Coffee in Costa Rica
Participation in agricultural certification programs appears to boost access to credit for small farmers, asserts a study published by the Rainforest Alliance, an environmental group that sets up and implements eco-certification standards.
The study, published in September and titled Farmer Bankability and Sustainable Finance: Farm-Level Metrics that Matter, is based on surveys of 110 smallholder coffee and cocoa producers in Colombia and Peru. 63 of the farms are certified by the Rainforest Alliance. It found that, on average, certified producers received more loans for larger amounts than non-certified producers.
“The average dollar value of the loans to certified producers was $5,562, compared with $3,311 for non-certified ones,” said the Rainforest Alliance. “Certified producers received 1.36 loans on average each year, compared with 0.66 for non-certified ones. Certified farms surveyed therefore received on average nearly 3.5 times the credit the non-certified ones did.”
The ability of certified producers to win credit appears to be linked to their capacity to manage operations, rather than environmental performance itself, according to the group.
“Obtaining certification often involves training in financial record-keeping as well as mandatory annual monitoring. Certified sustainable farms are significantly better at tracking key financial metrics than non-certified ones, and are awarded larger, more frequent loans,” the Rainforest Alliance said. “Ninety percent of certified producers surveyed track both revenue and expense metrics for their farms, while only about 30 percent of non-certified producers do so. Certified producers were found to be better equipped to complete credit applications on their own than non-certified producers.”
“Better access to credit, combined with better market linkages and improved financial, agronomic, organizational and professional skills, helps certified farmers sustain and improve their livelihoods over the long-term.”
The findings appear to be consistent with results from a 2012 study by WWF that looked at profitability among much-larger palm oil producers. The WWF research concluded that companies which achieved certification under the Roundtable on Sustainable Palm Oil (RSPO), saw benefits that went beyond PR and marketing.
“The business benefits gained from achieving RSPO certification typically outweigh the costs of implementation—in many cases significantly,” said WWF in a statement issued last year. “While many firms were initially attracted to RSPO for the price premiums commanded by certified sustainable palm oil, the larger financial gain often turned out to be resulting improvements in operations, documentation systems, labor relations, and other internal factors.”
Shade-grown coffee in New Guinea.
While both the Rainforest Alliance and WWF are advocates for commodity certification, the findings make sense intuitively: adopting best business practices is good for the bottom line of small producers. The hope is that efficiencies from implementing these practices, coupled with better access to credit, could help offset some of additional costs associated with getting certified, leading to increased economic — and environmental — sustainability.
Noting that only a small proportion of demand for rural credit is currently met, the Rainforest Alliance says the potential for increasing credit for small farmers via certification is immense.
“The growth of certified agriculture has the potential to improve smallholders’ credit access dramatically,” said Tensie Whelan, president of the Rainforest Alliance, in a statement. “Certified sustainable farms have far-reaching positive environmental and social impacts. But we should also recognize their far-reaching economic ones. When they can access credit, they can be more profitable and productive, and that could significantly impact national economies.”