The economic impact of sustainability standards on smallholder coffee producers: Evidence from Ethiopia

Abstract

Voluntary Sustainability Standards (VSS) are designed to promote sustainable production and consumption by addressing environmental, social, and economic dimensions of sustainability. The proliferation of VSS in global agricultural trade has increased the need for value chain participants, particularly smallholders in developing countries, to comply with multiple sustainability measures, necessitating an assessment of their economic implications. This study investigates the economic impact of double Fairtrade and Organic certifications on smallholder coffee farmers in Ethiopia, a major coffee-producing country where these certifications are widely adopted. The analysis is based on survey data collected from certified and noncertified smallholder coffee producers using a multistage random sampling approach. To ensure the robustness of the findings, the study employs Propensity Score Matching (PSM), Endogenous Treatment Regression (ETR), and Ordinary Least Squares (OLS) methods. The results across all estimation techniques consistently reveal that certified farmers experience significant increases in coffee yield, price, and dividends from coffee sales, despite an associated rise in total production costs. By incorporating cooperative performance as a control variable to account for potential confounding effects of cooperative characteristics, the estimated treatment effects were slightly moderated; however, the positive impact of VSS certification remained statistically significant. These findings suggest that VSS certifications contribute to improving the livelihoods of smallholder coffee farmers, although challenges persist in optimizing the cost-effectiveness of compliance. Furthermore, the study underscores the importance of considering local contexts and institutional heterogeneity to fully understand the broader impact of VSS and maximize their benefits for smallholder coffee producers.