• THE-COFFEE-GUIDE.gif 
  • Organic certification costs and viability of production and export

     
     

    It is impossible to give a precise indication of the cost of certification. It depends on the time needed for preparation, travel, inspection, reporting and certification, and the fees the certification organization charges. Not only the agricultural production of the coffee but also the wet and dry processing as well as the storage and export process have to be inspected and certified. Fee structures vary considerably and it is therefore advisable to review in detail which inspection and certification organization offers the best service at the lowest price. Some charge a fee per hectare, others a percentage of the export value. As a norm, the cost of inspection and certification should not exceed 3%–4% of the sales value of the green coffee, although it should be noted that some grower organizations pay more than this. See also Q&A 047 in the Q&A Archive.

    Local certifiers (i.e. those established in the same producing country or region) are usually but not always cheaper than the international agencies. However, local certificates are not necessarily or easily recognized by importing countries, so their validity has to be carefully checked. A number of international certifiers have branch offices in producing countries and locally employed staff carry out inspections at lower expense than external personnel could. Another option for international certifiers is to use a recognized local inspection body with which they have a cooperation agreement (e.g. IMO (Switzerland/Germany) and KRAV (Sweden) cooperate with CERTIMEX in Mexico).

    Also to be taken into account are increased production costs and sometimes a fall in the yield per hectare. So, not only does the producer have to bear the inspection and certification costs, but production might also fall, at least for a couple of years. Some sources suggest yields may fall by some 20%.

    Inspection costs tend to be higher in the initial phase as the certifiers need time to get to know the producer and to register his fields and facilities. Note that in order to overcome the start-up problems during the conversion period, coffee growers in a number of countries can have access to funds to finance the costs of certification. Nevertheless, if the average annual inspection and certification cost for example comes to US$ 5,000 or more then there is little financial point in converting to certified organic if the annual exportable production amounts to only two or three containers. These costs are extremely difficult to assess because they depend entirely on the nature and intensity of the conventional cultivation practices before the conversion to organic agriculture.

    A further cost and a real problem for the producer is the conversion period from conventional to full organic production: during this time the coffee cannot be sold as organic and so does not realize any premium. Meanwhile, premiums for organic coffee are difficult to indicate because they depend on the quality of the coffee and on the market situation at a given moment. In recent years premium quotations have ranged from US$ 10 cts/lb to as high as 25 cts/lb, depending on quality and availability. As a rule of thumb however, the potential producer premium (FOB) for the organic version of a particular coffee compared to the equivalent non-organic quality can probably be put at 10%–15%. This compares with consumers generally accepting to pay retail prices of around 20% more for organic coffee than they do for conventional coffee. Some exceptional coffees realize higher premiums but there is a strong feeling in trade circles that, realistically, this is the maximum that should be expected. Consumer interest tails off rapidly if premiums go beyond this unless the coffee’s quality is absolutely outstanding.

    The high of 15% is an indication only. Actual producer premiums fluctuate alongside coffee prices as a whole: high coffee prices probably reducing the premium percentage and, conversely, low coffee prices probably encouraging somewhat higher premium percentages. It remains to be seen therefore whether or how the much higher coffee prices ruling in early 2011 may alter this picture. *
    Contrary to popular belief the liquor of organic coffee is not necessarily better than that of its conventional equivalent. Where it is not, the premium over conventional coffee has to be justified purely by the organic aspect and is therefore strictly limited by supply and demand unless and until the quality is such that the organic coffee in question can achieve a true stand-alone position in the market – its own niche. Then the premium potential becomes entirely demand driven, just as is the case for some well known conventional specialty or gourmet coffees, and such organic brands indeed achieve premiums of 25% or even higher over conventional coffee. See also topic 03.02.11 for more on the market for organic coffee.

    But as the supply of organic coffee grows, so growers should be more cautious when venturing into this field. Just as producers of conventional specialty coffee have experienced, it is equally difficult to launch new stand-alone brands of organic coffee. Organic coffees that do not offer quality as such, or that are available in large quantities, will sell at much lower premiums over their conventional equivalent, perhaps as low as 5% because, just like any other standard type coffee, they end up as bulk blenders. Chapter 11, Coffee quality, makes it clear that to produce good quality coffee of any kind takes much work and strict management. Organic certification will always complement such efforts but cannot replace good, honest hard work and integrity.

    Remember:

    • Check which certifier is the most acceptable and the most appropriate for the target export market. If possible, determine which certifier the prospective buyer(s) may prefer. Make sure the preferred certifier is accredited and approved in the target market. See topic 03.02.15 for a listing of some major certifiers relevant for the coffee sector.
    • Obtain quotations from various certifiers and ask for clear conditions (especially how many days will be charged) and timelines. Conditions are usually negotiable. Remember certifiers are offering a service, not favours, and should serve their clients, not the other way around.
    • Ensure your potential export production warrants the conversion cost, i.e. calculate the opportunity cost of converting to organic production.

    Information on costs and current sales prices for comparable coffees is available on many websites and can relatively easily be compared.

    *Fairtrade offers a fixed US$ 20 cts/lb premium for organic coffee over its minimum guaranteed price for conventional coffee that meets Fairtrade criteria.

search
  • Region:
    Country:
    Type:
    Date from:
    Date to:
  • contentblockheader