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Pilar Santacoloma (2007) ‘’Organic certification schemes: managerial skills
and associated costs’‘

Report,
Food & Agriculture Organisation of the United Nations

Document:
fao_santacoloma_2007_a1227e00.pdf

Abstract
The report discusses third party certification, for both individuals and farmer groups, as well as participatory certification. Case studies from Thailand, India, the Czech Republic, Hungary and Brazil engaged in organic rice and organic fruit and vegetable production are examined. Issues analysed include the organizational structure and marketing strategies in the organic supply chain.
The paper also discusses the institutional development that is needed to provide business and technical services and establish the organic quality assurance system. Organizational, managerial and business skills required by the lead stakeholders in the organic chain are analysed as well as the costs that they incur for effectively managing organic projects. Similarly, the managerial skills required at the farm level are considered as is the use of costbenefit analysis. The paper also reviews the legal and institutional framework that facilitates organic production and certification.
From the summary:
In recent years, organic trade has experienced an outstanding and continuous growth. Both supply and demand factors are responsable for this boom. Particularly important are the consumers’ concerns with safe food and environmentally friendly production. Certification is critical in organic markets because it gives buyers the confidence that a product meets organic quality and process standards, ensuring food integrity from farm to sale. It is also a way to protect consumers, producers and traders against a misleading use of labels. Therefore,
certification enables organic producers to access new export and domestic market opportunities and premium prices due to the fact thort organic quality adds value to products. In developed countries, economic incentives and enabling policies and regulations have
promoted the establishment of organic standards and institutions. Farmers in developing and transition countries still face institutional and economic constraints to reach the stage of certified organic producers, making it particularly costly for smallholders to participate in this market. Certification is therefore often seen as a barrier for small farmers’ participation in export markets.
In this report, three certification schemes operating in developing and transition economies are assessed. The first is third party certification for individuals, a well-known and internationally recognized certification system. The second scheme is also third party certification, in which small-scale farmers may be certified in groups under an Internal Control System (ICS). The third scheme corresponds to participatory certification called the Participatory Guarantee System (PGS), which targets local or national markets and involves the participation of small farmers, small enterprises, traders and consumers in the certification process. The report provides a comparative analysis of the organizational structure and marketing strategies in the organic supply chain, gross margin analysis and the improved managerial skills required at the farm and supportive organization levels in the three schemes. Case studies
were selected from organic grains for export, Basmati rice from India and jasmine rice from Thailand, which comply with the ICS; and organic vegetables and fruits for export and/or domestic markets in Hungary and Czech Republic, and for local markets in Brazil, in order to illustrate compliance with third party certification systems as individuals in the former cases and with PGS in the later. The world market for certified organic foods has been estimated to be worth US$27.8 billion in 2004 and, compared to conventional markets, may offer greater opportunities of access to small-scale farmers through modern food chains due to the added-value attribute of organic
produce. However, the trends and characteristics of the organic trade in terms of volume and turnover vary at the individual country level depending on government support, food chain linkages, the particular commodity and the strength of the organic market.

Keywords: Certification schemes, quality assurance system, third party certification, participatory certification

Relevance to our study:
The report discusses thirdy-party cerification, focusing on developing and transition countries, the report analyses the institutional development that is needed to provide business and technical services and establish the organic quality assurance system. The report also looks at the cost implications of such a project and reviews the legal and institutional framework that facilitates organic production and certification.

It contrasts the model of third party certification with that of group and participatory certification and compares different types of costs for the different schemes, both direct costs (such as fees and monitoring visits) and indirect (such as cause by compliance with organic standards compared to conventional). The study is relevant because of the way in which the whole subject area is explored and relevant to the area of imports but of limited value regarding costs of certification of established value chains in Europe.
It considers the types of certificaiton systems, third party, and internal Control System (ICS) in which small-scale farmers may be certified in groups and participatory certification called the Participatory Guarantee System
(PGS), which targets local or national markets and involves the participation of small farmers,
small enterprises, traders and consumers in the certification process.
In terms of direct certification costs the ICS schemes were found to have lowest costs. Some general conclusions are drawn that make it questionnable whether the split in cost categories is always appropriate. Costs tend to be lower when the actors in the organic value chain are well coordinated and vertically integrated or linked, due to lower transaction costs, irrespective of the certification model adopted. Also certification costs at the farm level also imply that farm management changes are considered, because farmers need to develop the skills for managing organic technology as well as preparing for certification.

Relevancy on a scale from 1 to 5 = 4

Review status: Finished
Review started on 2009–04–17
Reviewed by Jane Vine and Susanne Padel?

Comments:
This content of the old review 002 have now been incorported.