The Participation Agreement
A Supply Chain Support Mechanism for the
Sustainable Agriculture Network and Rainforest Alliance Certified TM
Frequently Asked Questions
In 2011, the Rainforest Alliance and Sustainable Agriculture Network (SAN) began
charging some of the costs of managing the certification program to those who buy
crops from certified farms. The charge is levied on one actor in the value chain and
based on volumes of certified goods traded. It began with coffee, was extended to
tea and cocoa, and will eventually cover all certified crops. This has naturally raised
a number of questions, and our teams have been meeting with producers and
companies, as well as other stakeholders, to explain the new financial model and
gather feedback on the process. This document summarizes the most frequently
asked questions.
1. Why a Charge, and Why Now?
Since 1991, the development of the pioneering SAN standard for sustainable
agriculture and the related Rainforest Alliance Certified systems have been primarily
supported by funds from public sector donors and philanthropic foundations. Most
funds have gone toward field research, developing better farm-management
practices, training and organizing farmers and developing an effective standard.
While our standard, training programs and auditing methodologies are recognized for
excellence, the market support systems which link certification to on-pack product
claims have not kept pace.
Until recently, farmers, who paid for auditing services and an annual fee based on
farm size, were the only actors in the value chain regularly contributing to the
development of the system. Some food companies and suppliers contracted services
from us for technical assistance and a variety of projects. The NGOs, donors and
companies involved in buying and marketing crops from certified farms all wanted
better distribution of the costs of the program. The Rainforest Alliance, which owns
the certification mark, and the other members of the SAN researched options with
the support of participating traders and food companies.
After extensive review, the Rainforest Alliance and the SAN agreed to implement a
single, simple charge to those companies directly benefiting from the program, in
essence, the price of entry. This system was designed as a minimally intrusive,
efficient, transparent and equitable way to better distribute the costs of developing
and managing the program and providing value-chain actors the systems and
services they deserve. We call it the Participation Agreement.
2. What’s in a Name?
The Participation Agreement is an agreement among the Rainforest Alliance, the SAN
and the companies that buy and sell goods from certified farms. It outlines the
system and the costs of engagement. For tax and contract purposes, the charge is
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structured as a royalty payable to the Rainforest Alliance for the use of the
Rainforest Alliance and SAN intellectual property, including the certification seal.
3. What’s the Cost?
The Participation Agreement charge is levied on volumes of traded crops sourced
from Rainforest Alliance Certified farms and registered in our traceability system. The
amount varies by commodity. For example, the contribution is $.015 per pound of
green coffee (charged to the importer/first buyer); $.0125 per kilogram of blended
tea (charged to the blender or party breaking up the original traceability unit); and
$.015 per kilogram of cocoa (charged to the exporter/first buyer). See appendix for
details. The rate for other crops will be determined in due course and in continued
adherence to the principles of transparency and equity.
4. How is the Charge Levied?
The royalty is levied on volumes of goods from Rainforest Alliance Certified farms
that are registered in our traceability system. Invoices are issued quarterly.
5. Why a Flat Rate Regardless of Volumes?
Through research and discussions with companies and stakeholders, we concluded
that a flat rate per commodity was the fairest and most transparent formula – and
the most practical to implement. The rates were initially set to represent about
0.5% of the traded price of the certified product. In order to keep the system from
intruding into the terms of trade and to avoid companies disclosing confidential
information on their sales/purchase price, most stakeholders preferred a flat rate.
In addition, it would be impractical to levy a tiered price structure in the already
complex supply chains. Of course we want seal-using businesses to continue to
scale up volumes to 100% and drive sustainability through certification. The system
will be reviewed after three years and the charges will remain fixed until January 1,
2015. As we all gain more experience with the Participation Agreement, we welcome
suggestions for improvements.
6. How Will the Participation Agreement Funds be Used?
The Rainforest Alliance and the other NGOs in the SAN are all non-profit, missiondriven conservation and rural development organizations accustomed to stretching
funding to cover ambitious and effective programs. The SAN standard is the only
international set of sustainability guidelines to be developed in the South and owned
and managed by a coalition that includes Southern NGOs; it is not supported by a
single major donor. Rainforest Alliance Certified has been the only charge-free
system to date, and we wish we could keep it that way. But there are significant
costs to managing the systems and services that farmers, businesses and consumers
expect from a global certification mark. This initiative will manage and support:
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The use and protection of our intellectual property (name and seal); signing
and distribution of license agreements; guidance and approval of marketing
materials and press releases using our name and seal via the online
traceability system; maintenance and support of our online database.
Improvements in the traceability, chain-of-custody and data-management
systems linking certified products from farm to factories.
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Standard development, including field research, adapting the global standard
to specific crops and local conditions, stakeholder consultations, and the work
of the International Standards Committee in Latin America, Asia and Africa.
The SAN secretariat, with a small staff in Costa Rica, SAN operations,
meetings, and the recruitment of new NGO members.
The Sustainable Value Chains program of the Rainforest Alliance, which works
with companies to stimulate demand and increase their purchases of goods
from certified farms.
Communications support to ensure producers and buyers of products bearing
the certification seal describe their relationship with the Rainforest Alliance,
the SAN and the Rainforest Alliance certification program accurately and
effectively.
Legal and administrative services.
Other mission-related activities.
7. Can those Paying the Royalty See How the Funds are Used?
The Rainforest Alliance maintains a four-star rating from Charity Navigator and is
committed to transparency. Our books are independently audited and a financial
summary is published in our annual report. The Rainforest Alliance and the SAN will
provide updates about improvements in the standards and systems, advances that
we would hope will be readily visible to participating companies.
8. Will Rainforest Alliance and SAN Continue to Seek Donor Support?
Yes, and now that the challenges of doubling food production by 2050 in the face of
climate change, limited freshwater, deteriorating farmlands and declining biodiversity
are increasingly understood, there is growing demand for the sustainable agriculture
knowledge, practices and programs that the SAN NGOs have accumulated over the
past 25 years. Development agencies and foundations appreciate that we provide a
rare combination of hands-on support to farmers, boots on the ground, and linkages
between global food companies and millions of smallholders scattered around the
tropics. Donor support helps expand the program; the Participation Agreement
keeps the machinery running; both are needed.
9. Will the New Royalty Require a New Contract?
Yes. Companies that are end-users of products bearing the Rainforest Alliance
Certified seal will continue to sign our standard seal license agreement. Those
companies that are also involved in trading from certified farms and thus paying the
royalty will sign the new Participation Agreement.
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APPENDIX : ROYALTY
Certified
Farm
Product
Description
Basis of
Calculation
Royalty
Calculation
Event
Organization
Paying
Royalty
Royalty
Rate
Coffee
Green
Coffee
Beans for
Export
Net Shipped
Weight on Bill
of Lading
Issuance of
Traceability
Reference to
First Buyer1
First Buyer
US$0.015
per pound
of Green
Coffee
Beans
Green
Coffee
Beans for
Local
Processing
Net Weight
on Purchase
Invoice
Issuance of
Traceability
Reference to
First Buyer2
First Buyer
Cocoa Beans
for Export
Net Shipped
Weight on Bill
of Lading
Exporter
Cocoa Beans
for Local
Processing
Net Weight
on Purchase
Invoice
Issuance of
Traceability
Reference to
Exporter3
Issuance of
Traceability
Reference to
First Buyer4
Made Leaf
Tea
Gross Weight
on Garden
Invoice/Chop
Number
Issuance of
Traceability
Reference to
Blender5
Blender
Cocoa
Tea
1
First Buyer
US$0.015
per
kilogram of
Cocoa
Beans
US$0.0125
per
kilogram of
Made Leaf
Tea
First Buyer is organization outside country of origin that first buys Green Coffee Beans for onward sale or
processing.
2
First Buyer is organization inside country of origin that first buys Green Coffee Beans for local
processing.
3
Exporter is organization inside country of origin that exports Cocoa Beans for onward sale or processing.
Note: In the case of export by a government body (e.g. in Ghana, Cocoa Marketing Company Ltd.),
Exporter is the organization that buys Cocoa Beans from farmers and arranges sale through the
government body (e.g. in Ghana, Licensed Buying Company).
4
First Buyer is organization inside country of origin that first buys Cocoa Beans for local processing.
5
Blender is organization that buys Made Leaf Tea from tea factory inside country of origin for blending.
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