Building a Sustainable Cocoa Economy

Transcription

1 Building a Sustainable Cocoa Economy The Role of Private Voluntary Sustainability Initiatives By Jason Potts, International Institute for Sustainable Development May, 2010 The global cocoa economy faces a variety of important sustainability challenges as it moves towards expanded and more specialized production. First, and perhaps most importantly, the sector is supplied for the most part by small rural producers many of whom live at or below the global poverty line. Second, and largely as a result of extensive poverty, basic social conditions related to food security, access to education and potable water are often insufficient to provide for sustainable livelihoods. Finally, although cocoa has the potential to be, and is often, grown under a shade canopy in a manner that promotes and preserves biodiversity, new expansion in some areas using technified sun-grown methods represents a threat to vulnerable highly biodiverse zones while also contributing to greenhouse gas emissions. i Since 1973, the International Cocoa Organization has operated as the only global multi-lateral forum dedicated to international cooperation and policy development within the cocoa sector. Although originally mandated to ensure remunerative and fair global prices on global cocoa markets, the International Cocoa Agreement, and cooperation under its mandate, has increasingly adopted a holistic approach to sustainable development, actively promoting an integrated approach to social, economic and environmental sustainability. Over the past decade, the ICO s efforts to implement sustainability have been complemented by a growing number of private sector initiatives. Building on the common understanding that global sustainable development can only be achieved through the internalization of sustainable practices within the broader economy, businesses and other stakeholders have come together in the establishment of a wide variety of sustainability initiatives ranging from individual corporate social responsibility programs, to bilateral public-private partnerships, to a variety of industry-based platforms. Among these, private sustainability standards ii stand out for the market attention and reach they have earned over the past decade. Standards such as Fair Trade, Rainforest Alliance, Organic and Utz Certified, are all in the process of rapidly building both supply and demand for sustainable cocoa. Between 2000 and 2008, Fair Trade Cocoa production grew from 1153 tons to tons, exhibiting 30% year on year

2 growth. iii Over the same period, organic cocoa sales are estimated to have grown at between 10% and 15% per annum. iv Although still only responsible for a small percentage of the global market, market growth of sustainable products in related commodity sectors such as coffee, as well as the growing commitment of mainstream manufacturers and retailers to sustainable supply suggests that these trends will not only continue, but that they are likely to be a dominant force in market growth over the coming decade. v Standards-based markets, as newly developing markets, represent a unique opportunity for cocoa producers to expand their share of global markets and global profits. But the potential of private voluntary standards as instruments for catalyzing economic prosperity and sustainable development across the cocoa economy extends far beyond the opportunities presented by market growth alone. New research commissioned through the IISD/UNCTAD Sustainable Commodity Initiative under its Committee on Sustainability Assessment (COSA) project suggests that certification to a sustainability standard can enable significant sustainability gains at the farm level. Results from COSA baseline research in Cote d Ivoire applied to major sustainability standards in the cocoa sector found the following: vi Certified producers were found to have an average of 11% higher yield than uncertified farms and 4.7% higher prices. Total income per hectare was found to be 18% higher among certified producers than conventional producers. 76% of certified farms reported that their economic situation had improved since certification. Certified producers in their first year of certification received, on average, 19.9 hours of training versus less than 1 hour of training for conventional producers. Certified producers were found, on average, to have 7.5% more children regularly attending school than conventional producers. 10% more certified than conventional farms were observed to be implementing recognized environmental measures. conservation These preliminary findings suggest that sustainability standards are currently setting the foundation for longer-term sustainable economic growth. However, access to these opportunities is constrained by systemic poverty and inadequate access to infrastructure, training and finance. Both producing and consuming countries will need to work together to ensure that those most in need may indeed secure access to the opportunities offered by growing markets for certified sustainable products. Below is a short list of key challenges and opportunities for consideration by the International cocoa community in its deliberations on the negotiation of a new International Cocoa Agreement. vii Compliance Costs and Access to Finance Producers wishing to enter standards-based markets typically have to pay additional costs associated with attaining compliance, verification and other fees related to systems management. As the number of distinct

3 standards grows, producers are faced with growing costs in order to maintain market access. Moreover, per unit compliance costs are often higher for smaller producers who have to spread fixed investments over smaller production volumes. viii Limited savings and access to finance can make it difficult for smallholder cocoa producers to make the necessary investments to enter sustainable supply chains. Improving the flow of finance for producers seeking to enter sustainable markets is therefore a critical component to ensuring that those most in need can benefit from global markets for sustainable products. The ICCO could play a proactive role in reducing the financial burden upon producers by facilitating improved access to finance for sustainable production within the sector. ix Management Capacity In order to access sustainable supply chains and markets, producers often need to adopt new management practices. To date, sustainability standards have tended to be implemented in regions where management capacity is already relatively well developed. The majority of sustainable cocoa production to date, for example, has been supplied by Latin America producers, with relatively little participation from African or Asian suppliers largely as a result of existing networks and organizational capacity. At the same time, where investment for sustainable production is made, it is often done so without any clear understanding of the full range of costs and benefits associated with such investments. In order for sustainability standards to deliver on their promise of improving the livelihoods of those most in need, it will be critical that market demands for sustainable production practices are matched by complementary information on the performance of sustainable markets, the expected impacts of sustainability initiatives on producers as well as tools for improving management capacity. The ICCO, as the single most authoritative supplier of information on global cocoa markets, has a central role to play in strengthening the information base on voluntary sustainability standards. x Governance Since its establishment, ICCO has been a champion of participatory governance, itself a core principle of sustainable development, as a vehicle for improving the performance of global cocoa markets. The ICCO has embodied participatory governance within its operations in a variety of ways, ranging from its broad membership across producer and consumer countries, to the establishment of the Consultative Board on the World Cocoa Economy, to the more recent multi-stakeholder Roundtable on a Sustainable Cocoa Economy. In the interest of furthering the reach of the organization, and its ability to respond to the specific challenges and opportunities associated with sustainability issues the ICCO can provide a focal point for stakeholders from different stages of the supply chain in providing input into the development of existing supply chain initiatives. xi Conclusion The rapid growth of markets for products compliant with recognized sustainability standards represents both an important market and sustainable development opportunity. In addition to offering a pathway to improved economic returns, initiatives currently being applied in the cocoa sector are also leading to measurable improvements across key social and environmental indicators. However, there is a

4 need to invest directly in ensuring that these potential benefits are equitably distributed among smallholders who might otherwise face obstacles in accessing these markets. The ICCO, though its mandate for improving governance, technical assistance and statistics for the sector, is uniquely positioned to facilitate the optimal use and implementation of cocoa sustainability standards at the global level. i Cocoa production has been linked to significant levels of deforestation. See, for example, Tropical Commodity Coalition, 2009, Sweetness follows: a rough guide towards a sustainable cocoa sector ii Eg. voluntary rules-based systems for the implementation of sustainable practices at the field and supply chain levels. Examples include: Fair Trade, Organics, Global Gap, Rainforest Alliance, Utz Certified, etc iii Max Havelaar Jaarverslag Available at < iv FAO, The Market for Organic and Fair Trade Cocoa, Increasing Incomes and Food Security of Small Farmers in West and Central Africa Through Exports of Organic and Fair Trade Products (2009, FAO) v All of the major sustainability initiatives servicing the coffee sector significantly outpaced growth rates of conventional markets with year on year growth ranging between 19% and 70% between 2008 and In 2009 Cadbury s announced it commitment to source all of its chocolate for Dairy Milk Chocolate Bars from Fair Trade production. Also in 2009, Mars announced that it would source its entire supply chain from sustainable sources by In 2005 Walmart announced its intention to transform its supply base into sustainable sourcing as well. vi The results reported here are the based on a single snapshot observations against similarly situated controls across more than 400 farms. Although this may represent one of the most comprehensive studies of sustainability standards in the cocoa sector to date, the data does not yet reflect time-dependent impacts. vii The International Cocoa Agreement is not, of course, the only vehicle for addressing sustainability challenges. Core activities of the secretariat of the ICCO related to project development and statistical analysis can also play an important role in addressing critical sustainability challenges as can the Roundtable on a Sustainable Cocoa Economy (RSCE). Indeed, many of the opportunities listed in this document might be most appropriately pursued within the context of the RSCE. The negotiation of a new ICA, however, offers a rare opportunity to develop a longer-term strategic vision for the package of ICCO activities related to sustainable development. viii See Potts, Jason; Michael Opitz and Chris Wunderlich Closing the Gaps in GAPS: A Preliminary Appraisal of the Measures and Costs Associated with Adopting Commonly Recognized Good Agricultural Practices in Three Coffee Growing Regions IISD, 2007 where the costs of conforming with private voluntary standards were found to be as much as 35 times higher for small coffee producers. ix Following precedents established under the 1968 International Coffee Agreement (diversification fund), 1998 International Cocoa Agreement (Environment Fund) and the 2005 Tropical Timber Agreement (Bali Partnership Fund), the ICCO could establish a Sustainable Cocoa Fund dedicated to providing grant and loan financing in support of the transition from conventional production to sustainable production. A sustainable cocoa fund could take the form of member contributions to a global fund or of bilateral arrangements developed around common sustainability guidelines. Alternatively, the ICCO could establish a multi-stakeholder Forum on Sustainable Cocoa Finance dedicated to the identification and delivery of financial services to cocoa producers seeking to adopt sustainable production practices. In light of the existing provision for such a forum within the 2007 International Coffee Agreement, the ICCO might find it advantageous to co-facilitate a joint forum on Coffee and Cocoa finance. Such a forum could provide a regular meeting ground for financial service providers as a means to improving the efficiency and reach of finance for sustainable production within the sector. x As the focal point for market intelligence in the global cocoa economy, the ICCO could provide international leadership in gathering statistical data on sustainable markets as part of its regular market statistics and analysis

5 work. The ICCO could also support, or facilitate, targeted research across the cocoa sector to assess the costs and benefits associated with different sustainability standards as a basis for improving producer returns on investments in sustainable supply chains. Finally, at present there is no common set of tools designed to assist cocoa producers in understanding the growing market opportunities, or management requirements associated with sustainability schemes. The ICCO could build a database or virtual toolbox of technical assistance tools designed to facilitate the adoption of sustainable production practices and sustainable management practices. Through a technical assistance exchange the ICCO could improve the efficiency of technical assistance delivery and, with it, the efficiency and benefits achieved by producers entering into sustainable markets. xi Two options that could be considered include the formation of a multi-stakeholder sustainability committee and formal membership in the UN Forum on Sustainability Standards. At present there is no dedicated forum for discussing sustainability issues within the context of the ICCO itself. A multi-stakeholder sustainability committee could provide invaluable assistance to the organization in developing its own priorities for the development and implementation of a sustainable cocoa economy. In 2009, UNCTAD launched the UN Forum on Sustainability Standards as a platform for stimulating dialogue and information exchange on the learning and experiences of developing countries in the application of sustainability standards. By joining the UN Forum, the ICCO could gain access to cutting-edge research and strategic planning advice as a basis for service delivery to its members related to sustainable products and markets.