How Food Standards and Global Value
Chains are Transforming
Agricultural Development
“Linking (Rich) Consum ers to (P oor) P roducers”
Johan Swinnen
University of Leuven
CEPS
& Stanford University
Hamburg, May 2016
Standards and certification are nothing
new. They exist since the beginning of trade.
Babylon Laws – 4000 years ago
«If a wine-seller (…) makes the measure
for drink smaller than the measure for
corn,
they shall call that wine-seller to account,
and
they shall drown her in the water.»
The Code of Hammurabi
Babylonian King, c. 1750 BCE
The Ten Commandments – 3500 years ago
« Do not use dishonest
standards when measuring
length, weight or quantity.
Use honest scales and
honest weights »
Holy Bible, Leviticus, Chap. 19,
verses 35–36 (c. 1500 BCE)
Greece – 2500 years ago
Laws in Thasos,
a Greek island reknown for its wine :
prohibit the dilution of wine
with water
and
forbid that small quantities of
wine are sold in large
amphorae.
Private Standards in the Middle Ages
France, 1292
«Whoever puts into beer … bay, pimento,
or resin is to be fined 20 francs . . .
for such things are bad for the head and
the body, for the healthy and the sick.»
Statute of the Paris Brewers, 1292
Recently:
More, More stringent, More widespread
14000
120000
Total amount of SPS notifications to WTO
GlobalGAP producers
12000
10000
100000
Public
80000
8000
Private
60000
6000
40000
4000
20000
2000
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
1995
0
2004 2005 2006 2007 2008 2009 2010 2011
Recent Transformation of
Global Agri-food Value Chains
1.
After WW II : State-controlled VC
2.
1980s and 1990s : Liberalization & privatization
transformed value chains (with major disruptions in
some countries)
3.
Past 20 years : Rapid growth of private sector
standards / certification and value chains
The Growth of Standards & Value Chains
(Domestical & international)
 Drivers:





Economic reforms
Income growth
Urbanization
Foreign investment (FDI)
Trade
 Triggers : Crises and Scandals !
One Example of
Crises and Food Standards
“ Country
Life Com es
to
Standstill”
Foot and
Mouth
Desease
(FMD)
UK in
1995-6
“Total Chaos”
Belgium 1999
Dioxin crisis
”Up to 8.000
additional cancer
deaths”
Food Safety Crises Transformed
EU Food Standards (and the world’s)
• 2002: Basic EU Food Law Regulation
• European Food Safety Authority (EFSA)
• “From Farm to Fork” approach: traceability
and certification requirements throughout the
value chain
Rapid Growth of Food Standards
14000
120000
GlobalGAP producers
Total amount of SPS notifications to WTO
12000
10000
100000
Private
Public
80000
8000
60000
6000
40000
4000
20000
2000
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
1995
0
2004 2005 2006 2007 2008 2009 2010 2011
Impact of Standards for Development:
The Role of Global Value Chains
• Even if there are no/low
standards/certification requirements in poor
countries, developing country farmers may
still be affected by “high standards” through
global value chains
=> “Linking Rich Consumers to Poor Producers”
(Swinnen and Vandeplas, JGD, 2011)
Agri-Food Exports of
Developing Countries
Changing structure of trade
Product Share in Agri-Food Exports from
Developing Countries (%)
TROPICAL products
1980
2010
39.2
16.7
28.8
27.0
21.6
44.1
10.4
13.2
100.0
100.0
(Cocoa, tea, coffee, sugar, …)
TEMPARATE products
(Meat, milk, grains, …)
SEAFOOD, FRUIT & VEGs
Other PROCESSED
(tobacco, beverages, …)
Total
70000
Horticultural
exports
from developing
countries
60000
Export value
(1 million current USD)
50000
40000
Africa
Asia
30000
America
20000
10000
0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Another Example of
Scandals and Food Standards
• In 2000-01: British press report on child/slave labor
in West African cocoa production  Public outrage
• Harkin-Engel Protocol (embodied within the ICI):
Cocoa-chocolate companies committed to
“developing industry-wide standards of
public certification that cocoa has been
grown without any of the worst forms of
child labor”.
Rapid Changes: Certifications
Third party certifications:
• Rainforest Alliance, UTZ Certified,
Fairtrade Labelling
•
25% of annual cocoa crop certified in
2013
• Rainforest Alliance and Utz Certifed
more than doubled the volume
certified each year since 2010
Sustainability and Social Standards
Combined effect of ethical and commercial
concerns
 Emergence of ‘socially responsible’ cocoa production
6000
A Changing World of AgriFood Value Chains
The Cocoa-Chocolate Trade
between Africa and EU
Cocoa exports from Africa
5000
tons
4000
3000
2000
1000
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
0
World
Africa
Western Africa
160,000
Chocolate imports in Africa
140,000
140,116
120,000
102,822
tons
100,000
80,000
67,769
60,000
40,000
26,563
20,000
1998
2000
2002
2004
2006
2008
2010
2012
In summary …
Rapid and dramatic changes
• in standards & certification
• in global value chains
Is this good or bad
for developing countries & the poor ?
• Do modern standards & value chains
marginalize poor farmers who cannot
satisfy the requirements ?
• Do standards induce concentration in value
chains and does this lead to rent extraction
by agribusiness ?
• If not, does it have any impact ?
Standards & Value Chain Studies
Empirical evidence *
1. Smallholder inclusion is mixed
(much more than typically argued)
2. Smallholders can have significant benefits if
included, even with concentrated supply chains
3. Benefits from employment are ignored
4. Benefits from certification per se are unclear
* See reviews by Maertens and Swinnen (JDS, 2012; WTO 2014; ARRE
2015)
Standards/Certification
& Commodity Characteristics

Governance and Organization
of Value Chain

Surplus Creation & Surplus
Distribution
along the Value Chain
(Impact on Farmers)
Standards & Vertical Coordination
in Value Chains
• Standards imposed by “rich consumers”
require specific investments/inputs by “poor
producers”
• Farmer investments are difficult because of
various constraints and market imperfections
• This induces vertical coordination & complex
contracting in the value chains
Implications for
farmers & rural households
• Vertical coordination can imply:
– Transfer of technology, inputs, know-how, … to poor
• (arguably more important than many government
technology programs)
– Efficiency premia for poor suppliers
– Employment opportunities for poor households
• Potentially major implications for farm
productivity and poverty (employment)
Comparative Analysis:
3 Cases of Value Chain Development
Smallholders
Industry
structure
Madagascar
green beans
100%
contract
Monopoly
High value
exports to
EU
yes
Senegal
green beans
Mixed &
changing
Competition
yes
0%
Monopoly
yes
Senegal
cherry
tomatoes
1. Green Bean Exports in Madagascar (to EU)
• Strict EU standards, but contracting
with very poor and illiterate local farmers
• Rapid growth
– 100 farmers in 1990
– 10,000 small farmers on contract in 2005
• Major technology (fertilizer) adoption effects
• Important productivity spillovers
– Rice productivity increased by 70%
– Length of lean periods falls by 2.5 months
(with contract: 1.7; without contract: 4.3 months)
2. Green Bean Exports in Senegal
60%
50%
% household
participation in
region
40%
Employed
30%
Contract
Participation
20%
10%
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0%
60%
50%
Average household income (1,000 F CFA)
2. Green Bean VCs in Senegal
% household
participation in
region
40%
30%
20%
10%
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0%
7000
Income
Effects
6000
5000
4000
Employed
3000
Contract
2000
Participation
1000
0
Total sample
NonAgro-industrial
participants employees
Contract
farmers
Total household income
Income from farming
Income from agr. wages
Income from non-agr. sources
3. Vertical Integration
Worst Case Scenario ?
Tomato export chain in Senegal
1. Very stringent standards
2. Poor country
3. Complete exclusion of
smallholders
4. Extreme consolidation
5. Foreign owned multinational
(Maertens, Colen and Swinnen 2011 ERAE)
Worst Case Scenario ?
• Strong employment
growth: 40% of
households in the
region employed
• HH incomes double:
strong income and
anti-poverty effects
Average total household income
(million FCFA)
Standards, Value Chain Employment
& Incomes of Poor
2500
2000
1500
1000
500
0
Total sample
Households with
Households without
members employed in members employed in
the tomato export
the tomato export
industry
industry
Total income
Income from farming
Income from tomato export industry wages
Income from self-employment
Income from other wages
Non-labour income
Gender Effects
120%
Income effect of employment
by income group
Income per capita
100%
THE POOREST
80%
60%
40%
20%
0%
Average
q10
q25
q50
q75
q90
Employment effects
• Especially important for the poorest and for women
• Our hypothesis:
… women and the poor may benefit more and more
directly from employment in large-scale production and
agro-industrial processing, than from smallholder
contract-farming.”
(Maertens & Swinnen , 2012 JDS)
• Note that in this perspective indicators that look only at
“participation of small farmers” may be (double)
misleading in terms of welfare and poverty effects
Impact of Certification:
The case of
Voluntary Sustainability Standards (VSS)
(incl. FairTrade etc) in coffee in Ethiopia
Joint study of Bart Minten
and colleagues from IFPRI
& LICOS
39
20
VSS Certification in Coffee
18
16
14
%
12
10
8
6
4
2
0
2005
2010
Ethiopia
World
2015
Globally:
• VSS rapidly taking
off (4% in 2005,
now 20%)
• Coffee leading
agricultural
commodity in VSS
In Ethiopia:
• VSS low and slow
• Coffee most
important export
product : 25% of
its forex earnings
• 4 million coffee
farmers
Previous VSS certification
impact studies
• Relatively few studies, mixed findings: some
positive, some no effect
• Impact of VSS on coffee
Few studies, Mixed findings:
•
•
producers
:
some positive (Ruben and Fort; 2012; Wollni and Zeller,
2007);
some no effect (Jena et al., 2012; Cramer et al., 2014)
0
0
.05
.002
Density
.004
.006
Density
.1
.15
.008
.2
.01
.25
Quality premiums VSS certification
Farm level
Export level
0
200
400
US cents/lb)
non-certified
600
0
10
5
Birr/kg)
certified
cert. coop
non-coop
non-cert. coop
15
Quality premiums VSS certification
Transmission to farms = 1/3
• Where does the rest go ?
• Certification costs = +/- 20%
• Overhead and marketing costs of cooperatives
and unions = +/- 30%
Why low uptake of VSS certification ?
• Average coffee farmer in Ethiopia, if all coffee
certified: income increase with 7.5 USD (per
year !)
– With 100% premium transmission, increase of 20
USD per year…
• Impact of certification on coffee producers’
welfare is small.
• Combined with implementation costs : low
adoption of Fair Trade in Ethiopia
Conclusions
• Dramatic changes in standards and global
value chains
• Potentially important implications for poor
farmers
• Actual effects are mixed and nuanced
• There is much need for better empirical
research to understand what the actual effects
are (in contrast to the “stories”).