy Plausible positive effects, also for smallholders No evidence, but plausible positive effects, also for smallholders Small-scale (coffee, cocoa, cotton) Some evidence for higher yields, cost reduction, access to credit, limited income increase. Improved wages. Some evidence: reduced child labor in cocoa; improved health in cotton. Plausible effects Evidence for some increased farm labor; unclear for SMEs Plausible and some evidence of improved land management; improved community rights Plausible effects for improved management, technical and marketing skills Some evidence for improved education Plausible and some evidence of access to certification, access to markets, improved income stability Publicatienummer A

52 We also looked at potential negative effects. Negative effects could be expected in terms of externalities, especially reduced demand from farmers not involved in the sustainability initiative, reduced prices or increasing competition, but no empirical evidence was found of this occurring in practice and in fact in most cases positive influence on local market prices were observed. Other negative effects might be the increased labor tasks for women as compared to men, due to the increased labor required for organic fertilizers. This might indeed be an issue and is recorded for several small-scale production systems. We now asked ourselves whether positive effects on labor conditions, natural capital, human development and access to markets can lead to economic benefits at household level. There is limited evidence available for such relations. Most evidence relates to benefits of market access. However, in that case it is underlined that the benefits are mainly in terms of improved income stability, which enable small producers to take a more long-term view in relation to expenditure and investments. Nelson and Pound (2009) conclude that even in the absence of positive income effects, other important effects occur (e.g. capacity building, stability of income, market information and access, self-confidence, access to credit, national representation etc) which are important for tackling poverty. 6.2 Social economic effects at regional level At regional level, there is some evidence showing negative social and economic effects of conventional production systems for soy and palm oil, and mixed effects for coffee. An enabling governance context and time for local development to take shape appear to be important success factors. However, attribution remains difficult. There are very few studies available with information about the effects of sustainability initiatives on poverty reduction and sustainable economic development at regional level. In coffee, there is qualitative evidence for positive spin-off by the demonstration effect, whereby non - affiliated farmers adopt new techniques from affiliated farmers. It is plausible to expect such dynamics for other commodities (cocoa, cotton, smallholder soy, palm oil). Also in coffee, a range of impacts which reach beyond individual producers and their Fair Trade organizations were mentioned for Bolivia, such as additional transport and tourism services, higher export taxes and creation of additional employment. In cocoa, large scale impacts in the Dominican Republic were due to the government promoting the sustainable cocoa production systems. Important in that case are technical and financial (credit) support services, land security and the general attractiveness of agriculture for the young generation. In cocoa, sector-wide policies and initiatives (by the International Cocoa Initiative and national governments) have been effective in reducing the incidence of child labor. Such sector wide initiatives can have significant impact if delivered at a major scale. For timber, there is some evidence of increased regional employment by the application of the FSC standard, and the stimulating effect on small and medium enterprises (SMEs) for local processing. Regional effects are context dependent. From available studies we identified as relevant context factors land right security, policies in favor of smallholder involvement and effective decentralization. Several studies indicate that sustainability initiatives need to be supplemented by changes in development policies and coordination with other development actors, funds and initiatives to raise rural livelihoods to a more sustainable level. There is some evidence that participation in sustainability initiatives, especially in coffee fair trade and cocoa (case of Dominican Republic) has enabled smallholder producer organizations to increase their influence at a national level. Positive Publicatienummer A

53 results for local farmers seem to be achieved from this increased national influence, from the increase in self-confidence of co-operative members and through policy changes achieved by lobby. Improved productivity Improved market access Poverty reduction at regional scale Improved labour conditions Enhanced capacities, empowerment In general and irrespective of the studied sustainability initiatives we have investigated whether there is evidence for positive relations between the main effect categories and poverty reduction (see below scheme). If yes, this would provide arguments for assuming that sustainability initiatives will contribute to poverty reduction, even if the available studies do not provide strong evidence. Indeed, we found several robust studies with positive evidence on the relation between improved labor conditions (including reduced child labor), improved education or increased agricultural productivity with poverty reduction indicators, both at household level and at regional level. Several studies demonstrate a positive effect of improved education or increased agricultural productivity on income (GDP per capita). One study showed that education interventions, especially at primary level, can also have important equity benefits (less unequal distribution of income). In all cases contextual conditions are of utmost importance to achieve and sustain such effects. There is very limited information on the relationship between enhanced capacities of farmers and of organizations (i.e. cooperatives) and poverty alleviation at household or regional level. It must be noted that different studies use different concepts of poverty reduction (i.e. improved annual earnings, increased employment opportunities, improved standard of living, improved health and education, reduced vulnerability, empowerment or a combination of these). Thus, we do not agree with the conclusion by Blackman and Rivera (2009) that effects of sustainability initiatives on incomes are limited, and poverty reduction would be a too high objective. We can conclude that positive effects on poverty reduction by sustainability initiatives through improved productivity, improved labor conditions and improved market access, are plausible. This is based on some evidence from the available studies on sustainability initiatives, but is also based on evidence for general relations between improved labor conditions, improved education or increased agricultural productivity with poverty reduction. 6.3 National and international monitoring and evaluation systems The sustainability issues of poverty, labor conditions, natural capital, human development and market position are of public concern and therefore often subject of national and international monitoring and evaluation systems. Most countries carry out regular surveys on living standards and report at subnational level on development trends in economy, agriculture, labor conditions, Publicatienummer A

54 education and other human development aspects. International organizations such as the FAO and the ILO provide updates on status and trends of developments with respect to international standards that usually provide the basis for principles and criteria in sustainable chain initiatives. The review of the information provided by national governments and international organization shows the potential role to support sustainability initiatives by means of legislation or by providing benchmark information. However, existing systems are either not sufficiently specific (for commodities, areas or target groups), not sufficiently reliable or have so far been mainly applied only to establish a baseline. We note the opportunities to support and improve national and international monitoring and evaluation systems in order to be able to monitor progress of sustainability initiatives. Research methods must be improved and attuned to specific sector issues and attention should be given to the analysis and dissemination of research results and policy implications. Some research and evaluations by civil society organizations are very valuable, although these do not normally follow robust evaluation methods. Their work provides plausible evidence on unsustainable production practices or on persistent issues of poverty, inadequate labor conditions and low human development issues. The concerns of the civil society organizations need to be better taken into account in policy making and sustainability initiatives. 6.4 Towards a set of indicators to assess sustainability To monitor progress and effects of sustainability initiatives, we propose to focus on a set of indicators associated with the factors that were found to be important outcomes of sustainability initiatives, being improved productivity of the production system, improved labor conditions (decent work), improved market access and capacity development. We have found that these factors are generally good proxies for regional poverty reduction impacts. In addition, it is useful to monitor employment, especially in relation to opportunities for processing by small and medium enterprises. Lastly, monitoring the incidence of land conflicts is a good indicator for knowing to what extent land rights and the rights of communities and indigenous peoples are being respected. This brings us to the following set of indicators proposed for monitoring effects of sustainability initiatives (Table 17). Publicatienummer A

55 Table 17: Proposed set of indicators to assess main effects of commodity chains and related sustainability initiatives Effect categories Possible indicators Institutions and systems Crop productivity, land / forest management, and income level Labor conditions Employment opportunities Land rights and rights of communities and indigenous peoples Human and organizational capacities / empowerment Market access Poverty and human development at regional level Yield per hectare Investments in land management Amount of credit used Quality rating of product Wage levels (farm, plantation, SME) Health and safety labor conditions Health of producers (# of claims by use of agro-chemicals) Incidence of forced labor Incidence of child labor, school enrolment # of registered farm labor # of SMEs in the sector # of permanent employees Area of land with regulatory clarity # of land conflicts not solved Registered producer organizations Longevity of producer organizations # of farmers using sector guidelines # of laborers who know their rights # of producers certified # of smallholder certified Time it takes to sell for a good price Sales per year Sales price ratio to global market Poverty levels GDP/capita Gini index Commodity / sector agencies and agricultural extension services Reporting by sustainability initiatives / certification schemes Surveys by ILO with national authorities Reporting by sustainability initiatives / certification schemes Sector agencies UNHCR and UN special eur surveys NGO networks and surveys National agencies / registers NGO networks Reporting by sustainability initiatives / certification schemes Sector agencies in collaboration with by sustainability initiatives / certification schemes UNDP, national statistics and specific surveys, with specifications at local level Publicatienummer A

56 References Aguilar, H. (2007) Evaluación de Impactos del Comercio Justo en la Gestión de Coraca Irupana por el Desarrollo de la Cadena Agro Exportadora del Café Ecológico.. Rapport Aidenvironment (2007) Analysis of socio-economic impact of trade of selected commodities Amsterdam Badan Pusat Statistik (2011,) Perkembangan Beberapa Indikator Utama Sosial-Ekonomi Indonesia. Trends of the Selected Socio-Economic Indicators of Indonesia. Rapport Barrientos, S. and Smith, S. (2006) The ETI code of labor practice: Do workers really benefit? Institute of Development Studies Better by the year (2012) Rapport Blackman, A. and Rivera, J. (2010) The Evidence Base for Environmental and Socioeconomic Impacts of Sustainable Certification. Resources for the Future Bravo-Ortega, C. and Lederman, D. (2005) Agriculture and national welfare around the world, causality and international heterogeneity since Rapport CIESPI (2012) International Center for Research and Policy on Childhood. Collinson, C. and Leon, M. (2000) Economic Viability of Ethical Cocoa Trading in Ecuador. Natural Resources Institute CPT (2012) Crescem os conflitos pela terra, ao mesmo tempo em que diminuem as ocupações e acampamentos. Comissão Pastoral da Terra (CPT) Crook, R., Affou, S., Hammond, D., Vanga, A.F. and Owusu-Yeboah, M. (2007) The Law, Legal Institutions and the Protection of Land Rights in Ghana and Côte d Ivoire: Developing a More Effective and Equitable System. Rapport De Lima, A.C.B., Keppe, A.L.N., Palmieri, R., Corrêa Alves, M., Maule, R.F. and Sparovek, G. (2008) Impact of Sustainable Agriculture Network (SAN) certification on coffee farms. Case study in the southern region and cerrado areas of the State of Minas Gerais, Brazil /Imaflora. Instituto de Manejo e Certificação Florestal e Agrícola (Imaflora), De Schutter, O. (2009) Report of the Special Rapporteur on the right to food. Mission to Brazil. UN De Schutter, O. (2012) United Nations Special Rapporteur on the Right to Food. FAO (2012a) CountrySTAT. FAO (2012b) FAOSTAT. Ghana Statistical Service (2008) GHANA LIVING STANDARDS SURVEY REPORT OF THE FIFTH ROUND (GLSS 5). Rapport GM Watch (2011) Certified responsible? Critical assessment of the Round Table on Responsible Soy. GM Watch, Friends of the Earth, Corporate Observatory Gomes, M., Biondi, A., Brianezi, T. and Glass, V. (2009) Brazil of Biofuels: Impacts of Crops on Land, Environment and Society - Soybean and Castor Bean Biofuel Watch Center and NGO Repórter Brasil Hordijk, A., Jonkers, I. and Van Dok, Y. (2010) Evaluation Fashion Programme Solidaridad Nyenrode Business University and Motion Consult, IBGE (2012) Labor Unions: Social Indicators ompletos.shtm ICO (2012) IDS (2006) The ETI code of labor practice: Do workers really benefit? IDS, Sussex IFAD (2012) Rural Poverty Portal. IFC/The World Bank (2012) Doing business. Measuring business regulations. IGBE (2012) Series statistics and trends. ILO (2004) Investing in every child: An economic study of the costs and benefits of eliminating child labour. International Labour Organization - International Programme on the Elimination of Child Labour Project number A

57 ILO (2012a) Child labour statistics. en/index.htm ILO (2012b) Conditions of Work and Employment Branch (TRAVAIL). en/index.htm ILO (2012c) Forced labour. ILO (2012d) ILO LABORSTA internet. ILO Indonesia (2009) Working children in Indonesia Rapport ILO Indonesia (2011a) Child labour in plantation. ILO Indonesia (2011b) ILO BPS to release national data on working children in Indonesia. ILO/FAO (2012) Child Labour in Agriculture. International Cocoa Initiative (2012a) Working towards responsible labour standards for cocoa growing.. International Cocoa Initiative (2012b) Working towards responsible labour standards for cocoa growing. Achievements in Cote d'ivoire ( ). IOB (2011) Facilitating resourcefulness. Synthesis report of the evaluation of Dutch support to capacity development. Rapport IPEA (2004) Brazilian monitoring report on the millennium development goals. Institute for Applied Economic Research IPEA, and National Institute of Geography and Statistics IBGE IPEA (2012) Bolotins - Ipea. Políticas Sociais - acompanhamento e análise nº 19, IREWOC (2012) The Foundation for International Research on Working Children (IREWOC). ISEAL (2011) Assessing the Impacts of Social and Environmental Standards Systems v1.0. ISEAL Code of Good Practice ISEAL Keppe, A.L.N., de Lima, A.C.B., Alves, M.C., Maule, R.F. and Sparovek, G. (2008) Impact assessment of FSC certification on forest enterprises in southern Brazil.. Instituto de Manejo e Certificação Florestal e Agrícola (Imaflora), Kolk, A. (2011) Mainstreaming sustainable coffee. Sustainable Development, n/a-n/a. KPMG (2012) Certification and biodiversity Exploring improvements in the effectiveness of certification schemes on biodiversity. Laroche, K. and Guittard, B. (2009) The Impact of Fairtrade Labelling on Small-scale Producers: Conclusions of the First Studies. Rapport Lin, L., McKenzie, V., Piesse, J. and Thirtle, C. Agricultural productivity and poverty in developing countries. Rapport Mallet, P. (2007) ISEAL Emerging Initiatives - Module 7: Measuring Impacts of Certification. ISEAL Martin, A., Nelson, V., Ewert, J., Omosa, M. and Morris, M. (2006) Comparative livelihoods impact of codes of practice in the Kenyan cut flower and South African wine industries. Natural Resources Institute Mertaugh, M.T., Jiminez, E.,, and Patrinos, H.A. (2009) The global challenge in basic education: Why continued investment in basic education is important. World Bank Murray, D., Reynolds, L.T. and Taylor, P.L. (2003) One cup at a time: Poverty alleviation and fair trade coffee in Latin America. Colorado State University, Centro de Investigaciones y Estudios Superiores en Antropologia del Sureste, Desarrollo Alternativo, AC Nelson, V. and Martin, A. (2011) Impact Evaluation of Social and Environmental Voluntary Standard Systems (SEVSS): Using theories of change. NRI Nelson, V. and Pound, B. (2009) The Last Ten Years: A Comprehensive Review of the Literature on the Impact of Fairtrade. Natural Resources Institute (NRI), University of Greenwich, ONG Repórter Brasil (2012) Repórter Brasil. Orazem, P.F., Glewwe, P. and Patrinos, H. (2008) The challenge of education. Rapport Peña-Claros, M., Blommerde, S. and Bongers, F. (2009) Assessing the progress made: an evaluation of forest management certification in the tropics. Rapport nr , Wageningen UR, Wageningen Publicatienummer A

58 Ruben, R. (2009) The impact of fair trade. Wageningen Academic Publishers, Wageningen. Sawit Watch (2010) Case on Land Rights and the Right to Food: Indonesia: palm oil development on indigenous peoples lands. Rapport Schneider, K. and Gugerty, M.K. (2011) Agricultural productivity and poverty reduction: Linkages and pathways. The Evans School Review 1. Soto, M. (2009) The causal effect of education on aggregate income. Instituto de Analisis Economico, Barcelona Tulane University Payson Center (2011a) Oversight of Public and Private Initiatives to Eliminate the Worst Forms of Child Labor in the Cocoa Sector in Côte d Ivoire and Ghana Tulane University Payson Center (2011b) Oversight of Public and Private Initiatives to Eliminate the Worst Forms of Child Labor in the Cocoa Sector in Côte d Ivoire and Ghana Rapport U.S. Department of State (2012) Human Rights Reports. UNDP (2012) International human development indicators,. UNHCR (2012) Search engine: Valkila, J. (2009) Fair Trade organic coffee production in Nicaragua - Sustainable development or a poverty trap? Ecological Economics 68, Venkateswarlu, D. and Ramakrishna, R.V.S.S. (2010) No child labour - better wages: Impact of elimination of child labour on wages and working conditions of adult labour: Case study of the cottonseed sector in Andhra Pradesh. ICN and FNV Mondiaal World Bank (2011) World Development Indicators (WDI). WWF (2010) Certification and roundtables: do they work? WWF review of multi-stakeholder sustainability initiatives. WWF Zdunnek, G., Dinkelaker, D., Kalla, B., Matthias, G., Szrama, R. and Wenz, K. (2008) Child Labour and Children s Economic Activities in Agriculture in Ghana. FAO/SLE Publicatienummer A

59 Appendices Project number A

60 Appendix I: Terms of Reference To reduce the size of this pdf, this Appendix has been suppressed in this public version. Project number A

61 Appendix II: Timber, Soy, Palm Oil, Cocoa, Coffee, Cotton Appendix 2A: Timber 1. Introduction Facts and Figures Timber is a natural resource that can be directly harvested (natural resource exploitation system). It is estimated that 30% of the world's area is covered by forests - around four billion ha- with around half of that area found in only five countries: Russia, Brazil, Canada, the USA and China. It is estimated that approximately 56% of the forest area is considered as productive. Forests are home to 300 million people, with 1.6 billion people depending in varying degrees for their livelihoods, in the form of fuel, medicines and forest foods. Around 13 million people are employed in the formal forestry sector, producing goods and services worth around USD 350 billion to the formal global economy (BWI, 2012) 1. Other estimations for the number of jobs including the informal forestry sector are 47 million, of which 30 million in the informal sector (Molnar et al., 2007) 2. The main timber producing countries in the South are India, China, Brazil, Indonesia and Malaysia. The main exporting countries are Malaysia, Indonesia, Thailand, PNG, Gabon and Brazil. In developing countries timber contributes on average 4% to the GDP (as opposed to 2% of the world s GDP) but for some countries this share is much higher (Cameroon, Brazil, Bolivia). Main consumer countries are the USA, Canada, Europe, India, Japan and China (ITTO, 2010) 3. Figure 2A.1: Timber trade statistics Source: Aidenvironment, based on data of ITTO ( 2010) 1 BWI (2012) Building and Wood Workers International. 2 Molnar, A., Liddle, M., Bracer, C., Khare, A., White, A. and Bull, J. (2007) Community-based forest Enterprises in tropical forest countries: status and potential.. Rapport, ITTO, RRI, Forest Trends, 3 ITTO (2010) Annual review and assessment of the world timber situation. Project number A

62 The price of wood has grown at a remarkably consistent rate throughout the years, rising by an average of 6.5% every year for the past century. Timber has been the only asset class to rise or remain stable during most of the market collapses of the 20 th century. Demand, driven by economic and population growth, is increasing. Especially emerging economies in Asia, like India and China, are causing a strong demand for timber. But also Japan contributes to global demand: last year it imported wood raw material and processed wood products worth more than $10 billion. This demand is expected to increase even further, as Japan continues post-earthquake rebuilding efforts. Higher demand translates into higher prices. After plunging prices in late 2008 as the global economic crisis reached its height, price trends of some of the important traded species of tropical primary wood products showed a return to relative stability in 2009 and Global timber prices rose to an average of 20% in the first quarter of 2011 (Vardy, 2011) 1. Plantations are expected to deliver more and more timber, thereby relieving pressure on natural forests to some extent (Niesten et al., 2004) 2 On the supply side, the main driving force affecting the forest industry is the increased competition for resources (land, labour and capital) that occurs when populations and economies expand. In particular, in the case of the forest industry, competition for land and forest resources is a major driving force that affects development in the forest industry (FAO, 2011a) 3. The timber value chain consists of many forest operations in boreal, temperate and tropical biomes which produce wood for the domestic market and for export. Often timber is being processed in the producer countries or shipped to countries with cheap labour (China mainly). Timber products, such as paper or furniture, are then exported to other countries. Timber value chain Producers Trade (local) Wood processors Importers/ wholesale Construction Marketing & Retail The forest sector In many developing countries the forest sector can be quite important, as reflected in the share of timber in GDP or export earnings. Some countries have achieved economies of scale through industry consolidation (e.g. in pulp and paper and wood-based panel production), but sawmilling and, in particular, forest harvesting often remain fragmented. In almost all countries, there is a trend towards mechanization, but much of the forest industry is still quite labour intensive, especially in harvesting and small-scale processing, thus creating employment. While the global forest trade is dominated by large multinational companies, small and mediumsized enterprises (SMEs), including those owned by communities, are widely known to comprise the bulk of forest industry. Approximately 30 million of the 47 million permanent jobs in the forest industry are found in informal, small enterprises, most of which have fewer than 20 employees. 1 Vardy, N. (2011) Money does grow on trees. Rapport 2 Niesten, E.T., Rice, R.E., Ratay, S.M. and Paratore, K., eds. (2004) Commodities and conservation: the need for greater habitat protection in the tropics. Conservation International. 3 FAO (2011a) State of the world's forests Rapport 66

63 SMEs often make up 80 90% of enterprise numbers and more than 50% of forest-related jobs in southern countries. As the experience in developed countries shows, SMEs can emerge and flourish where the tenure and policy frameworks allow them to exist legally and compete fairly with largescale enterprises. Unfortunately, only a few tropical countries have such favorable conditions in place (Molnar et al., 2007) 1. At least one-quarter of the forested land in developing countries is under some form of community control, and that proportion is likely to increase. Community Forest Enterprises (CFE) are a growing type of SME. CFEs can generate local benefits and returns, such as generating employment; yet, their potential has not been realized in many countries due to a lack of clear tenure rights and adverse policy and regulatory environments. Policies and subsidy schemes have generally been designed with large, formal industry in mind; regulatory frameworks in many countries disadvantage CFEs and reduce their potential profitability(molnar et al., 2007). A number of benefits from Community Based Forest Management (CBFM) can be seen over the long term. These include improved forest conservation and management benefits, growth of community institutions and social capital, and contributions to poverty reduction. In countries where CBFM has been used for a long time for instance the Gambia, India, Nepal and the United Republic of Tanzania tangible benefits are realized. Over time, as forests become more productive, SMFEs begin to emerge in the form of small saw mills, carpentry and joinery workshops, craft making, honey processing and herbal medicine processing. This has created employment for women and young men and allowed poor households to generate additional cash income. The sustainability of CBFM is closely linked to enabling arrangements that facilitate the generation and equitable sharing of benefits from forests (FAO, 2011b). A large case study review by ITTO (Molnar et al., 2007) indicates that CFEs generate a range of goods and services that are not created by individual enterprises or the private industry. They tend to invest more in the local economy than their private sector equivalents, fostering social cohesion and longer-term equity and making greater social investment. They are also more flexible, able to switch among different blends of products thereby diversifying their income strategies. CFEs can be very profitable. The case study examples in the ITTO review showed returns of 10-50% from their timber and non-wood forest product activities. Illegal logging An estimated 20 to 40% of the world s industrial timber production originates from commercially organized illegal logging. This translates into an approximate US$ 10 billion annual loss of assets in developing countries. Illegal logging is responsible for a range of environmental and social issues such as overharvesting, degradation of the forest and direct competition between sustainable forest management and illegal timber. It is also responsible for the depression of timber prices, financing of civil wars and arms trade (so called conflict timber ). Furthermore, it causes deterioration of living conditions for forest dependent people, and a substantial loss in revenue for the country where illegal logging takes place(idh) The main sustainability initiatives Policies Governments are trying to improve legality in the forest industry in a number of ways, including through policies and regulations. Legality is one important first step towards sustainable trade. 1 Molnar, A., Liddle, M., Bracer, C., Khare, A., White, A. and Bull, J. (2007) Community-based forest Enterprises in tropical forest countries: status and potential.. Rapport, ITTO, RRI, Forest Trends, 2 IDH (2012) The Sustainable Trade Initiative website. 67

64 Mechanisms developed to verify if forest products come from forests that are managed according to all local laws and regulation (legal verification) include: Amendment of the Lacey Act (of 1900) in the United States of America. The Lacey Act prohibits the transportation of illegally captured or prohibited animals across state lines. The European Union has used a number of different approaches to combat illegal activities in the forestry sector, including: (1) the development of Voluntary Partnership Agreements (VPAs) between the EU and other countries to support the EU s Forest Law Enforcement, Governance and Trade process (2) procurement policies in the form of the European Timber Regulation which prohibits placing and trade of illegally sourced timber on the European market. Certification Forest certification is widely seen as an important strategy for conserving the world s forests. During the 1990s concern about the loss of biodiversity in logged forests was a key driver behind the emergence of forest certification. It was thought that by adhering to strict standards, production forests could help protect biodiversity. Nowadays the forest certification schemes also contain important social and economic criteria. There are presently more than 50 certification programs in different countries around the world. The first system to become functional was managed by the Forest Stewardship Council (FSC) established in 1993, followed by the Program for Endorsement of Forest Certification Schemes (PEFC) in In addition to these international schemes, several national standards are established of which the largest are mentioned here. The Malaysian Timber Certification Council (MTCC) operates in Malaysia, while the Lembaga Ekolabel Indonesia (LEI) operates in Indonesia. MTCC is endorsed by PEFC, and LEI is said to be comparable and compatible to FSC. The sustainable Forest Initiative (SFI) and the Canadian Standards Association (CSA) ate the main systems in North-America. Both SFI and CSA are endorsed by PEFC. FSC has endorsed many national FSC forest management standards in more than 46 countries, based on FSC s general Principles and Criteria. Forest Stewardship Council We focus on FSC, because it is the system with the most elaborate social requirements, it is most widely accepted as a system for responsible forest management in the tropics and has been subject of impact studies (in contrast to PEFC). FSC forest certification was introduced in 1993 by a group of environmental NGOs, timber traders, indigenous people groups and forest worker organizations. More than 147 million ha are now certified by FSC worldwide, of which nearly 16 million in the (sub)tropics (FSC, 2011) 1. Is 3,5% of 4 billion ha. FSC certification is a voluntary certification system that supports responsible forest management worldwide. FSC certified forest products are verified from the forest of origin through the supply chain. The FSC label ensures that the forest products used are from responsibly harvested and verified sources. The FSC Principles and Criteria (P&C) describe how forests can be managed to meet the social, economic, ecological, cultural and spiritual needs of present and future generations. Developed through a strong, multi-stakeholder process, they include managerial aspects as well as environmental and social requirements. FSC certification entails potentially high transaction costs. The applicant must pay for assessments by FSC-accredited certifying bodies and invest in the operational changes required to reach and maintain FSC standards. Only larger forestry companies, with high product turnovers, can cover such costs. FSC recognized this issue and, in 1998, introduced Group Certification as a mechanism. This allows groups of (small scale) forest owners to apply for certification under a joint management plan. 1 FSC (2011) Global FSC certificates: type and distribution. 68

65 Group members share the transaction costs and FSC compliance is assessed by sampling. More than 4 million ha is currently managed by communities 1. Figure 2A.2: FSC certified forest by region Source: FSC works with general principles and criteria. For several timber producing countries a national set of P&C is produced. Strangely enough, this is not the case for some of the countries with highest production numbers, such as Indonesia. In these cases, interim standards are developed by the certifying body. The FSC Principles and Criteria describe how the forests have to be managed to meet the social, economic, ecological, cultural and spiritual needs of present and future generations. They include managerial aspects as well as environmental and social requirements and are generally accepted as the most elaborate and strict. In summary, FSC has the following principles: Legality verification - follow all applicable laws Demonstrated long-term land tenure and use rights Respect rights of workers, indigenous peoples Equitable use and sharing of benefits Reduction of environmental impact of logging activities Identification and appropriate management of areas that need special protection (e.g. cultural or sacred sites, habitat of endangered animals or plants) 1 This includes communities worldwide. FSC does not distinguish between tropical and non-tropical communities. 69

66 3. Studies on socioeconomic effects Key sustainability issues in conventional timber trade In the table below some key sustainability issues related to conventional production systems in the forestry sector are mentioned. These include poor working and living conditions and low wages for employees, land right conflicts between forest operators and forest dependent people, environmental issues such as ecosystem conversion (including for plantations), degradation and related to that biodiversity loss, and trade barriers, especially for small holders. People Planet Profit Health and safety issues Forest/wetlands conversion Low incomes / wages Working conditions (job insecurity, Biodiversity loss Trade barriers discrimination, bad housing conditions) Land right conflicts Impact studies In 2009 FSC (Karmann and Smith, 2009) 1 published a report, compiling all evidence and research results on the impacts of FSC certification (180 in total). The report indicates that only a few studies are data-based, while most have anecdotal evidence. The data-based studies are listed in this chapter and supplemented with studies that were published later 2. Only two studies were found where impacts were assessed including comparisons with control groups (not certified). Two other studies used indirect methods by analyzing Corrective Actions Requested (CAR: non-conformities with the FSC standard) which are reported in certification reports. These four studies and a review study by WWF were selected for the purpose of this analysis. 1. Studies with control groups A regional study in two states in Brazil on enterprises is on the socio-environmental impacts of FSC certification (Keppe et al., 2008) 3. The research focuses on plantation enterprises which are involved in reforestation practices with pine and eucalypt, to reduce the pressure on the natural forest. Seven FSC certified enterprises and seven comparable control enterprises were selected. Issues examined included training on health and safety issues, availability of equipment, food and water, transportation conditions, health facilities, sanitary conditions, income, hiring procedures, participation in labour unions, education, housing conditions and waste treatment. Data were collected though a combination of interviews and field research. Interviews were held with the owner or the person responsible for the operation, company and subcontractor workers as well as local labour unions and community associations. This might involve a certain bias. Another study from Brazil focuses on the impacts of FSC certification on communities in the State of Acre, which was assessed by comparing certified (31 of 50) to non-certified groups (10 of 13) (De 1 Karmann, M. and Smith, A. (2009) FSC reflected in scientific and professional literature. Literature study on the outcomes and impacts of FSC certification.. Rapport 2 Because conclusions of the FSC review are very general, often based on anecdotes, and because we cannot assume that the review was completely objective, the conclusions of the study are not given in chapter 4. Instead, conclusions from the FSC review are given in chapter 5. 3 Keppe, A.L.N., de Lima, A.C.B., Alves, M.C., Maule, R.F. and Sparovek, G. (2008) Impact assessment of FSC certification on forest enterprises in southern Brazil.. Rapport, Instituto de Manejo e Certificação Florestal e Agrícola (Imaflora), 70

67 Lima et al., 2008) 1. The main output variables analyzed were: environmental preservation, quality of the administration of the association, use of personal protection equipment and income from wood sales. The procedure used for gathering data was based on questionnaires answered by certifying associations, community producers and forestry technicians. 2. Studies using Corrective Actions Requested Forest operators wishing to obtain or maintain a FSC certificate are subjected to audits. During these audits the management practices are checked against the FSC Principles and Criteria. An evaluation report is written by the auditors, including a list of actions required. These actions will have to be carried out by the operator to obtain or maintain the certificate. The evaluation of CARs has been considered as an indirect way of measuring the effects of certification at the level of the forest management unit. These studies are based on the fact that the problems addressed in the CAR are generally solved through time. An extensive study on CARs by Rainforest Alliance is available (Newsom and Hewitt, 2005) 2. In 2005 the Rainforest Alliance examined a representative sample of forest management operations in 21 countries, certified by the FSC accredited certification body SmartWood (SW), a program of the Rainforest Alliance (129 operations out of 234 SW certified operations in 2003: 10 operations from South America, 10 from Central America and Mexico; 5 from Asia, 5 from New Zealand and Australia and 89 from US and Canada) In total 22 were from developing countries. Both certified plantations and certified natural/semi-natural forests are reflected in the analysis, both in more and in less developed countries. As a means of describing the impacts of forest certification, the changes that forestry operations were required to make during the assessment process were examined. Figure 2A.3: Issues examined by Rainforest Alliance Source: Newsom and Hewitt I (2005) 1 De Lima, A.C.B., Keppe, A.L.N., Palmieri, R., Corrêa Alves, M., Maule, R.F. and Sparovek, G. (2008) Impact of Sustainable Agriculture Network (SAN) certification on coffee farms. Case study in the southern region and cerrado areas of the State of Minas Gerais, Brazil /Imaflora. Rapport, Instituto de Manejo e Certificação Florestal e Agrícola (Imaflora), 2 Newsom, D. and Hewitt, D. (2005) The global impacts of SmartWood certification. Rapport 71

68 A study on CAR s by Wageningen University (Peña-Claros et al., 2009) 1 is based on evaluation reports (CARs). The authors examined the effectiveness and influences of FSC-certified forest management units in terms of environmental and socio-economic factors in the tropics. Also here it is assumed that the forest operator will carry out activities needed to obtain or maintain the certificate. To evaluate impact and factors influencing impact at a national and regional level, the researchers studied 138 public summaries of the evaluation process of 123 FSC-certified companies and checked them against all FSC s P&C, except those for plantations. The summaries were produced by nine different certification bodies, from 22 developing countries, between 1995 and WWF undertook a review in 2010 to answer the question if Multi-Stakeholder Initiatives (MSIs) are measurably and permanently shifting markets towards improved economic, environmental and social outcomes (WWF, 2010) 2. Interviews were held and an impact desk review of FSC (and MSC) impact studies was done. WWF reports that although numerous reports and methodologies exist to assess impacts, the reliability and validity of these studies remain limited. This is due to poor data availability and the lack of systematic and comparable data collection methodologies. On top of that, impact level data are hard to measure, let alone attribute to MSIs. WWF recommends how MSIs can strengthen their monitoring and evaluation capacity to assess impacts. 4. Socio-economic effects 4.1. Economic effects at household level Household economics The WWF review (2010) did not find strong evidence of direct poverty-related impacts such as improved food security and livelihoods, but there are some indications of improved employment opportunities and higher salaries for local people by FSC (De Lima et al., 2008; Peña-Claros et al., 2009). The higher salaries may have to do with the fact that FSC requires payment of the minimum wage which is valid in a certain country. In some cases the workers may have been receiving below minimum wage salaries before certification. This does not become clear from the studies. From both studies in Brazil (De Lima et al., 2008; Keppe et al., 2008)it appeared that the motivation for enterprises to go for FSC certification mainly relates to access to new markets, leaving higher financial returns of certified wood as a second priority. In fact, in most cases certified wood does not result in higher prices. In many of the researched enterprises, the profit margin of certified products has fallen below acceptable levels. (Blackman and Rivera, 2010) 3 also conclude on the basis of available studies on socioeconomic impacts of FSC that certification provides none to negligible premiums and no income benefits. Labour conditions Effects of certification on labour conditions were reported as positive in all studies. The effects include improved working and living conditions (health and safety, housing, sanitation). Moreover, one study reported a trend that working conditions are improving even before the process of certification has started (Peña-Claros et al., 2009). The Rainforest Alliance (Newsom and Hewitt, 1 Peña-Claros, M., Blommerde, S. and Bongers, F. (2009) Assessing the progress made: an evaluation of forest management certification in the tropics. Rapport nr , Wageningen UR, Wageningen 2 WWF (2010) Certification and roundtables: do they work? WWF review of multi-stakeholder sustainability initiatives. Rapport, WWF 3 Blackman, A. and Rivera, J. (2010) The Evidence Base for Environmental and Socioeconomic Impacts of Sustainable Certification. Rapport, Resources for the Future 72

69 2005) found that one of the most prevalent social impacts of certification was improved worker safety (56%). Data from the WUR study (Peña-Claros et al., 2009) also indicate that certification improves the labour conditions (health and safety was the most mentioned issue). The WWF review (2010) draws similar conclusions with respect to labour conditions. In Brazil, FSC certification brought important social contributions in forest enterprises in the states of Santa Catarina and Rio Grande do Sul (Keppe et al., 2008). Its positive impacts are related to workers' health and safety, training and capacity building related to health and agrochemical use. In the other study from Brazil (De Lima et al., 2008), impacts were uncertain, assumedly because community forestry had already delivered benefits to the communities which would otherwise have been delivered by certification. Natural capital From all studies it became clear that certification enhances communication and the mechanisms to solve disputes with stakeholders, neighbors and communities, and provide guarantees that local communities maintain control of their forests. This also improved the relations between forest operators and communities. FSC certification also increased acceptance of community representatives in policy forums (WWF, 2010). Improved communication and conflict resolution with stakeholders, neighbors and communities was related to 75% of the operations researched by Rainforest Alliance(Newsom and Hewitt, 2005). (Peña-Claros et al., 2009) 1 also reports that certification enhances the mechanisms to solve disputes, and provides guarantees that local communities keep control of their forests. In this study, several social criteria (mostly related to indigenous people) are not included among the most commonly issues raised, suggesting that either (1) managers of FMU are dealing with these issues in a satisfactory way before undergoing the certification process, (2) these issues are not really a problem in the tropics, or (3) the evaluation team does not identify these issues as a problem during the evaluation process. Human development Most studies reported on improved training and capacity building with respect to health and safety, working with chemicals and waste management. The Rainforest Alliance study (Newsom and Hewitt, 2005) found that one of the most prevalent social impacts of certification was improved worker training (64% of the researched operations). This contributes to knowledge, awareness and capacity building of workers. Market access Findings from the Rainforest Alliance(Newsom and Hewitt, 2005) show that the most prevalent economic and legal impacts of certification were increased understanding of operation profitability and efficiency (required of 50% of operations), improved compliance with laws (40%), and improved treatment of illegal activities and trespassing (25%). (Peña-Claros et al., 2009)found that the long-term economic viability of the forest operation was the most common issue raised by the evaluation team. This result is in agreement with results found in the study by Rainforest Alliance (Newsom and Hewitt, 2005) indicating that forest operations in the tropics are in need of business plans and financial analyses. These requirements have sometimes led to the restructuring of the company to include an accounting division and to an improved monitoring system of the costs and income from forest operations. 1 Peña-Claros, M., Blommerde, S. and Bongers, F. (2009) Assessing the progress made: an evaluation of forest management certification in the tropics. Rapport nr , Wageningen UR, Wageningen 73

70 From Brazil (Keppe et al., 2008), some other positive impacts for business were noted, including improved efficiency within a supply chain (e.g. better managed processes, higher production and quality, cost savings); decreased risk; higher transparency; and increased awareness about problems in the supply chain. On economic impacts WWF (2010) concludes that there is general agreement that MSIs have an impact on supply chains and critically re-orient decisions about the depth of corporate social responsibility. Evidence of enhanced market access is more mixed (WWF, 2010). Enterprises or operators, especially the smaller ones, struggle with mandatory compliance with very rigorous federal laws that are out of touch with the reality of forest production systems, high direct cost of certification, bureaucracy involving additional documentation with the need to re-enter records into the system, and the difficulty faced by subcontractors in adapting themselves to the certification standards (Keppe et al., 2008). WWF (2010) found that the cost of certification can be a barrier and certification systems tend to favour large-scale operators at the expense of small ones. In addition, the shift towards more scientifically rigorous models of management may sometimes come at the expense of valid local customs. A high degree of dissatisfaction was registered among certified community producers (De Lima et al., 2008) in relation to wood sales and the corresponding economic returns. The main reasons for such dissatisfaction was the difficulty in accessing the market for certified wood, and the absence of aggregated value in certified wood. On the other hand, a significant number of community producers mentioned that, although there is no price differential between certified and non certified wood, certified wood is better accepted by the market Economic effects at regional level None of the studies reported effects on higher levels than communities or forest enterprises. 5. Analysis and conclusions socio-economic effects Studies on the socio-economic impacts of certification are all about FSC. It is the major certification scheme in the tropics. There is little reason to believe that other schemes would have better impacts since FSC is the system with the most elaborated social criteria. The FSC review (Karmann and Smith, 2009) (Karmann and Smith, 2009) 1 concludes that FSC certification has positive environmental and social impacts. The following are findings from our analyses, which largely correspond with those of the FSC review. 1 Karmann, M. and Smith, A. (2009) FSC reflected in scientific and professional literature. Literature study on the outcomes and impacts of FSC certification.. Rapport 74

71 Household economics Outputs Criteria on local employment opportunities and higher wages Additional certification costs Price premium not always provided Outcomes Some evidence for local employment and salaries No positive cost-benefit balance by certification Impact Absence of strong evidence for direct income benefits Certification leads to improved employment opportunities and payment of at least the minimum wages valid in a country, which is assumed to positively affect the income of people (Peña-Claros et al., 2009). However, strong evidence for this was not found (Blackman and Rivera, 2010; WWF, 2010). The sale of certified wood does not always come with price premiums. In fact, in most cases certified wood does not result in higher prices (but see (Nebel G, 2005) 1 ). Blackman and Rivera (2010) also conclude that most studies on socioeconomic impacts of FSC suggest that certification provides zero to negligible premiums and no income benefits. On top of that, costs of certification and adapted management processes will also have to be covered, and timber sales may be lower. Thus even in those cases that certification does lead to price premiums, it does not automatically lead to income benefits. Labour conditions Outputs Criteria on labour and housing conditions Outcomes Evidence for positive changes in health and safety, sanitation and housing Impact Labour safety and health and well being of workers improved Certification has a positive effect on working and living conditions, including health and safety, housing, wages, employment opportunities and training and capacity building (e.g. FSC review by Karmann and Smith, 2009). These benefits are directly related to the criteria in the FSC system for sustainable forest management. This contributes to overall labour safety and well being of the workers. Human development Outputs Criteria on training in wood harvesting and processing, including health and safety Outcomes Evidence of the use of acquired skills, less accidents and better health Impact Increased capacity building and well-being of workers FSC certification includes criteria on training in skills as well as health and safety measures. This leads to increased capacity building and improved overall well-being of workers. There is no evidence for improved levels of education for those involved in FSC certification. 1 Nebel G, Q.L., Jacobsen JB, Helles F (2005) Development and economic significance of forest certification: the case of FSC in Bolivia. Forest Policy and Economics 7,

72 There is also evidence for improved forest management systems in FSC certified forests. The Rainforest Alliance (Newsom and Hewitt, 2005) 1 found major CARs and thus expected progress on four forest management issues: management plans, monitoring, chain of custody and inventory. Natural capital Outputs Use of mechanisms for communication and dealing with disputes Various measures to improve sustainable forest management Outcomes Evidence of improved relations between operators and communities Evidence of improved forest management Impact Communities maintain control of their forest Improved forest qualities The FSC review (Karmann and Smith, 2009) concludes that FSC certification results in improved conservation efforts and enhanced biodiversity in forests. In addition, through certification, mechanisms that enhance communication and solve disputes with communities are implemented. This leads to improved relations between operators and communities. Certification also provides guarantees that maintain control of their forests. This is expected to lead to safeguarding the income for communities from forest products but this has not been researched in the impact studies. However, considering that only a few percent of the total tropical forest area is certified, effects at higher levels are expected to be small or not measurable. Market access Outputs Better management systems, access to markets and supply chain information Outcomes Improved access to markets and supply chain knowledge Impact No evidence of improved incomes Due to certification management systems are improved and a better understanding of the supply chain is created. There is evidence that this leads to improved market access for certified operations which is often a reason for an operator to go for certification in the first place. However, we found that improved market access does not automatically lead to higher prices and incomes. This conclusion is in line with the fact that the motivation for enterprises to go for FSC certification mainly relates to access to new markets, leaving higher financial returns of certified wood as a second priority. Regional impacts No studies were found that report on impacts at regional level. Overall conclusions The direct socioeconomic benefits of FSC certification most frequently reported are improved employment and health and safety standards. However, there is no evidence for direct income benefits by certification. Likewise, communities are not expected to move out of poverty easily by adopting the FSC certification standard. This conclusion is in line with that of the study by Blackman and Rivera (2010). However, this does not mean that positive economic impacts cannot be expected. Certification is assumed to contribute to improved financial sustainability of forest operations mainly in an indirect way, because of other benefits. These indirect impacts are summarized in below 1 Newsom, D. and Hewitt, D. (2005) The global impacts of SmartWood certification. Rapport 76

73 scheme. There is no concrete evidence for such impacts, but the causality is plausible and often mentioned in the studies that were reviewed. Direct outcomes Improved market knowledge Improved local employment and salaries Improved forest management systems Improved working and housing conditions Improved skills Indirect outcomes Improved marketing and market access Improved relations between operators and communities Impacts Expected indirect income benefits from improved market access but no evidence Health and safety, well being and capacity of workers improved Communities maintain control of their forest In terms of contextual conditions, the relative benefits of certification are higher in countries (or regions) where standard conditions for forest management practices are still poor, but where conditions on land security and forest policies are favorable. The FSC review found that FSC impacts are related in particular to land tenure security and the level of centralization in forest authority and decision-making. Attempts to develop and promote other certification standards than FSC have been problematic (examples from Malaysia and Indonesia). However, even from those countries success stories related to improved forest management in certified forest operations can be reported. The Rainforest Alliance (2005) found that tropical forestry operations, often located in regions with weaker workers rights laws and operating on slimmer economic margins than their temperate counterparts, experienced significantly higher social impacts than temperate operations. The other impacts were roughly equal between developed and developing countries. (Peña-Claros et al., 2009) revealed differences between developing countries. In Brazil for instance there were more problems with the issue of health and safety for employees and families probably because the labour law in Brazil is demanding, while in Mexico there were more problems with fulfilling than chain of custody standards. Nebel et al. (2005) found that only little improvement of certification was obtained in Bolivia, because the national forest laws are already developed towards sustainable forest management. Community forestry offers benefits to communities which are comparable to certification (see also (Molnar et al., 2007) 1 ). Additional impacts of certification are hard to determine (at least in Brazil). However, for many small forest operators it is difficult to obtain a certificate because the costs are high and it is not easy to fulfill all requirements (see also Nebel et al. 2005). Some solutions proposed by researchers are: reduction of certification costs for small producers, production of material providing additional explanation on certification standards and its bureaucracy, and formulation of specific standards for such cases. FSC introduced group certification (around 4 million ha worldwide is now managed by communities) but considering the scale of FSC in the tropics, effects are local and small-scale. 1 Molnar, A., Liddle, M., Bracer, C., Khare, A., White, A. and Bull, J. (2007) Community-based forest Enterprises in tropical forest countries: status and potential.. Rapport, ITTO, RRI, Forest Trends, 77

74 6. Indicators Initiatives to study impacts The Rainforest Alliance has developed a set of global indicators Rainforest Alliance global indicators for forestry Source: Newsom ( 2009) 1 The indicators measure an operation s performance on environmental topics such as wastewater treatment and the creation of reserve areas, social aspects such as worker safety and support for local schools, and economic aspects such as the level of engagement in certified markets. These global indicators should allow the Rainforest Alliance to make specific, quantitative statements about the impacts of certification that are based on measurements from certified clients. These statements should go beyond simple tallies of the number of hectares or operations certified. During annual audits, data for these indicators are collected from every Rainforest Alliance Certified forestry operation (FSC). Additional data on the impacts of certification in specific circumstances or regions will continue to be collected using specific research projects or case studies. Reference operations are not included. Data were collected from forestry operations from June 2007 until August 2008 to test the use and the suitability of the indicators. The first report only reports data as collected by the Rainforest Alliance. No conclusions or other remarks are made about the potential impact of certification. FSC International plans to develop a system to monitor impacts of FSC certification by a web-based system with a listing of the criteria receiving CARs. This methodology resembles the research done by Rainforest Alliance (2005 ref) and by (Peña-Claros et al., 2009). 1 Newsom, D. (2009) Rainforest Alliance global indicators: first results from the forestry program (June 2007-August 2008). Rapport 78

75 Aspect Indicators Effects At Household Level Incomes Local employment in forestry sector Salaries of workers Labour conditions and security Labour conditions Labour safety aspects (number of accidents) Labour security Natural capital (distribution and access to land or water, land / water management) Land conflicts Rights of local communities and indigenous peoples (number of sites significant to indigenous peoples identified and protected) Human development Improved skills due to training Level of education Market access Market access Total sales / turnover Knowledge of markets, export and supply chain Regional development Employment Labour wages Context Institutional, socio-political context of country or region Land tenure security Decentralisation of forestry legislation Legislation in favour of community-based forestry initiatives 79

76 References Timber Blackman, A. and Rivera, J. (2010) The Evidence Base for Environmental and Socioeconomic Impacts of Sustainable Certification. Rapport, Resources for the Future BWI (2012) Building and Wood Workers International. De Lima, A.C.B., Keppe, A.L.N., Palmieri, R., Corrêa Alves, M., Maule, R.F. and Sparovek, G. (2008) Impact of Sustainable Agriculture Network (SAN) certification on coffee farms. Case study in the southern region and cerrado areas of the State of Minas Gerais, Brazil /Imaflora. Rapport, Instituto de Manejo e Certificação Florestal e Agrícola (Imaflora), FAO (2011a) State of the world's forests Rapport FAO (2011b) The State of the World s Forests Rapport FSC (2011) Global FSC certificates: type and distribution. data/public/document_center/powerpoints_graphs/facts_figures/ global-fsc- Certificates-EN.pdf IDH (2012) The Sustainable Trade Initiative website. ITTO (2010) Annual review and assessment of the world timber situation. Karmann, M. and Smith, A. (2009) FSC reflected in scientific and professional literature. Literature study on the outcomes and impacts of FSC certification.. Rapport Keppe, A.L.N., de Lima, A.C.B., Alves, M.C., Maule, R.F. and Sparovek, G. (2008) Impact assessment of FSC certification on forest enterprises in southern Brazil.. Rapport, Instituto de Manejo e Certificação Florestal e Agrícola (Imaflora), Molnar, A., Liddle, M., Bracer, C., Khare, A., White, A. and Bull, J. (2007) Community-based forest Enterprises in tropical forest countries: status and potential.. Rapport, ITTO, RRI, Forest Trends, Nebel G, Q.L., Jacobsen JB, Helles F (2005) Development and economic significance of forest certification: the case of FSC in Bolivia. Forest Policy and Economics 7, Newsom, D. (2009) Rainforest Alliance global indicators: first results from the forestry program (June 2007-August 2008). Rapport Newsom, D. and Hewitt, D. (2005) The global impacts of SmartWood certification. Rapport Niesten, E.T., Rice, R.E., Ratay, S.M. and Paratore, K., eds. (2004) Commodities and conservation: the need for greater habitat protection in the tropics. Conservation International. Peña-Claros, M., Blommerde, S. and Bongers, F. (2009) Assessing the progress made: an evaluation of forest management certification in the tropics. Rapport nr , Wageningen UR, Wageningen Vardy, N. (2011) Money does grow on trees. Rapport WWF (2010) Certification and roundtables: do they work? WWF review of multi-stakeholder sustainability initiatives. Rapport, WWF 80

77 Appendix 2B: Soy 1. Introduction value chain commodity Soy is the most important oil and protein crop in the world in terms of area and production volume: in 2009 over 220 million tons of soy bean were produced on roughly 100 million hectare. Top five producing countries in 2009 were the United States with a production of 92 million tons (thereby having a market share of 41%), Brazil with 57 million tons (26%), Argentina with 31 million tons (14%), China with 15 million tons (7%) and India 11 with million tons (5%) (see figure 2B.1 for an overview of main producing and exporting countries). The top 5 exporters in 2009 were the United States, Brazil, Argentina, Canada and Paraguay, while the top five importing countries were China, Japan, Mexico, Germany and the Netherlands(FAO, 2012) 1. About two thirds of global soy production is used as animal feed, 14% is used for direct human consumption (in tofu and tempeh, but also in cake, margarine and salad dressing) and 20%for industrial purposes (in detergents and paints) (DSC, 2008) 2. Figure 2B.1 Main soy producing and exporting countries in Main Producing and Exporting Countries 2008 (x mlnt) USA Brazil Argentina China India Production Export Source: FAOSTAT (2009). The USA, Brazil and Argentina jointly produce about 80% of global soy production. The majority of South American production comes from large agricultural companies with an average size of 1,000 hectare, but there are also companies with 50,000 hectare. In South America, e.g. Brazil, Paraguay and Bolivia, and Asia, e.g. India and China, soy is also grown in combination with other crops on small family farms of 2 to 50 hectare (see figure 2B.2 for soy production characteristics in developing countries). Large scale soy production and its expansion has had a number of environmental consequences, especially in South America. These include large scale deforestation, loss of biodiversity and erosion and soil degradation as yearly 3.7 million hectare of forest disappear in Argentina, Brazil, Bolivia and Paraguay (DSC, 2008). 1 FAO (2012) FAOSTAT. 2 DSC (2008) Soy big business, big responsibility Addressing the social- and environmental impact of the soy value chain. Rapport, The Dutch Soy Coalition, Project number A

78 Figure 2B.2 Production characteristics in developing countries Number of small scale farmers (+ gender relevance) Approximately 8.4 million (predominantly men) Number of workers (+ gender relevance) 1 5 million (predominantly men) Hectares of land use worldwide 99 million ha Complexity of the Length of value chain Especially long for feed value chain (in Concentration of actors High concentration in processing and trading relation to Bulk or non-bulk Bulk traceability) transport Visibility in end product Low In Argentina and Brazil soy farming began in the sixties, mainly in a rotation system with other crops. In 1973 soy prices rose by 150% within six months as a result of decreased production in the USA and increased demand in the Soviet Union. As a result South American governments started to encourage soy production by providing farmers with access to credit to finance machinery, seed, fertilizer and pesticide. Simultaneously investments were made in infrastructure, harbors, factories, storage and ships. Mechanized soy farming developed into one of the main sectors of South American agriculture with large companies, trade and investment coming in because of increased soy demand from abroad. Moreover breeding made it possible to introduce soy to tropical regions and increase yield per hectare. As a result of these developments the area under soy cultivation in Argentina and Brazil grew from 6.8 million hectare in 1976 to 36.7 million in 2005 (which is 10 times the size of the Netherlands) (DSC, 2008). Small family farms were negatively influenced by mechanized soy monoculture: after a short boom over-production set in and prices fell. Because small farmers had specialized in soy production, many of them couldn t afford to pay back their loans and were therefore not able to survive a low period. As a result they had to sell their land and move to the city or to settlements at the edge of the Amazon rainforest. Large scale soy production was boosted however when in 1996 Monsanto, a biotechnology corporation, released its RoundUpReady Soy. This genetically modified (GM) soy variety is resistant to Monsanto s RoundUp herbicide that kills all weeds, which means that farmers hardly have to weed. Nowadays almost all of Argentina s soy production is now genetically modified. Argentina was also one of the countries hardest hit by an economic crisis in South America around the turn of the century. Under pressure of the IMF and the World Bank South American countries adopted an agrarian export model that would pay off their huge foreign debts, in which soy naturally played an important role (DSC, 2008). Soy is sold as a bulk product to a global market in which pricing is determined based on certain measurable product qualities, such as protein content by the Chicago Board of Trade (CBOT). Price fluctuations on the international market are determined by droughts and disease outbreaks and by macro-economic developments. Droughts and plant lice infestations as well as concerns about rust damage caused prices to rise in 2003, but quickly recovered to 2002 levels. In 2007 and 2008 world food prices followed the upward trend of world oil prices; average prices for soybean increased by 107%. However, the global economic slowdown beginning in December 2008 caused prices to drop by 40%. In 2009 prices started to rise again due to continuing growth of Chinese demand, the growing potential use of soybean for biodiesel production, and rain delays and reduced harvests in the United States (Aidenvironment, 2009) (see figure 2B.3 for an overview of soy price development during the past 10 years). 82

79 Figure 2B.3 Soybean price development ($/MT). Source: (Mongabay, 2012) 1. The soy supply chain has an hourglass structure, both for food and industrial products as for meat and dairy products (see figure 2B.4 for an overview of the soy supply chain). This means that there are many players involved, but there is a high concentration of players within a few links of the chain where a small number of companies control a large part of the soy stream. There is a broad top part of millions of soy producers who supply a few multinational trade companies, of which the biggest four are known as the ABCD of the soy chain. These are the American traders Archer Daniels Midland (ADM), Bunge and Cargill and the French company Dreyfuss, who control a large part of the production- and processing chain in exporting and the importing countries. These traders supply the food and feed industry, which is dominated by a few manufacturers. In the animal feed chain, who in their turn deliver to a few dominant supermarket chains and finally to a broad base of millions of consumers. In the animal feed chain the middle segment contains chicken and pig breeders, who get their soy from a small number of animal feed producers and they deliver to a limited number of dairy cooperatives and meat processors. This means that power within the soy production chain is concentrated within the trading companies, processors and supermarkets. This implies that if they were to change their policies, the rest of the chain would have to follow (DSC, 2008). Figure 2B.4 The soy supply chain for food, feed and industrial products Food processing Producers Processing & trade Animal feed industry Meat, dairy, egg producers Meat, dairy, egg processors Marketing & Retail Biofuel & technical application industry 1 Mongabay (2012) Soybean price chart. 83

80 2. The main sustainability initiatives The main voluntary standards in the soy sector are (source: DSC (2009)) 1 : Basel Criteria/ProTerra. In 2004 the Swiss retail chain Coop and WWF developed a set of criteria for sustainable non-gm soy that mainly focus on deforestation and land rights called the Basel Criteria. American certifying agency Cert-ID has adopted the ProTerra certification standard, which fully complies with the Basel criteria and the principles set down in other important international policies on social and environmental responsibility and responsible agricultural management.the Brazilian producers IMCOPA, Grupo Maggi, Agrenco and Caramurú (with a combined annual capacity of 4.2 million tons) supply soy that meets the Basel Criteria. Another certificate based on the Basel criteria is Grunpass, a private certificate of the Agrenco Group (DSC, 2009). Round Table on Responsible Soy (RTRS). The Round Table on Responsible Soy Association was initiated in 2004 as an international voluntary multi-stakeholderinitiative to address the social and environmental impacts of soy production. The participating members of the RTRS are represented in the General Assembly in three chambers with an equal number of votes: Producers; Industry, Trade & Finance; and Civil Society. Government bodies and research agencies, consultants and certification bodies can be observers. In June 2010, the final version of the RTRS Principles and Criteria was adopted, developed for mainstream production and sourcing of soy. Basic requirements for certification include 1) Legal Compliance and Good Business Practices, 2) Responsible Labour Conditions, 3) Responsible Community Relations, 4) Environmental Responsibility and 5) Good Agriculture Practices. In June 2011 the first shipment of 85,000 tons of RTRS certified soy was sold to the Dutch industry (DSC, 2009). The RTRS currently has over 150 members, most of them in the Trade, Industry and Finance chamber. There are 10 certified producers and there are national interpretations for Argentina, Brazil and Uruguay. For Bolivia, China, India and Paraguay these interpretations are in process (RTRS, 2010b) 2. Soja Plus. In April 2010, several representatives of large soy producers left the RTRS. As a response ABIOVE (the Brazilian Vegetable Oil Industries Association), APROSOJA (Mato Grosso State Soybean Producers Association), ANEC (the National Grain Exporters Association) and ARES (Responsible Agribusiness Institute) launched a new socio-environmental management program for rural properties, called Soja Plus. The objective of the programme is the socio-environmental management of properties based on the Seal of Certification issued by the program and other existing initiatives. The criteria of the program are less comprehensive than the RTRS (DSC, 2009). Organic. Organic soybean growers rely on the regulations for organic farming provided by the International Federation of Organic Agriculture Movements (IFOAM). Regulations mainly focus on environmental issues and prohibit the use chemical pesticides, fertilizers or genetically modified organisms. IFOAM is a network of organic agricultural communities in many countries on several continents. Through its Organic Guarantee System (OGS), IFOAM provides a common system of standards, verification, and market identity for organic products, including soy. The International Organic Accreditation Service (IOAS) accredits the certification bodies that certify a product as being organic. China and the US and are the main producers of organic soy. Chinese organic production has grown substantially in the last years. Industry insiders estimate that about 50% of organic soy beans consumed in the US and Europe are imported from China. South American counties, mainly Brazil, are also producing organic soy, though to a limited extent. The production volume of certified organic soy is estimated at 0.1% of world production of soy, so no more than 200,000 tons in 2009 (DSC, 2009). 1 DSC (2009) Factsheet 1 Strategies for reducing the negative impacts of soy production: Responsible soy production. Rapport, The Dutch Soy Coalition 2 RTRS (2010b) Round Table for Responsible Soy Association website. 84

81 EcoSocial. EcoSocial is a certification system developed by the Instituto Biodinamico for Rural Development (IBD) in Brazil. Besides criteria for organic production, the system is based on social norms established by ILO, IFOAM, FLO and SA 8000, in addition to principles established by international agreements related to social and environmental management. EcoSocial certified soy is used by brand owner Alpro Soya. Most soy is produced in Brazil and China. The amount available from the 2009 harvest will be 14,300 tons. If all IBD registered organic soy farmers turn to Ecosocial, the available amount could rise to 33,000 tons (DSC, 2009). Fairtrade. In 2008, Fairtrade Labelling Organizations (FLO) issued the standards for Fairtrade labeled soybeans, including a worldwide Fairtrade minimum price (FTMP) and premium. The Fairtrade label is awarded to products that guarantee a better deal for producers in developing countries, and can be found on various products, from coffee to bananas. The soybeans and pulses standard is only available to small scale producers. Fairtrade soy volumes are still very small. Only one producer group in China is Fairtrade and organic certified and had 300 tons available in April The group is mainly supplying the German consumption market (40 tons in 2009) through Naturkost Weber Company in Munich. Another producer group to be certified shortly is located in Kyrgyztan. Volumes are not known. This group will supply UK and US markets (DSC, 2009). Other relevant sustainability initiatives in the soy sector are are (source: DSC (2009)) 1 : Amazon Moratorium. In July 2006, ABIOVE (Brazilian Vegetable Oil Industry Association), ANEC (Brazilian Grain Exporters Association) and their member companies agreed not to trade in soy that originates from areas within the Amazon Biome that were deforested after the 24 July They also agreed not to trade in soy produced with the use of labour resembling slave labour. The key players that brought about this change were Greenpeace and several European soybean buyers (including McDonald s, Walmart and Carrefour). The moratorium has been extended by the period of one year several times and is currently valid until January A mapping and monitoring system has been developed and government and relevant economic sectors are cooperating on refining institutional relations and legislation to improve controls over deforestation and the development of soy production in the Amazon Biome. The latest satellite data shows that Amazon deforestation has decreased since the moratorium went into effect (DSC, 2009). Dutch Sustainable Trade Initiative (IDH). The purpose of the IDH s soy program is to increase awareness and broaden public support for the RTRS. Stakeholders are stimulated to implement the criteria developed by the RTRS. The Product Board Margarine, Fats and Oils (MVO) (representing Dutch production and trading companies) and Nevedi (representing the Dutch feed industry) aim at 100% responsible soy imports into the Netherlands in In this way the programme contributes to making global soy production and trade more socio-environmentally responsible. In anticipation of the objective to source 100% RTRS soy by 2015, the Dutch organizations Nevedi, Friesland Foods, Vion, Gebr. Van Beek Group and Storteboom Group have initiated a joint program for the purchase of soy from South America by the Dutch feed industry, called the Sustainable Soy Initiative (IDS). This soy does not come from areas deforested after July 2006 and there three suppliers contracted: Cargill, Cefetra and Maggi. The organizations involved in the initiative aim to buy increasing amounts of certified soy from 50,000 tons in 2009 to 150,000 tons in 2011 (DSC, 2009).. Soy Producer Support Initiative (SOYPSI). The Soy Producer Support Initiative is a four-year worldwide program ( ) initiated by Solidaridad, WWF and the RTRS. SOYPSI is a pilot project targeting 25,000 small farmers in Argentina, Bolivia, Brazil, Paraguay and India. The overall goal is to support small-scale farmers and farm workers in the soy sector and prepare them for 1 DSC (2009) Factsheet 1 Strategies for reducing the negative impacts of soy production: Responsible soy production. Rapport, The Dutch Soy Coalition 85

82 certification. Most SOYPSI projects were RTRS field trials. They may however also include additional criteria such as non-gm, organic or exclusively derived from family farms. These additional qualities serve to provide added value to family farms that cannot compete in scale or volume with large, mechanized farms. Typically, the criteria applied to SOYPSI farmers are verified under a group certification protocol by an independent third party auditor. In 2010, about 20,000 small scale farmers in Brazil and India produced approximately tons of soy. The available volume of soy under the SOYPSI program is expected increase to 100,000 tons in 2012 (DSC, 2009). Rough estimates indicated that the Netherlands imports between 2 and 3 million tons of soy per year, which is mainly GM soy. Over 10,000 tons thereof are certified organic and about 120,000 is non- GM soy, of which about two thirds are ProTerra soy (Gert van der Bijl, personal communication). As indicated above IDS is buying RTRS soy; as much as 150,000 tons in Studies on socioeconomic effects Soy is the world s fourth agricultural commodity, after wheat, rice and maize (Van Gelder, 2006). Although there are some 8.4 million smallholders, soy is mainly being produced on large, capital intensive and labour extensive, tracts of land owned by large farming companies. In 2006 Aidenvironment and the Dutch Soy Coalition published a report on the soy industry and its social and environmental implications at the production side of the chain in Latin America (DSC, 2008) 1 (updated version of the 2006 edition). The major issues that presented in this study are: Deforestation and related environmental problems, such as loss of biodiversity and erosion and soil degradation Land conflicts, human rights violations, slavery, decreasing employment opportunity, and food insecurity and hunger Genetic manipulation, dominance of agri-multinationals and use of pesticides There is much information available of the socio-economic effects of conventional soy production. In 2011 Aidenvironment analysed the major sustainability issues, an overview is presented in below scheme. People Planet Profit Forced labour Forest conversion (worldwide) Low incomes / wages Health and safety issues Chemical (pesticide) use Yield performance Land right conflicts Soil degradation (erosion) Trade barriers Food security Studies on the impacts of sustainability initiatives in the soy sector however are lacking. This is due to the scale and history of sustainability standards; most are too young or too small to have generated major impacts. As indicated above the RTRS standard has only become available in 2010 year and in 2011 the first producers were certified. 2 Fairtrade soy is only being produced by a few companies. Some scattered evidence can be found from other sustainability initiatives such as the SOYPSI program. To assess sustainability initiatives in the soy chain additional information was therefore 1 DSC (2008) Soy big business, big responsibility Addressing the social- and environmental impact of the soy value chain. Rapport, The Dutch Soy Coalition, 2 RTRS participates in a project with the title knowledge-based Sustainable value-added food chains: innovative tools for monitoring ethical, environmental and Socio-economical impacts and implementing EU-Latin America shared strategies. The capital letters being the projects initials SALSA, a research project that started on May 2011 and is funded by the European Commission and coordinated by the University of Bologna RTRS (2010b) Round Table for Responsible Soy Association website. So far no results of this research project have been published. 86

83 needed. Our approach was to compare baseline information with socio-economic criteria in available standards and, if available, information on planned premiums, improvements in productivity, etc. Next to that audit reports were screened to identify the major areas of non-compliance and assess where improvement are expected. Also reports by NGOs were screened on critical assessment of standards and compliance issues. The RTRS was the focal point as it is expected to become the mainstream standard in the soy chain (Argos, 2011). 1 The following sources were central in assessing the effect of sustainability initiatives: (ASA, 2009)2. Study on Yield and Other Benefits Realized by Participating Farmers under Responsible Soya Promotion Programme Being Implemented by ASA & Partners in 5 Districts of Madya Pradesh. Action for Social Advancement. This study provides a quantitative comparison of RTRS-registered and non-participating farmers in terms of yield improvement and a qualitative analysis of the difference between costs and benefits of production for the same groups. (FLO, 2011)3. Monitoring the scope and benefits of Fairtrade Third Edition (RTRS, 2010c). RTRS Standard for Responsible Soy Production Version 1.0. Round Table for Responsible Soy Association. (RTRS, 2010a) Public Audit Reports. RTRS website 82&lang=en There are four audit reports available on the RTRS website of which two found nonconpliance with certain criteria of the standard. (GM Watch, 2011) GMWatch, Friends of the Earth, Corporate Observatory Certified responsible? Critical assessment of the Round Table on Responsible Soy. (Franke et al., 2011)4. Sustainability of current GM crop cultivation : review of people, planet, profit effects of agricultural production of GM crops, based on the cases of soybean, maize, and cotton. Personal communication with soy expert Gert van der Bijl (Solidaridad). 4. Socioeconomic effects 4.1. Economic effects at household level Household economics Farm production and household expenditure In a pilot project of the SOYPSI program for farmer training on agricultural practices in India, an external audit on the RTRS standard was conducted and the results were positive. Moreover it was found that participating farmers realized a yield increase ranging from 37-78% as compared to nonparticipating farmers. From discussions with non-participating farmers it appeared that they used old and obsolete agricultural practices, such as the use of high seed rate, application of imbalanced fertilizer, broadcasting method of sowing (which is highly problematic due to higher incidence of weeds in soy crops), top dressing of urea (making plant more susceptible to insect attack and diseases) and use of poor quality seeds. In sum, before training based on RTRS, production costs for 1 The thematic focus of the RTRS Standard for Responsible Soy Version 1.0 is highly comparable to the ProTerra Standard V2.9 Argos (2011) Comparison of ProTerra Standard V2.9 and the RTRS Standard for Responsible Soy Productction Version 1.0 Prepared on behalf of: CERT ID LTDA. Rapport. 2 ASA (2009) Study on Yield and Other Benefits Realized by Participating Farmers under Responsible Soya Promotion Programme Being Implemented by ASA & Partners in 5 Districts of Madya Pradesh. Rapport, Action for Social Advancement 3 FLO (2011) Monitoring the scope and benefits of Fairtrade Third Edition. Rapport, Fairtrade Labeling Organizations International 4 Franke, A.C., Breukers, M.L.H., Broer, W., Bunte, F., Dolstra, O., d' Engelbronner-Kolff, F.M., Lotz, L.A.P., van Montfort, J., Nikoyuk, J., Rutten, M.M., Smulders, M.J.M., van de Wiel, C.C.M. and van Zijl, M. (2011) Sustainability of current GM crop cultivation : review of people, planet, profit effects of agricultural production of GM crops, based on the cases of soybean, maize, and cotton. Rapport, Plant Research International, Wageningen 87

84 these farmers were not only higher, but they also had lower yields due to faulty agriculture practices (ASA, 2009). Household income In November the price for a ton of soybeans was $ (Index Mundi, 2011) 1, which is above the Fairtrade minimum price of $355 per ton, but below the Fairtrade organic minimum price of $510 per ton). Premiums are $35 per ton for Fairtrade and $50 per ton for Fairtrade organic (FI, 2011) 2. To what extend minimum prices and premiums trickle down to farmers in not known, the effect of such investments is equally unclear. Moreover organic production is associated with increased production (i.e. labour) costs, so therefore the impact on household income is not clear (Gert van der Bijl, personal communication). Price premiums of Proterra and non-gm soy are more or less the same and fluctuate between 20 and 40 per ton, although premiums of 100 per ton have also been transferred. Until recently there was no premium for non-gm producers in Brazil, but this is changing due to scarcity. The premium IDS is paying for RTRS soy is about $2 per ton. In general the RTRS premium will be negotiated on the basis of supply and demand dynamics (Gert van der Bijl, personal communication). Labour conditions Child labour and slavery Child labour and slavery are widespread phenomena in the Latin America s soy industry. In Brazil 900,000 boys (5.5% of total) and 420,000 girls (2.7% of total) aged 5-14 years work in agriculture. There is evidence that in production states, the increase of slavery has been most intensive. For instance, in Mato Grosso the number of reported slavery cases increased 10 times from 3 to 30 between 2000 and 2005 (Aidenvironment, 2007) 3. Forced labour is most common in land clearing; in workers clearing land for soybean production were freed (Franke et al., 2011) 4. In Paraguay child labour in rural areas is something very natural and there are workers in a situation of serfdom by debt. Moreover soybean production has taken over and contaminated indigenous communities, displacing Indians towards cities where they become the victims of labour exploitation networks (NGO Repórter Brasil, 2010) 5. The RTRS standard has a section on labour: as a matter of fact Principle 2 is on Responsible Labour Conditions and Criterion 2.1 states that Child labour, forced labour, discrimination and harassment are not engaged in or supported (RTRS, 2010c) 6. However, there is serious doubt whether RTRS criteria will protect workers from current abuses. GM Watch, Friends of the Earth and CEO state the 2010 version of the standard is more lenient on labour conditions than the 2009 draft and even some national laws are stricter than the Principles and Criteria (GM Watch, 2011). Moreover there is doubt to what extent RTRS can force members to improve practices: RTRS members Nidera, Monsanto, and DuPont/Pioneer were variously accused by the Argentine authorities of human trafficking, exploiting workers, and keeping workers in slave-like labour conditions. However, the RTRS criteria will apply only to that part of a company s soy production that will be labelled responsible. 1 Index Mundi (2011) Soybeans daily price. 2 FI (2011) Fairtrade International Fairtrade Minimum Price and Fairtrade Premium Table. Fairtrade Labelling Organizations International. Rapport 3 Aidenvironment (2007) Analysis of socio-economic impact of trade of selected commodities Rapport, Amsterdam 4 Franke, A.C., Breukers, M.L.H., Broer, W., Bunte, F., Dolstra, O., d' Engelbronner-Kolff, F.M., Lotz, L.A.P., van Montfort, J., Nikoyuk, J., Rutten, M.M., Smulders, M.J.M., van de Wiel, C.C.M. and van Zijl, M. (2011) Sustainability of current GM crop cultivation : review of people, planet, profit effects of agricultural production of GM crops, based on the cases of soybean, maize, and cotton. Rapport, Plant Research International, Wageningen 5 NGO Repórter Brasil (2010) Socio-environmental impacts of soybean in Paraguay Rapport, NGO Repórter Brasil, 6 RTRS (2010c) RTRS Standard for Responsible Soy Production Version

85 Moreover, the alleged abuses concern mainly maize seed production so they would not be addressed by the companies membership of the RTRS. (GM Watch, 2011) 1 Labour conditions, safety aspects Brazil has a high level of accidents at work: the number of employees who suffered accidents during soybean planting increased from 286 cases in 2006 to 485 in There are also problems with herbicide application affecting worker s health: 6,297 farm workers were contaminated and 186 died in the entire Brazilian agricultural sector in 2006 (Franke et al., 2011). In Paraguay people are increasingly dependent on waged income because of the low productivity of family and community farming. This forces workers to accept any kind of work under conditions posed by farming enterprises, which includes increasingly sporadic labour paid below the legal minimum and nearserfdom systems such as salaries paid in vouchers to be exchanged in one store, which is clearly prohibited by the Labour Code in force. Daily wage workers, peasants, and Indians lack social security and the state does not fulfil its duty to inspect labour conditions (NGO Repórter Brasil, 2010). RTRS Principle 2 on Responsible Labour Conditions has four criteria on labour conditions and safety. These are Criterion 2.2 Workers, directly and indirectly employed on the farm, and sharecroppers, are adequately informed and trained for their tasks and are aware of their rights and duties, Criterion 2.3 A safe and healthy workplace is provided for all workers, Criterion 2.4 There is freedom of association and the right to collective bargaining for all workers and Criterion 2.5 Remuneration at least equal to national legislation and sector agreements is received by all workers directly or indirectly employed on the farm (RTRS, 2010c) 2. In two RTRS audit reports noncompliance with Criterion 2.3 was mentioned and in one case corrective action was required for Criterion 2.5. Labour security Direct employment opportunities of large-scale soy production in Brazil are limited because this type of production needs few on-farm jobs(dsc, 2008; Franke et al., 2011) 3. In Paraguay mechanized agriculture is affecting family and social bonds. As less labour is required on the farm itself peasants have to seek jobs outside their communities, resulting in a higher tendency to migrate to the cities or to other, more marginal and rural areas in the long term (NGO Repórter Brasil, 2010). RTRS Principle 3 on Responsible Community Relations indicates by Criterion 3.4 that Fair opportunities for employment and provision of goods and services are given to the local population (RTRS, 2010c). GM Watch, Friends of the Earth and CEO state that the issue of mechanized soy farming employing few people is impossible to address through sustainability certification schemes that work at farm-scale level (GM Watch, 2011). Natural capital Land conflicts Problems of displacement of local land owners and illegal land grabbing are common practice in soy expansion areas in South America. Land conflicts in Brazil are widespread and indigenous and local populations often face the risk of eviction. Land register is weak, creating uncertainty around land 1 GM Watch (2011) Certified responsible? Critical assessment of the Round Table on Responsible Soy. Rapport, GM Watch, Friends of the Earth, Corporate Observatory 2 RTRS (2010a) Public Audit Reports. 3 DSC (2008) Soy big business, big responsibility Addressing the social- and environmental impact of the soy value chain. Rapport, The Dutch Soy Coalition, Franke, A.C., Breukers, M.L.H., Broer, W., Bunte, F., Dolstra, O., d' Engelbronner-Kolff, F.M., Lotz, L.A.P., van Montfort, J., Nikoyuk, J., Rutten, M.M., Smulders, M.J.M., van de Wiel, C.C.M. and van Zijl, M. (2011) Sustainability of current GM crop cultivation : review of people, planet, profit effects of agricultural production of GM crops, based on the cases of soybean, maize, and cotton. Rapport, Plant Research International, Wageningen 89

86 ownership. Also in Argentina there is reporting of repeated encroachment of soy production into indigenous territories (Franke et al., 2011). In 2008/09 Paraguay saw 347 violations of human rights, 819 people arrested and 52 displacements of local peasants and indigenous people resisting the agribusiness advance of large-scale soy production. These problems are especially pressing in the border area with Brazil, where Brazilian immigrants settle to start large-scale soy farms (NGO Repórter Brasil, 2010). Principle 3 Responsible Community Relations provides that A mechanism for resolving complaints and grievances is implemented and available to local communities and traditional land users under Criterion 3.3 (RTRS, 2010c). In two audit reports corrective actions were required for Criterion 3.3 (RTRS (c), 2010). Rights of local communities and indigenous peoples It is clear that rights of local communities and indigenous peoples are frequently violated in land conflicts in Latin America (Franke et al., 2011) 1 and (NGO Repórter Brasil, 2010) 2. Under Principle 1 Legal compliance and Good Business Practice the RTRS indicates that Legal use rights to the land are clearly defined and demonstrable (Criterion 1.2). Moreover there is cross-reference with Criterion 3.2 which indicates that In areas with traditional land users, conflicting land uses are avoided or resolved (RTRS, 2010c) 3. There is no evidence for the impact of the application of these criteria. Public participation and information The RTRS also indicates that Channels are available for communication and dialogue with the local community on topics related to the activities of the soy farming operation and its impacts in Criterion 3.1 (RTRS, 2010c). However, there is no evidence for the impact of this criterion. Investments in land / water management In countries where the soy boom takes place (Brazil, Argentina, Bolivia and Paraguay) large areas of natural ecosystems are converted into soy monocultures. While in Brazil 33% of soy expansion takes place by conversion of tropical forests and savanna ecosystems, in Argentina this is 17%. The rate of biodiversity loss because of soy expansion during 10 years was 4-8% per in Brazil and Argentina. Also other land use types such as extensive grazing are being replaced by soy. Clearance of natural vegetation also has a significant influence on ground water levels as evaporation rates increase. Moreover pollution of water and soil resources is caused by intense use of agrochemicals: in Brazil 25% of all pesticides being used are used in soybean cultivation, amounting to 50,000 metric tons in The planting of large scale soy mono-cropping systems is expected to further increase, in Argentina and Paraguay most of this is expected to be herbicide tolerant GM soy. Moreover mechanized large scale soy production contributes to global climate change through high deforestation rates and significantly influences local climates (Van Gelder, 2006) 4. The RTRS propagates responsible environmental and agricultural management under Principle 4 Environmental Responsibility and Principle 5 Good Agricultural Practice. The criteria of Principle 4 Environmental Responsibility are 4.1 On and off site social and environmental impacts of large or high risk new infrastructure have been assessed and appropriate measures taken to minimize and mitigate any negative impacts, 4.2 Pollution is minimized and production waste is managed 1 Franke, A.C., Breukers, M.L.H., Broer, W., Bunte, F., Dolstra, O., d' Engelbronner-Kolff, F.M., Lotz, L.A.P., van Montfort, J., Nikoyuk, J., Rutten, M.M., Smulders, M.J.M., van de Wiel, C.C.M. and van Zijl, M. (2011) Sustainability of current GM crop cultivation : review of people, planet, profit effects of agricultural production of GM crops, based on the cases of soybean, maize, and cotton. Rapport, Plant Research International, Wageningen 2 NGO Repórter Brasil (2010) Socio-environmental impacts of soybean in Paraguay Rapport, NGO Repórter Brasil, 3 RTRS (2010c) RTRS Standard for Responsible Soy Production Version Van Gelder, J.W., J.J. Kessler, W. Richert, J. M. Dros, M. Haase and M. Schuring (2006) Increasing the sustainability of EU and Dutch commodity trade through more effective policies: A research paper prepared for the Ministry of Housing, Spatial Planning and Environmental Management (VROM) of the Netherlands Volume II: Commodity profiles Rapport, Profundo and Aidenvironment 90

87 responsibly, 4.3 Efforts are made to reduce emissions and increase sequestration of Greenhouse Gases (GHGs) on the farm, 4.4 Expansion of soy cultivation is responsible and 4.5 On-farm biodiversity is maintained and safeguarded through the preservation of native vegetation. The criteria of Principle 5 Good Agricultural Practice are 5.1 The quality and supply of surface and ground water is maintained or improved, 5.2 Natural vegetation areas around springs and along natural watercourses are maintained or re-established, 5.3 Soil quality is maintained or improved and erosion is avoided by good management practices, 5.4 Negative environmental and health impacts of phytosanitary products are reduced by implementation of systematic, recognized Integrated Crop Management (ICM) techniques, 5.5 All application of agrochemicals is documented and all handling, storage, collection and disposal of chemical waste and empty containers, is monitored to ensure compliance with good practice, 5.6 Agrochemicals listed in the Stockholm and Rotterdam Conventions are not used, 5.7 The use of biological control agents is documented, monitored and controlled in accordance with national laws and internationally accepted scientific protocols, 5.8 Systematic measures are planned and implemented to monitor, control and minimize the spread of invasive introduced species and new pests, 5.9 Appropriate measures are implemented to prevent the drift of agrochemicals to neighbouring areas, 5.10 Appropriate measures are implemented to allow for coexistence of different production systems and 5.11 Origin of seeds is controlled to improve production and prevent introduction of new diseases (RTRS, 2010c). Non-compliance was found in two cases for Criterion 4.2 Pollution is minimized and production waste is managed responsibly, once for Criterion 4.5 On-farm biodiversity is maintained and safeguarded through the preservation of native vegetation, once for Criterion 5.2 Natural vegetation areas around springs and along natural watercourses are maintained or re-established and once for Criterion 5.5 All application of agrochemicals is documented and all handling, storage, collection and disposal of chemical waste and empty containers, is monitored to ensure compliance with good practice (RTRS (c), 2010). Moreover GM Watch, Friends of the Earth and CEO state that: The RTRS standard s deforestation clause (4.4) allows soy cultivation to replace natural habitat under certain circumstances. These conditions are too weak to protect the Amazon rainforest or other vulnerable High Conservation Value lands from being destroyed for soy expansion. Equally, the clause allows many other areas that have great value to local communities to be destroyed, as long as they are zoned for soy expansion in line with the standard s highly problematical criteria (GM Watch, 2011). Human development There are some Principles & Criteria (such as Criterion 3.4 Fair opportunities for employment and provision of goods and services are given to the local population (RTRS, 2010c)) in the RTRS standard that might have a positive effect on human development. However, critics are cynical about their impact (GM Watch, 2011), which has yet to be investigated. Training activities under the SOYPSI program have positive effects on farm production and household expenditure (ASA, 2009), but there is no information on wider human development impacts thereof. Market access The RTRS does not include criteria on market access, but it does invest in small-scale soy production and trade in the SOYPSI program; evidence on improved market access is not yet available however. Neither is there information on market access for small-scale farmers in niche markets such as organic or Fairtrade. 4.2 Economic effects at regional level Below we highlight some of the regional effects of conventional soy production. This can be considered as the baseline to assess regional effects of the RTRS and other sustainability initiatives, 91

88 but the information on regional effects of these initiatives can only be obtained by aggregating the information provided at household level. Since most of these effects are based on poor evidence, the regional effects of sustainability initiatives are also uncertain. In terms of the wider (local or regional) effects of conventional soy production, we used the study by Aidenvironment (2007), which looked at the impacts of conventional soy production in selected provinces in Brazil by using national statistics mainly. In Brazil, 3 types of soy production areas were selected, those that have been cleared before the 1990s (established production areas), those cleared in the 1990s (expansion production areas) and recently cleared areas (frontier areas). Employment level There is strong evidence that rural employment in soy production has strongly declined, from 740,000 employed in 1996 to 335,000 in The proportion of those employed as smallholders within the soy sector declined from 96% to 77% over the same period. Rural employment strongly declined in Brazil as a whole, from 17.4 million in 1980 to 15.3 million in 1990 and 12.7 million in The rate of urbanisation increased in the same period from 67% to 82%, and more so in the soy producing regions. This suggests that (i) soy producing states with plenty of available land and low populations density are attracting immigrants from other states, and (ii) rural employment decreases but most of the unemployed find employment in urban areas. Economic indicators The cultivation of soy in large scale plantations is expected to offer new income opportunities and boost regional development. The main conclusion from the study by Aidenvironment (2007) is that this impact only shows itself in areas with well established soy production systems and relatively important urban populations. On the contrary, it was found that in frontier areas GDP per capita declined in relative terms when compared to the national average value, thus the gap between the national average level of income and the level in soy frontier production areas became larger. This may be because there is little local employment and the benefits of soy production largely amount to urban areas where soy is processed into local products such as the chicken industry. Poverty indicators In the areas with recent and rapid expansion of soy production, the poverty situation and food insecurity were both much worse than the national average. In recent years the trends show an improvement, although the situation is still below the average national level. Land conflicts Aidenvironment (2007) found that in Brazil land conflicts were especially common in areas that have been recently cleared for soy production. The situation in the frontier area deteriorated dramatically between 2000 and 2005: here the increase in number of conflicts was 200% and the land area being disputed increased five-fold. These strong increases can be associated with the strong expansion of soy production in this area. Especially the decline of employment and the concentration of land in the hands of a few large-scale producers may be an important cause for this development. 5. Analysis and conclusions on socioeconomic effects Based on the limited evidence found on the impact of sustainability initiatives, some preliminary conclusions can be drawn on household level for household economics, labour conditions, and natural capital. 92

89 Household economics There is scattered evidence that farm production and household incomes improve due to agricultural training of smallholders. The effect of minimum prices such as those paid by Fairtrade are minimal if commodity prices are as high as they are currently. Double certification with organic does pay a higher price but requires higher labour input, so the ultimate effect on household income has yet to be measured. Premium prices might have a direct positive effect on household income, but there is a large variety of premium price ranging from next to nothing to significant, though the latter highly depends on market dynamics of supply and demand. Output Minimum prices almost negligible, premiums differ Yield increase and reduction of expenses Outcomes Variable evidence for limited positive effect on household economics Impact No evidence of producers moving out of poverty due to sustainability initiative Labour conditions As labour conditions are generally poor in soy production, topics like child labour, slavery, labour conditions, safety aspects, and labour security are aspects of standards like RTRS. However, such initiatives still have to prove their value as there is much criticisms by civil society. Output Criteria for good labour conditions and labour security Outcomes Measures for improved labour conditions and labour security has to be determined Impact No evidence for improved labour conditions or labour security Natural capital The soy sector is infamous for its land conflicts and related violations of the rights of local communities and indigenous peoples and the sector is therefore is dire need of investment in public participation and in land management. These are covered in mainstream standards like RTRS, but once again impacts have still to be measured and civil society remains cynical on its progress. Output Cruiteria for enhanced land security, public particiapation and improved land management practices Outcomes Measures for reduced land conflicts, respect of rights of communities and public participation has to be determined Impact No evidence for improved land quality, biodiversity status, and the rights of communities Human development Improvements are possible through increased employment opportunities and training in improved production and household expenditure, however no evidence was found. Market access mprovements possible due to the sales of sustainable soy to niche markets, however no evidence was found. 93

90 Regional effects The results of studies from Aidenvironment (2007) suggest that in Brazil conventional soy seems to have negative impacts on local communities in the areas of expansion (the frontier areas). This is most clear for the indicators on the number land conflicts and employment, and also on average income levels and levels of poverty. However, the data show that the trends are positive in the areas with well established soy production systems. This may be the result from the fact that over time local development takes off, with urbanisation and social services improving. It is a challenge, looking at the various criteria of the RTRS, the initial decline in human development as a result of land expansion and large-scale mechanisation for large scale soy production is avoided. 6. Indicators The following indicators are considered to be the most relevant ones. Aspect Household Level Household economics Labour conditions Natural capital Human development Market access Context Institutional, socio-political context of country or region Indicators Farm level soy yields (smallholders) Employment in soy sector Household income small-scale soy producers Food security Child labour Slavery Labour conditions, safety aspects Labour security Land conflicts Rights of local communities and indigenous peoples Investments in land management Access to education and training Direct market access by smallholders Land tenure security Regulations on employment opportunities for local people 94

91 References Soy Aidenvironment (2007) Analysis of socio-economic impact of trade of selected commodities Rapport, Amsterdam Aidenvironment (2009) A commodity chin sustainability analysis of the soy supply chain (unpublished document). Rapport, Aidenvironment Argos (2011) Comparison of ProTerra Standard V2.9 and the RTRS Standard for Responsible Soy Productction Version 1.0 Prepared on behalf of: CERT ID LTDA. Rapport ASA (2009) Study on Yield and Other Benefits Realized by Participating Farmers under Responsible Soya Promotion Programme Being Implemented by ASA & Partners in 5 Districts of Madya Pradesh. Rapport, Action for Social Advancement DSC (2008) Soy big business, big responsibility Addressing the social- and environmental impact of the soy value chain. Rapport, The Dutch Soy Coalition, DSC (2009) Factsheet 1 Strategies for reducing the negative impacts of soy production: Responsible soy production. Rapport, The Dutch Soy Coalition FAO (2012) FAOSTAT. FI (2011) Fairtrade International Fairtrade Minimum Price and Fairtrade Premium Table. Fairtrade Labelling Organizations International. Rapport FLO (2011) Monitoring the scope and benefits of Fairtrade Third Edition. Rapport, Fairtrade Labeling Organizations International Franke, A.C., Breukers, M.L.H., Broer, W., Bunte, F., Dolstra, O., d' Engelbronner-Kolff, F.M., Lotz, L.A.P., van Montfort, J., Nikoyuk, J., Rutten, M.M., Smulders, M.J.M., van de Wiel, C.C.M. and van Zijl, M. (2011) Sustainability of current GM crop cultivation : review of people, planet, profit effects of agricultural production of GM crops, based on the cases of soybean, maize, and cotton. Rapport, Plant Research International, Wageningen GM Watch (2011) Certified responsible? Critical assessment of the Round Table on Responsible Soy. Rapport, GM Watch, Friends of the Earth, Corporate Observatory Index Mundi (2011) Soybeans daily price. Mongabay (2012) Soybean price chart. NGO Repórter Brasil (2010) Socio-environmental impacts of soybean in Paraguay Rapport, NGO Repórter Brasil, RTRS (2010a) Public Audit Reports &lang=en RTRS (2010b) Round Table for Responsible Soy Association website &lang=en RTRS (2010c) RTRS Standard for Responsible Soy Production Version Van Gelder, J.W., J.J. Kessler, W. Richert, J. M. Dros, M. Haase and M. Schuring (2006) Increasing the sustainability of EU and Dutch commodity trade through more effective policies: A research paper prepared for the Ministry of Housing, Spatial Planning and Environmental Management (VROM) of the Netherlands Volume II: Commodity profiles Rapport, Profundo and Aidenvironment 95

92 Indonesia Malaysia Nigeria Thailand Colombia Papua New Côte d'ivoire Ecuador Honduras Brazil China Appendix 2C: Palm Oil 1. Introduction The oil palm, Elaeis guineensis, is a tropical palm tree which is grown for its fruits also called Fresh Fruit Bunches (FFBs). These fruits are pressed and crushed and result in three different products: Crude Palm Oil (CPO), palm kernel oil (PKO) and palm kernel meal (PK). These different products have a large variety of applications varying from food items (e.g. cooking and frying oils, margarines, ice creams, and cocoa butter substitutes) to non-food items (e.g. soaps, detergents, resins, candles, inks and cosmetics). Palm oil is also recently used as biofuel, which will have a major impact on future demand of oil palm. As from 2005, palm oil is the world s most consumed vegetable oil with 49.0 million tons in 2011 (MVO, 2010) 1 and (Oil world, 2011) 2 Since the early 1980s, the total area that is allocated globally to the production of oil palm has more than tripled to a total of almost 15 million ha in 2009 (Sheil et al., 2009) 3. This increase in hectare under oil palm cultivation has mostly occurred in Indonesia, where oil palms cover a total of about 5 million ha -1. Favourable growing conditions, abundant land and cheap labour caused this steep increase in oil palm cultivation. In Malaysia, the increase was less strong and about 4 million ha are currently covered by oil palm. Palm oil is increasingly produced in other countries than Indonesia and Malaysia. Thailand and countries in Andes region/central America (e.g. Colombia, Ecuador, Guatemala and Costa Rica) and Western Africa have contributed substantially to the increase of palm oil production over the last 15 years and produce now circa 3 million tons (MVO, 2010). Major expansion is foreseen in the Congo Basin countries and Brazil. Fig. 2C.1: Main producing and exporting countries of palm oil in 2009 x million tonnes Production Export Source: FAO, 2012 China and India are the world s largest importers with respectively 19% and 18% of the total world export. The Netherlands is with 6% the third largest importer. It is expected that the Chinese and Indian import will increase even further over the coming years. 1 MVO (2010) Fact sheet Palm Oil. Rapport 2 Oil world (2011) Oil world annual 2011: Global analysis of all major oildseeds, oils & oilmeals supply, demand and price outlook. Rapport, Hamburg 3 Sheil, D., Casson, A., Meijaard, E., Van Noordwijk, M., Gaskell, J., Sunderland-Groves, J., Wertz, K. and Kanninen, M. (2009) The impacts and opportunities of oil palm in Southeast Asia What do we know and what do we need to know? 96

93 Over the period , the production of global vegetable oil production is expected to increase by 30%(OECD/FAO, 2011) 1. The annual production increase of palm oil, however, slows down due to land restrictions and environmental regulations that should become more binding in Indonesia and Malaysia. The global consumption of vegetable oil will increase, but the average annual increase is expected to slow down due to reduced income growth and price firmness. Nevertheless, due to binding mandates in many countries, the share of vegetable oil used for biodiesel is expected to increase, especially in the EU. After a period of turbulent price levels, the price for vegetable oil is expected to remain relatively high and stable, as a result of the continuously high and increasing demand (Figure 2C.2). Fig.2C.2: Price development (US$ per ton) of vegetable oil (weighted average export price of oilseed oils and palm oil, Europe). Source: OECD and FAO Secretariat. A particularity of the palm oil sector is that production is highly concentrated. An estimated 50 companies control about 75% of the world s production (Aidenvironment, 2008) 2. This is exceptionally high compared to most other international traded commodities. Nonetheless, smallholders, often in Asia under government auspices, contribute significantly to the development of the palm oil sector. An estimated 3 million smallholders are producing oil palm, either as independent farmers, or as part of outgrower schemes. They cultivate from a few hectares to about 50 to 100 ha of land (Cheng Hai Teoh, 2011) 3. In 2009, smallholders owned about 40% (circa 6 million ha -1 ) of all acreage under oil palm, and private companies about 52-60% (8-9 million ha -1 ) (MVO, 2010). In Indonesia, governments possessed 8% of all planted area. Indonesia alone, counts 1.7 million smallholders representing 38% of the total area under cultivation and 35% of the total production (Aidenvironment, 2008). Smallholders generally underperform in yields compared to large-scale plantations. Official statistics in Indonesia show a 14% yield gap between smallholders and plantations, but other studies show that smallholder yield gaps can be lower. 4 The producers deliver the FFBs to mills that press the fruits within 24 hours, otherwise Oil Extraction Rates (OER) start to decline. These are large factories that require major investments, reason why smallholders depend upon large plantations and their factories to process and then market the palm oil. The Crude Palm Oil (CPO) is subsequently traded and transported. Then, CPO is converted into 1 OECD/FAO (2011) Agricultural Outlook , Chapter 5. 2 Aidenvironment (2008) Palm Oil. Inventory of the Major Bottlenecks and Sustainability Initiatives in the Palm Oil Chain. Rapport, Aidenvironment, On behalf of the Sustainable Economic Development Department (DDE), Dutch Ministry of Foreign Affairs 3 Cheng Hai Teoh (2011) Key Sustainability Issues in the Palm Oil Sector. A Discussion Paper for Multi-Stakeholders Consultations (commissioned by the World Bank Group). Rapport, The World Bank and International Finance Cooperation, 4 Koczberski et al. (2001); Hasnah et al. (2004); Zen et al. (2005) 97