More money for small farmers

When shopping for food, ever more consumers in rich nations pay attention not only to prices, appearance and flavour. They also consider environmental and social aspects. Therefore, certifications of organic production, fair-trade practices or regional origin often lead to a premium in the marketplace and can benefit small-scale farmers. Two recent research papers from the Kiel Institute for the World Economy shed light on the matter. They deal with pineapple growers in Ghana and coffee producers in Ethiopia.

By Aslihan Arslan und Linda Kleemann

In recent years, the European market for fresh and dried pineapples has been growing at rates of up to 19 % a year. In terms of volume and value, the EU is the world’s largest importer of pineapples. Around 80 % of the supply comes from Latin America. Ghana is Africa’s second-biggest exporter, behind Côte d’Ivoire. In line with the general trend in food markets, demand for organic pineapples has been growing in recent years.

Conventional pineapples are typically produced on plantations owned by large transnational corporations. A handful of multinationals controls supply in tightly knit supply chains. Small-scale farmers and cooperatives often find it difficult to access markets at all. The market for organic products, however, is not concentrated that way. Focussing on this kind of niche market can thus make sense for developing countries with lots of small holders.

Ghana is a good example. The country today tops the list of countries exporting organic pineapples to Europe. Up to 40 % of all the pineapples exported from Ghana are certified as organic or Fairtrade and thus command a higher price in the retail market. Small farmers who switch to organic production can increase their revenues accordingly. The decision to do so, however, entails costs and risks, which need to be factored into the profitability calculation.

The Kiel Institute for the World Economy has assessed the matter on the basis of primary data from Ghanaian pineapple growers and dealers. The research results show that organic farming is certainly profitable in price terms. As shown in the chart, the price premium has been stable for years. Moreover, the prices for organic pineapples were less volatile than those for conventional fruit – and Ghana’s smallholders collected a fair share of the premium.

The study also showed that small farmers have a realistic chance of surviving in the market despite quality problems and despite the economies of scale that large plantations achieve. This applies to both conventional as well as organic farmers, but the latter tend to register higher profits.

Ethiopian coffee trademarks

Global demand for coffee is stagnant, but demand for premium coffee – quality coffee with additional, intangible selling points such as Fairtrade certification – is growing. In the United States, premium brands account for more than half of total coffee sales.

Thanks to this trend, new strategies have been devised in producer countries to boost local value creation and raise agricultural incomes. For example, geographical indications of origin such as those commonly used for wines or cheeses are increasingly being introduced for coffee varieties too. The Ethiopian government has modified this approach and registered the country’s finest coffee varieties – Sidama, Yirgacheffe and Harar – as trademarks.

Arabica coffee is originally from Ethiopia. It plays an important role in national culture. Accounting for 35 % of the country’s export revenues, it is also an important economic asset. Ethiopian coffee has long commanded high prices in international markets. Nonetheless, most producers are small-scale farmers who live in poverty. In 2004, the Ethiopian Intellectual Property Office (EIPO), backed by a non-profit consultancy in the US, proposed to protect local coffee production by trademarkes. The government began to register these coffee names as trademarks in importing countries. On this basis, EIPO licenses wholesale distributors that agree to a joint brand-management strategy.

The approach got worldwide attention because of a dispute with Starbucks over trademark rights to “Sidamo” in the United States. In the face of media criticism, the multinational giant eventually withdrew its claim and signed a licensing agreement with Ethiopia in June 2007. This sensational case ultimately strengthened the Ethiopian approach to marketing. By August 2009, the three coffee names were registered as trademarks in 29 countries, and over 90 international companies were marketing the Ethiopian trademarks.

Researchers in Kiel have analysed the prices of Ethiopian coffee on export markets to see whether the initiative had an impact. Higher export prices are the first step towards securing higher incomes for producers. The data provided by the Ethiopian Customs Authority on amounts, prices, origin, certification status and quality of all coffee exports from 2004 to 2009 showed that the prices of the registered brands increased by around 10 % more than those of other coffee varieties (see chart). The increase, moreover, was reflected in higher producer prices in the three regions concerned. The strategy worked out.

These examples from Ghana and Ethiopia show that strategies that build on consumer trends in rich nations make sense. They can help to boost the incomes of rural people and protect their natural environment.

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The UN Sustainable Development Goals aim to transform economies in an environmentally sound manner, leaving no one behind.