Does Eco-Certification Have Environmental Benefits? Organic Coffee in Costa Rica

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1 Does Eco-Certification Have Environmental Benefits? Organic Coffee in Costa Rica Allen Blackman Resources for the Future Environment for Development Center for C.A. Maria Angelica Naranjo Environment for Development Center for C.A. Informing Green Markets: The Roles of Industry, NGOs and Government Erb Institute for Global Sustainable Enterprise, University of Michigan June 17-19, 2010

2 Funding Environment for Development Initiative

3 Outline Introduction Counterfactuals Literature Background Empirical strategy Data Results Conclusion

4 Introduction 1/3 Sustainable certification Definition. Three activities: Setting environmental and/or social welfare production standards Checking adherence with those standards Certifying producers that adhere Increasingly popular. Globally: Bananas: 15% Wild fisheries: 12% Forest products: 10% Coffee: 7%

5 Introduction 2/3 Rationale for environmental and socioeconomic benefits of certification Consumers differentiate among goods based on env. and social attributes Price premiums for certified goods Financial incentives for producers to meet certification standards Producers improve their environmental and/or social performance

6 Introduction 3/3 Challenges to realizing benefits Certification standards and enforcement must be stringent enough to exclude poorly performing producers Price premiums must be high enough to offset certification costs and create financial incentives for certification Selection effects must not dominate: producers already meeting standards are not the only ones being certified.

7 Introduction 4/4 Does eco-certification actually improve environmental performance? An empirical question Evaluations needed

8 Counterfactual 1/3 To be credible evaluations must construct a reasonable counterfactual Counterfactual: an estimate of certified producers environmental and socioeconomic performance would have been absent certification Impact: Difference between actual measured performance and counterfactual

9 Counterfactuals 2/3 Problematic counterfactuals Certified producers pre-certification performance Assumption: certified producers performance would not have changed absent certification Problem: performance may change for reasons unrelated to certification Non-certified producers performance Assumption: certified and noncertified producers would have the same average performance absent certifications Problem: certain types of producers select into certification

10 Counterfactuals 3/3 Constructing a reasonable counterfactual Experimental (randomized design) Randomly select producers to certify from among qualified and interested group, non-certified group = control Quasi-experimental Matching: Match certified producers with very similar noncertified producers = control Instrumental variables: Econometric technique that takes advantage of correlation between certification and an instrument: variables affect certification, but not performance

11 Literature 1/3 Evidence base is thin: Blackman and Rivera (2010) Evidence base (ex post studies of actual certification) 37 Construct reasonable counterfactual 14 Some evidence of positive impacts 6

12 Literature 2/3 Other studies of the environmental impact of eco-certification Only three construct reasonable counterfactual (to our knowledge) All three find certification has no environmental impact de Lima et al (2008): FSC certification in Brazil Rivera and de Leon (2004) and Rivera et al. (2006): tourism certification in US

13 Literature 3/3 Other studies of the environmental impact of coffee certification None that construct reasonable counterfactual (to our knowledge) Several less rigorous studies find little or no environmental impact Quispe Guanca (2007): various certifications in Costa Rica Philpott et al. (2007): organic and FT in Mexico Martinez-Sanchez (2008): organic certification in Nicaragua

14 Objective 1/1 Objective: Evaluate environmental impacts of organic coffee certification in Central Costa Rica

15 Background 1/4 Coffee in Costa Rica Scale 60K growers, almost all small scale 100,000 hectares $US 200 million in export revenues Environmental impacts 90% coffee is technified monocrop with minimal shade and intensive application of agrochemicals Soil erosion; surface and groundwater pollution; occupational exposure

16 Background 2/4 Criteria for organic certification Use compost instead of chemical fertilizers Use natural pest and weed control instead of pesticides herbicides Adopt soil conservation practices Minimize use of fossil fuels Minimize pollution during harvesting

17 Background 3/4 Organic coffee certification benefits and costs Benefits Price premium which average 10-20% depending on coffee quality Reduces cost of purchased inputs (for growers that use them) Can improve coffee quality Costs Increases labor Reduces yields (for growers using agrochemicals) Transactions costs of certification including transition period

18 Background 4/4 Study area Turrialba Central Valley Certifying agency Eco-Logica Accredited by USDA et al. Association Organic Producers Association of Turrialba (APOT)

19 Empirical strategy 1/1 Empirical strategy: matching Compare environmental performance of Organic certified growers Matched non-certified growers = counterfactual Propensity scores used to identify best matches Probability of certification as predicted by a probit regression An index of grower characteristics weighted by their importance in predicting certification Five matching models Nearest neighbor 1-1 Nearest neighbor 1-4 Nearest neighbor 1-8 Nearest neighbor 1-16 Kernel

20 Data 1/3 Data Sources 2003 INEC/ICAFE census of coffee growers GIS data on geophysical characteristics of coffee farms APOT data on certification N = 2,603 Certified growers = 34 Non-certified growers = 2,569

21 Data 2/3 Outcome variables & sample means Negative practices Chemical pesticides 16% Chemical fertilizers 58% Chemical herbicides 73% Positive practices Soil conservation measures 46% Shade trees 95% Windbreaks 14% Organic fertilizer 10%

22 Data 3/3 Grower and farm characteristics Grower Age Education (3 dummies) Farm Size Size 2 Noncontiguous plots Coffee variety (2 dummies) Geophysical Precipitation Precipitation 2 Elevation Temperature Orientation (9 dummies) Slope Life zone (2 dummies) Travel time to San José Travel time to Canton Capital

23 Results 1/2 Selection regression results: significant regressors Grower Age ( ) Farm Size (+) Size 2 ( ) Noncontiguous plot ( ) Geophysical Elevation ( ) Orientation (4/9) Life zone (1/2)

24 Results 2/2 Testing for impact Difference of means test for 7 production practices Mean rates of adoption 34 certified growers = µ C matched sample of noncert growers (counterfactual) = µ NC Difference in means = µ C µ NC

25 Results 3/2 Test results (µ C µ NC ) Outcome variable Significance 5 models Sign Effect (percentage points) Range 5 models Mean 5 models Negative practices Nematicide Chemical fertilizer Herbicides Positive practices Soil conservation Shade Windbreak Organic fertilizer

26 Conclusion 1/4 Summary: organic certification Significantly reduces use of chemical inputs Chemical pesticides Chemical fertilizers Chemical herbicides Increases adoption of environmental friendly conservation practices Soil conservation measures Shade trees Organic fertilizer

27 Conclusion 2/4 Why do our results differ from previous studies? Organic certification has well-defined stringent farmlevel standards enforced by independent third-party inspectors In Costa Rica opportunities for or certification to be undermined by selection bias are limited: few de facto organic farmers Our study focuses on management practices, not ecological indicators

28 Conclusion 3/4 Policy implications: Certification can have environmental benefits when they entail standards that are applied to individual producers well-defined and stringent enforced by independent 3 rd party inspectors met by few producers ex ante.

29 Conclusion 4/4 but schemes with these characteristics will discourage participation The reason ~1% of the growers in our sample are certified?

30 Thank you

31

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