New market standards

Coordinating information on sustainable commodity initiatives

Kim Kenney

There are many projects providing guidelines to help farmers break into new markets. One initiative is now coordinating all the information so that producers can choose the most suitable programme.

Over the last decade, there has been a substantial increase in the number of new initiatives to develop and improve markets for agricultural commodities. Programmes such as Fair Trade and Rainforest Alliance have emerged with the goal of improving the social, economic and environmental impact of production. These initiatives try to increase the efficiency and effectiveness of their specific commodity market to ensure that they continue to operate well into the future and secure the livelihoods of the farmers producing those commodities. In other words, these programmes try to ensure the sustainability of the commodity markets.

The rapid growth in demand for fair trade and organic products, for example, shows the heightened awareness of these particular markets among consumers, producers and NGOs. Alongside the rising popularity of these markets, there has also been an increase in the number and range of voluntary initiatives which set guidelines and standard working practices which producers and traders have to meet in order to be able to join one of these developing markets.
Rising consumer demand for ‘sustainable’ coffees, for example, has presented new opportunities for producers to join one of the several voluntary standards initiatives in order gain access to international sustainable markets. Coffee producers, like other producers dependent upon agricultural commodities for their income, face a wide variety of obstacles in their efforts to secure sustainable livelihoods.
But the lack of market details combined with poor access to education and training on how to interpret the information present some major challenges for farmers. To help inform them, and others involved in the supply of agricultural commodities, the International Institute for Sustainable Development (IISD) set up the Sustainable Commodity Initiative (SCI) in collaboration with the United Nations Conference on Trade and Development (UNCTAD).
SCI works together with the more than 20 voluntary initiatives in an effort to integrate sustainability into commodity production and trade across the various markets. The voluntary standards initiatives offer producers many advantages, including higher and more stable revenues, improving farm and business management practices, better coordination of the supply chain, improved awareness of market trends and a reduced risk to market volatility.
But most of the trade initiatives operate independently, with little or no cooperation between the different markets and organizations. SCI now hopes to create a more unified and efficient approach, and to encourage everyone involved in the supply of agricultural goods to adopt good, sustainable practices. ‘A more cohesive and collaborative effort,’ explains IISD associate, Jason Potts, ‘will create an environment where we achieve the economies of scale needed to bring about widespread change at a global level.’

Sharing data

Access to accurate and relevant market information is critical to farmers when it comes to planning production and trading goods. The coffee sector has a long history of market instability, which has usually resulted in revenue instability for producers, adding to the uncertainties they face as a result of local environmental conditions. The International Coffee Organization and other major coffee exchanges such as LIFFE and NYBOT have played an important role in making market information more accessible to producers around the world through online, real-time information services.
The market information currently available however, is limited primarily to the four major coffee commodity categories (Colombian Milds, Other Milds, Brazilian and Natural Arabicas, Robustas) and pays little or no attention to other speciality markets. Given that these speciality markets are the fastest growing markets and promise the highest returns for producers, improved information on their activity offers an obvious opportunity for improving producer livelihoods.
For example, with so many programmes offering advice and setting standards, producers, policy makers and others involved in the supply chain need independent, credible data. Farmers especially need to know the details of the social, environmental and economic costs and benefits associated with adopting one programme or another.
SCI’s COSA project, therefore, is developing a scientific process for gathering and analyzing data on the various sustainability programmes. The COSA team make their findings available to producers who can then make an informed choice on how to enter a particular market through one of the many programmes available.
But COSA also makes the raw data more widely available. Through a new cooperative arrangement with the International Trade Center, the results of the COSA process is accessible through an online database, allowing anyone with an interest in these specific supply chains to apply their own evaluation and assessment criteria.

On loan

Adopting new, sustainable practices usually means extra financial investment by the producer. Because the poorest farmers often lack the savings required to make such investments, they may find it impossible to become involved with one of the many market initiatives without borrowing money. But, as these initiatives have developed, the availability of financial services to small-scale producers has, thus far, been unable to keep pace. Local financial institutions often consider them too poor or under-capitalized to be regarded as bankable, particularly when they are dedicated to agricultural production and exports.
Although there are now more than 20 organizations lending directly to producer groups in developing countries, with estimated funds of US$ 250-300 million, this barely scratches the surface both in amounts and in types of financing needed. Part of the challenge facing existing organizations committed to delivering finance to sustainable producers and SMEs, is related to the high transaction costs associated with the delivery and risk of lending to small organizations around the world.
In an effort to stimulate improved access to finance for SMEs in the developing world, SCI established the Finance Alliance for Sustainable Trade (FAST), in 2007. FAST is an international, non-profit association for improving access to finance through sharing information and promoting collaboration across the various sectors.
With more than 100 members worldwide, FAST is currently concentrating on creating an online marketplace which allows producers to find the right lender for their needs. The intention is that small-scale farmers will be able to apply for loans online through a simplified and streamlined process. The alliance is also working on projects to develop improved access to loan guarantees for its members, attract extra investment for sustainable commodity production and measures to improve the efficiency of financial management projects.
SCI is developing very specific technologies to enable the continued growth of sustainable markets. As well as continuing to develop the COSA database on the many international commodity initiatives and the COSA online marketplace, SCI intends to link its efforts to policy planning and development. Improved access to information on sustainable markets and trade initiatives helps producers to understand the criteria, costs and benefits involved with each programme and make more informed decisions when choosing the sustainable production method that best suits their business. Better access to finance and technical assistance helps to make sure that small-scale farmers are still included in the supply chains leading to international markets.

Kim Kenney is the communications officer for the Sustainable Commodity Initiative.

Related resources
SCI has recently launched a new website with details updates on projects, more in depth information on sustainable commodity markets and recent SCI publications.

10 February 2009

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