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  • QA 047
    Question:
    How can growers minimize the cost of organic certification?
    Background:
    Your QA 039 suggests premia for organic coffee may shrink as supply increases. We believe this is already the case in some countries. Perhaps the harmonization efforts in consuming countries may indeed hold the cost of certification down, but what can growers do themselves?
    Asked by:
    Co-operative - Uganda
     
    Answer:

    Compared to a few years ago premia for organic coffee have indeed reduced in some origins where production has grown strongly. However, we suggest this also depends on the demand level for organic coffee from individual countries. Growing output may reduce premia in some, but not in others.

    Smallholder certification costs can be reduced through ICS or Internal Control Systems. In order to perform the 100% inspection demanded by  authorities in consuming countries the ICS method was created some years ago by Naturland and various international organic certifiers. This was done with the approval of IFOAM's accreditation programme, IOAS, and has been developed further in conjunction with IMO, an international inspection organization, and different smallholder co-operatives.

    The ICS method does require an enormous transfer of know-how from the certifier to co-operatives to enable them to undertake themselves part of the demanding inspection work required under EU organic regulations. Staff is trained to become qualified local inspectors, capable of assisting EU external inspectors  when performing their complicated inspection tours.  These local inspectors are then responsible for the inspection of all co-operative members under EU organic regulation 2092/91.  The external inspector checks to see whether the internal control system is working correctly, monitors the procedures used for processing and marketing, and examines the flow of goods from harvest to shipment. It is our understanding that the ICS option is also accepted in the US and Japan. *

    * To note that, in early 2007, the USDA (United States Department of Agrilculture) ruled that 'using Internal Inspection Systems as a proxy for on-site inspections of each production unit (read smallholder) by the certifying agent is not permitted as it is not consistent with the NOP'. The US proposal to withdraw acceptance of the ICS arrangement has caused considerable agitation in the organic sector and is the subject of discussion between the USDA and US Coffee Associations. It is our understanding that further discussions will take place in the fall of 2007. Until this matter is clarified the ICS arrangement remains valid for exports to the US but growers and suppliers of organic coffee to the US are advised to monitor all developments very carefully. See also Q&A 154 in the Q&A Archive. Updated 08/2007.

    It is difficult to be precise about the cost of external inspection because it also depends on the number of members in a co-operative. However indications are that where membership is substantial, the annual cost of external inspection can fall below 10 USD per individual member. However, this excludes the costs to establish and run the ICS itself.

    Another cost reducing factor is to have inspections for different certification standards carried out by the same certifier. Some certifiers can check European standards, private standards, social standards and others during the same inspection.  Neighbouring co-operatives can also join forces and ask a number of certifiers to tender for such joint inspections. In this way costs can be reduced considerably, especially if the timing of inspection visits is then coordinated so one inspector carries out multiple inspections during the same visit.

    The Costa Rica based Sustainable Markets Intelligence Center (Centro de Inteligencia sobre Mercados Sostenibles - CIMS - www.cims-la.com ) collects and publishes price information on sustainable products to subscribers: "Precios y premios del café sostenible en América Latina, EEUU y Europa" (Prices and premia for sustainable coffee in Latin America, the US and Europe).  Subscriptions are free but some coffee publications carry a charge.

    CIMS estimates the following costs for a typical Latin American small grower using the three basic certification programs: 

    • NOP for export to the United States;
    • International program, usually under EU regulation 2092/91, for export to the European Union;
    • JAS to export to Japan;

    Either of the first two programs costs about US$ 40 per annum for a farmer belonging to a medium size cooperative, under what is called a Group Certification.  To add a second certification program will cost about 30% more (US$ 52) whereas joining a third program will bring the total cost to about US$ 60. However, in the first year some certifiers can charge up to 100% of their fee to certify an additional program. 

    For example: In January a cooperative obtains NOP certification for export to the USA. In June they apply for JAS certification because they have a potential buyer in Japan: they now have to pay 100% since another inspection is needed and they must pay the annual fee.  But in the following year, because they already have the two certifications, the additional cost will only be about 30% because only a single inspection is required. 

    Assuming an average Latin American producer grows 2 hectares of coffee, producing 380 kgs/ha (CIMS, 2003), i.e. total about 760 kg or 1.675 lb GBE (Green Bean Equivalent), then the certification costs will be as follows

     

    Certification Program 

    Cost per farmer 

    Cost per kg GBE 

    Cost per lb GBE 

    NOP or EU

    US $ 40

    US $ 0.053

    US $ 0.024

    2nd Program

    US $ 52

    US $ 0.068

    US $ 0.031

    3rd Program

    US $ 60

    US $ 0.079

    US $ 0.036

      Source: CIMS - Costa Rica

    Posted 19 September 2005


     
    Related chapter(s):
    Related Q & A:
    QA 039