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    Voluntary standards in developing Countries: The potential of voluntary standards and their role in international trade

     

     
     
    International Trade Forum - Issue 3/2010

    The importance of voluntary standards has grown in recent years, contributing to higher growth rates in international trade, especially in agricultural products, than achieved in many more traditional markets. The advantages of complying with particular standards need to be carefully assessed to see whether significant gains are obtainable.

    The benefits that can be achieved through compliance may be extensive and justify the efforts required to obtain certification. Institutional support can deliver improved outcomes for producers and exporters by helping them to both understand the advantages of voluntary standards and meet these standards.

    Voluntary standards (or 'private standards') are standards developed by non-governmental entities such as businesses, not-for-profit organizations or initiatives involving multiple stakeholders. Some of the better-known voluntary standards include Fairtrade, Organic, Rainforest Alliance and GlobalG.A.P. Contrary to governmental standards, which can be either mandatory or voluntary, private standards are voluntary by definition. As such, compliance to these standards is not legally required by national governments or multilateral regulations. Therefore, these standards fall outside the World Trade Organization framework.

    Voluntary standards vary widely in their objectives and scope. Some standards address a single commodity while others apply to dozens of products. Standards also have various objectives, such as protecting social rights, ensuring a minimum price, conserving the environment, promoting good agricultural practices, regulating supply or ensuring food security.

    Since the 1990s voluntary standards have become increasingly important in international trade and a considerable share of agricultural exports comply with them. Growth rates of markets associated with sustainability claims have doubled or tripled that of 'conventional' markets in many categories. For example, between 2002 and 2007, sales of certified organic products doubled and Fairtrade-labelled products, driven by bananas, flowers, sugar and coffee, increased sales by 38% over the period from 2003/04 to 2007/08. While the growth rates are high, these markets still represent only a small share of the total world trade in these goods. Nevertheless, according to the Codex Alimentarius Commission, company-specific labels accounted for 14% in 2000 and roughly 22% of total retail food sales at global scale in 2010.

    Factors favouring voluntary standards are, among others, the emergence of a 'conscious consumer', who demands more product information, and the globalization of supply chains.

    But how much do producers and exporters profit from participating in voluntary standards? Although results from impact assessment studies remain inconclusive and research lacks broadly comparable data, compliance to voluntary standards can potentially benefit producers and exporters in many ways. The implementation of certification requirements leads producers to improve management and monitoring systems, increase productivity, implement good farming practices, improve resource management and have a better access to credit. Access to credit is fundamental to pre-finance certification costs, investments in agricultural inputs and equipment. As small farmers faced difficulties in accessing credit, cooperatives started providing credit at affordable rates to their members using a percentage of the fair trade premium. But better access to credit might also be the result of an improved credit rating due to increased incomes and long-term contracts.

    Compliance with voluntary standards might also facilitate stronger integration in global value chains providing opportunities to improve post-harvest processing, product quality and supply capacity.

    While researchers and practitioners seem to agree that voluntary standards are a tool to improve livelihoods and foster export opportunities in developing countries, it is the producer's specific circumstances and the certification options at hand that largely determine whether certification to a voluntary standard is worthwhile.

    As the resources required to comply with a standard depend on a number of factors, and might be substantial, producers first need to assess whether certification is worthwhile given their market and company characteristics and, if so, which standard represents the best choice. For example, a cooperative of organic cocoa producers in Ghana had difficulties to sell its produce as certified and was forced to stock the cocoa in 2009. Small farmers find themselves in a particularly difficult situation, as they have higher per unit costs and cannot harness economies of scale. For this reason, a number of standards, including GlobalG.A.P., introduced group certification schemes, which allow small producers to form a group and share certification costs. Groups may enhance knowledge-sharing activities, allow for joint training and collaborative compliance with requirements (e.g. building storage facilities or developing management systems). It is essential to provide producers with critical information, decision-making tools and training to enable them to understand the key differences between voluntary standards and to assess and select the most appropriate option for their specific circumstances.

    Voluntary standards make most sense when they represent an opportunity for producers to become integrated into global value chains, enhance income predictability and build closer relationships to buyers providing upgrading opportunities. Commoditized 'sustainable' product markets, with prices dominating buyers' choices, have little potential to benefit producers complying with voluntary standards. The role of retailers, manufacturers and importers is, therefore, crucial in determining the success of voluntary standards.

    National institutions constitute another important element in supporting producers and exporters. They can play an active role in providing and/or coordinating efforts to increase producers' and exporters' ability to meet requirements set by voluntary standards. This can include training on good production practices, efficient and productive farm management, quality improvement and general business skills, such as financial risk management. Surveys of smallholders in the GlobalG.A.P. certified export crops chain were conducted in Zambia, Kenya and Uganda and found improved produce quality, better knowledge of pesticide use and wider farm management benefits. One of the most important results of forest certification in Bolivia was the elimination of financial mismanagement leading to an increase of efficiency and transparency of sawmill resources administration. Participation in fair trade has enabled members of the Kagera Co-operative Union in the United Republic of Tanzania to better adapt to market demands and to understand how to access organic and gourmet markets. Fair trade coffee producers in Bolivia improved their understanding of the coffee business through an increased knowledge of coffee production processes, being involved in processing activities and training on coffee markets, administrative and financial management.

    Institutional support can also facilitate regional and national producer organizations (e.g. knowledge sharing, organizing transport, pooling volumes), improve infrastructure (such as storage facilities) and enhance strategic decision-making by providing critical market information to producers. It is also important that producers and exporters gain easier access to credit, national extension services, testing equipment and laboratory facilities. The establishment and enforcement of national standards linked to market requirements should also be supported.

    In some sectors, certified production and trade have already moved beyond market niches and these growth rates are likely to continue. An increased awareness and understanding of how voluntary standards influence developing countries' exports and the opportunities and the risks they entail will be central in designing policies and support mechanisms that enable producers and exporters to effectively deal with this new paradigm in trade.

    ITC will release a web-based analysis tool on voluntary (private) standards called StandardsMap. This tool will centralize, organize and disseminate information on voluntary standards and related research results to strengthen the capacity of producers and exporters to participate in more sustainable production and trade.


    OBTAINING CERTIFICATION

    Five Steps

    Attaining certification varies according to the standard, but the steps below give basic information on how to obtain certification.

    1. Identify the certification bodies that operate in the region/country. Information on accredited certification bodies is available on the websites of the organizations developing these standards. Contact one or several accredited certification bodies offering certification services for the respective standard.
    2. Ask for a first estimate regarding cost and time needed to get certified. Decide which certification body you would like to work with.
    3. Some standards require a self-assessment evaluating the current situation of the production unit against the certification requirements. Perform a self-assessment and provide the results to the certification body. Prepare for inspection.
    4. Auditors from the certification body visit facilities and an initial certification audit takes place to assess compliance with the standard requirements.
    5. Data collected at the audit are the basis on which the certification body makes its decision. In case of compliance with requirements, a certificate is issued.

    FACTS & FIGURES

    Certification

    About 22% of global banana exports are certified (Giovannucci, ISEAL Alliance Conference, 2010)

    Mars committed to certifying its entire cocoa supply by 2020 (Mars Corp, 2010)

    About 50% of Fairtrade-certified coffee is also certified organic (FLO Annual Report, 2009)

    The target set for European Union members is 50% 'green public procurement' by the end of 2010 (European Commission, 2010)


    StandardsMap will be available to the public at the beginning of 2011 and will be accessible from the ITC Market Analysis Portal. It will complement ITC's Market Analysis Tools, including Trade Map, Market Access Map, Investment Map, Trade Competitiveness Map and Product Map.