The High Cost of Certification
Posted in: Opinion
I think you're right, Fair Trade will not adapt itself to the new reality of higher commodity prices, and indeed it is even questionable if the FT minimum price level covers the real cost of production. This level was set in the beginning of the 90s and has not been corrected for inflation f.e. In the coffee sector a interesting approach has emerged, partly caused by a need to compensate farmers for investments in quality improvements. Within cocoa the situation is even more critical, the criollo farms on average produce much less per Ha than the so called hybrids or improved varieties. In order to really protect this genetic resource the market must compensate for the lower output levels. Perhaps for Venezuela this is happening but many farmers with interesting bean varieties on their plots actually receive market rate or a little bit in addition. They than incline to shift to "improved varieties".
In coffee the system implemented is the "Cup of Excellence", whereby per country the best coffees are selected by the industry (internal process). In addition, an international expert panel will rate the samples and the lots will become available for an international auction. The consequence is that this triggers a quality focus from the ground up. The prices paid are upto ten times the world market price. The beans are not treated as a simple commodity but as a crucial material to develop a superior product.
For fine flavour cocoa beans this could be a very, very interesting path. Buyer can compete for specific lots and the one willing to pay the highest price will get it. Does this sound as a fair practice for both sides? I won't solve the bulk cocoa market issues in terms of cost and benefit, but at least it can start a process to valuate cocoa differently. The commodity market make a small cocoa farmer in Ghana compete with one in f.e. Papua New Guinea, which in my opinion will never result in a fair price level, but into a race to the bottom.
Actually in coffee Fair Trade has not done much to improve quality, although the fat premiums were partly invested in small infrastructure to improve product quality (the same actually has happened in cocoa small holder coops in Peru, they have been able to develop themselves into a new origin of interetsing cocoa beans, partly because of the gains from their participation in the Fair Trade market. An interesting example of this is Cepicafe, a coffee organisation that started to develop the cocoa sector in Piura some years back.
In former days Fair Trade certification was free for producers, the costs were covered by fees higher up the chain. Some six years ago this system was changed because of pressure from outside, that wanted FT to comply with ISO 65 criteria (standard for certifying bodies). This introduced additional costs for external validation for certification holders.