Participant costs and benefits

Summary of the issue:

Participant costs and benefits

As with any business, there are many factors that contribute to a mine’s, farm’s, factory or forestry operation’s bottom line. On the cost side, there are expenses such as infrastructure, hired labour, inputs such as fertilizers or animal feed, government permits, and myriad others. On the benefit side, enterprise owners receive payment for their products, and that payment can vary considerably depending on product quality, volume and who the buyer is. Typically, smaller enterprises have thinner margins than larger ones, and seemingly minor changes in price or production volumes can have devastating effects on their ability to run a financially viable business.

Standards, certification and related supply chain tools are built upon the idea that, for participating business owners, the benefits of participating in a programme should outweigh the costs. The approaches taken by programmes to achieve this goal vary considerably. Some programmes guarantee that participants will receive a certain minimum price for their product, so that if the market price drops they are not left with a devastating drop in income. Others focus on facilitating relationships between programme participants and buyers who will pay a premium for their goods. Some programmes aim to help producers access new sources of income, either through product differentiation or through tapping into specialized markets such as those focused on payment for ecosystems services. Innovative technological tools such as phone apps that allow local producers and business owners to share information about practices, prices, and markets with each other in real time also show promise for enhancing market access.

Because income depends not only on the price per unit but also on the number of units produced and sold, many programmes have strategies to increase the amount that a participant can produce and therefore sell. In the agriculture sector, this can involve training on ways to optimize irrigation, fertilization and plant varieties for maximum productivity. These productivity-increasing strategies must often be considered in tandem with programmes’ environmental goals: sometimes optimizing fertilizer use results in a net decrease in application rates (and costs), but in other cases it results in a net increase. Thus, some productivity-enhancing efforts must be weighed against possible negative environmental outcomes.

Standards, certifications and related supply chain tools also employ strategies to reduce participants’ costs of production. Some programmes offer training on enterprise management and recordkeeping and require that participants have systems in place to ensure oversight and transparency. Some programmes help producers access low-interest loans that they can use to invest in new infrastructure or technology.

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