Sustainable food production remains a key challenge in our globalized society, requiring multiple and complementary policy measures. As traditional public policy efforts fall short in governing transnational sustainability issues, voluntary sustainability standards (VSS) have been put forward as non-state, market-based instruments to address environmental and social sustainability in global value chains. VSS are gaining policy momentum. Since the emergence of VSS, food processing companies and retailers increasingly rely on VSS in their corporate responsibility programs, sometimes even pledging to source 100% of their own-brand from certified sources. Recently, VSS are starting to emerge in public procurement policies, due diligence requirements and trade agreements, thereby shifting the responsibility for the governance of sustainability in global food systems from the public to the private sector.
There is no international regulatory framework assuring that VSS do not distort trade and squeeze the benefits of trade – the WTO oversees public trade regulations but not VSS. It is therefore crucial to understand the trade implications of VSS. Also, VSS adoption is likely to expand due to the increased policy interest, especially in tropical commodity sectors, which remain an important source of income for low- and middle-income countries and support the livelihoods of millions of smallholder farmers and rural workers. Yet, the trade effects of VSS remain unclear as empirical evidence is scarce, case-specific – either focusing on a single standard, a single product, and/or a single country – and biased towards business-to-business VSS and the fresh produce sector.
Multi-standard, multi-country and multi-sector evidence on trade effects of VSS
Recently, Bemelmans, Curzi, Olper and Maertens (2023) exploited a novel longitudinal dataset covering the period 2012-2018 to empirically investigate how the adoption of seven VSS in five tropical commodity sectors affects the export performance of producing countries. By broadening the evidence base to include multiple standards, multiple products, and multiple countries, they present more holistic results across sectors and VSS.
The authors focus on GlobalGAP, Fairtrade International, Rainforest Alliance, UTZ, 4C, RSPO and organic (IFOAM International) certification in the coffee, cocoa, tea, banana and palm oil sector, and include all countries producing these crops in their analysis (figure 1). They study how changes in VSS-certified area in producing countries impacts the bilateral trade flows between them and export destinations.
Figure 1: Multi-country, multi-VSS, multi-commodity research set-up that broadens the evidence base for trade effects of VSS.
VSS have a general trade-enhancing effect, yet heterogeneity across sectors and trade partners exists.
A rigorous empirical analysis, based on an augmented gravity model, confirms that an increase in the area of VSS certification, in general, significantly improves the export performance of producing countries. The results of Bemelmans and co-authors indicate that a one percentage point increase in the share of certified production area increases export values by 1.8 to 3.3%. This is a statistically significant effect and represents economically important export gains for low- and middle-income countries. However, the study points to important variations in the trade implications of VSS:
- Export-enhancing effects of VSS are largest in the banana sector, followed by the coffee and tea sector. Effects in these sectors are large and amount to average additional trade gains. Cocoa certification enhances exports of cocoa beans but impedes exports of higher-value processed cocoa products such as cocoa butter and powder.
- The trade-enhancing effect of VSS certification does not vary with the income level of the exporting country. It increases with the income level of the importing country and with the income gap between trade partners. This confirms that VSS adoption can strengthen the trade relations between low- and high-income countries, and reduce the trade-inhibiting impact of governance distance between trade partners – for example in public food quality and safety regulations. As such, VSS can help to overcome trade barriers.
Figure 2: Estimated trade gains, in million USD per year, from a one percentage point increase the share of certified production area in the banana, coffee and tea sector in low- and middle-income countries. Estimated with two different estimation methods.
VSS as leverage for export gains in low- and middle-income countries: A cautionary tale
By extending the evidence base to a larger set of VSS and sectors, the authors confirm that VSS adoption can substantially improve the export performance of tropical countries, including low-income countries. They point to potentially large trade gains from small increases in certification adoption by producers in these countries. In light of the new policy momentum for VSS, their findings suggest that VSS adoption can play an important role strengthening specific export sectors and increasing the gains from exports in low-income countries. VSS therefore deserve attention in development strategies and programs – yet, with caution.
VSS adoption is particularly trade-enhancing when the income or governance gap between trade partners is large. Yet, certification of producers remains more challenging in low-income countries where private sector development policies, regulatory institutions, and governance systems are weaker. At the same time, the environmental and social sustainability gains from VSS adoption might be smaller in these countries because of weaker institutional settings. As VSS adoption is biased towards countries with stronger governance systems and better export performances, there is a danger that VSS are strengthening and greening existing trade patterns while reinforcing market access barriers for the poorest countries. For VSS to effectively address sustainability in global food system, policy attention is needed for VSS adoption and impact in the poorest countries. Such policies can constitute financial and technical support for producers to overcome certification costs, attention to an enabling institutional environment for value chain upgrading and private sector development, and investment in local auditing and internationally acknowledged accreditation bodies.
Moreover, VSS stimulate exports in raw products such as dried tea leaves, coffee and cocoa beans, while inhibiting exports in higher-value processed products such as cocoa butter and powder. This likely relates to food processing companies in high-income countries wishing to control the value gained during processing, which is especially important for certified products. If VSS hamper exports in value-added cocoa products, certification might discourage investments in cocoa grinding facilities and divert revenues from cocoa processing to importing countries.
While results indicate positive trade enhancing effects of VSS adoption in certain tropical commodity sectors, for VSS to effectivity reconcile food trade with sustainability goals, policy attention is needed to VSS adoption and impact in the poorest countries.