This document summarizes a study on the benefits of Voluntary Sustainability Standards (VSS) for coffee producers in Ethiopia. The study finds that: 1) Certified coffee exports in Ethiopia make up a small share of total exports, around 5-6% in recent years. 2) Coffee producers receive a small price premium of 0.80 US cents/lb for certified red cherries, equivalent to about $7.50-20 more annual income per producer. 3) However, only one-third of the overall 13.7 US cents/lb export premium is transmitted to producers, with the rest going to overhead costs, cooperative investments, and debt repayment.

1. Who benefits from rapidly increasing
Voluntary Sustainability Standards (VSS)?
Evidence from coffee in Ethiopia
Bart Minten,
Mekdim Dereje
Ermias Engida
Seneshaw Tamru
Coffee Conference, Addis Ababa,
Ethiopia
September 15, 2015
1

2. 2
1. Introduction
• Growing emphasis on Voluntary Sustainability
Standards (VSS) practices globally, in response to
social/environmental pressure
• Coffee the leading agricultural commodity to apply
different VSS
• Relatively few studies that examine the impact of VSS
arrangements on coffee producers; Mixed findings:
some positive; some no effect
• Study here at how benefits of VSS are distributed
along the value chain, based on data from exporters,
cooperatives, traders and producers

3. 2. VSS in coffee
• VSS rapidly taking off in the world (VSS made
up globally 4% in 2005, now it is almost 20%)
• Low and slow in Ethiopia
0
5
10
15
20
2005 2010 2015
%
Ethiopia World

4. 3. Data
• Producer survey fielded in February 2014
• Producer prices from sample of
cooperatives/traders; 148,558 purchase transactions
over a nine-year period
• Export transaction census:
- July 2006 until June 2014
- Obtained from the Ministry of Trade
- Information contains price, weight, quality indicators,
quantity, type of exporter and VSS certification
- 35,471 observations

5. 4. VSS certification in Ethiopia: Total exports
• VSS certified coffee’s share small; not growing
• Makes up 75% of exports of cooperatives
Quantity coffee exports Certified coffee
Total By Share Total
Share
(%) By cooperatives By non-
Coope-
ratives
Coope-
ratives in of total
% of
coop.'s
Coope-
ratives
year tons tons % tons exports tons exports tons
2007 156,157 7,541 4.8 6,352 4.1 5,708 75.7 644
2008 170,433 7,242 4.2 5,210 3.1 4,011 55.4 1,199
2009 111,035 7,690 6.9 4,541 4.1 4,277 55.6 264
2010 199,478 10,703 5.4 9,438 4.7 8,922 83.4 516
2011 160,523 10,302 6.4 8,475 5.3 7,552 73.3 923
2012 192,150 11,073 5.8 9,494 4.9 8,351 75.4 1,143
2013 172,247 10,460 6.1 8,482 4.9 7,487 71.6 995

6. 4. VSS certification in Ethiopia: Types
• One-third of cooperatives VSS certified
• Double certification common: 80% of Fair
Trade also organic; 98% of Organic also Fair
Trade
Number of certified primary cooperatives
Number of Type of VSS
Cooperative primary Any VSS Organic Fair-trade Rainforest Utz
unions
coope-
ratives Certifcate Alliance Capeh
Sidama 47 42 39 41 3 5
Yirgacheffe 26 26 26 26 3 2
Oromia 250 41 24 41 3 3
Limmu Inara 27 16 16 5 0 0
Wolaita Damota 42 10 10 0 0 0
Kaffa 34 19 18 15 0 0
Bench Maji 39 3 3 0 0 0
Total 465 157 136 128 9 10

7. 5. Methodology
• Hedonic price methodology: Food price is set as a
function of different attributes of the product
(varieties, post-harvest technologies, and VSS
certification)
• Export prices of clean beans are explained by VSS
certification, quantity exported, quality indicators,
the origin of the coffee, type of exporters, and sales
month
• Similar regressions at the production level

8. 6. Quality premiums VSS certification: Export level
• Premiums over the years 2006 to 2014 88 Usc/lb
• However, this simple price comparison masks other
factors that might explain the VSS certification
premiums ; needs more investigation
0
.002.004.006.008
.01
Density
0 200 400 600
US cents/lb)
non-certified certified

9. • 5 specifications (VSS certification always significant)
where we control for different factors
• Depending of the specification, export prices always
higher with certification, varying between 22.2
Usc/lb and 10.6 Usc/lb
• Preferred specification gives us a premium of 13.7
Usc/lb
6. Quality premiums VSS certification: Export level

10. • 5 specifications tried. Premiums for VSS are small or
non-significant.
• In our preferred specification (using data on red cherries
and cooperatives only), we do not find that VSS
certification raises producer prices
6. Quality premiums VSS certification: Prod. level

11. • However, VSS certified cooperatives more likely pay
out second payment and/or dividend;
underestimation of benefits
% of farmers… Non-certified
cooperative
VSS Certified
cooperative
All
cooperatives
who received a second
payment
8 55 44
If received, … (Birr/kg) 0.9 0.8 0.9
Who received a dividend 11 27 23
If received,… (Birr) 885 217 240
Who received a second
payment or dividend
13 66 53
6. Quality premiums VSS certification: Producer level

12. • Include second payment in price obtained from
producer survey 2014
6. Quality premiums VSS certification: Producer level
0
.05
.1
.15
.2
.25
Density
0 5 10 15
Birr/kg)
cert. coop non-cert. coop
non-coop

13. • Use data from the producer survey of 2014; three
specifications for prices paid for red cherries:
1. Price at transaction only: difference cert. vs. non-
certified cooperatives: 0.44 USc/lb for red cherries
(non significant with F-test) (confirms results of the
previous time series analysis)
2. Combine first, second, and dividends: difference
certified vs. non-certified cooperatives : 0.80 Usc/lb
(significant with F-test)
6. Quality premiums VSS certification: Producer level

14. • How much of export premium transmitted:
- Premium of 0.80 USc/lb at the producer level for red
cherries
- Times 6 to get at clean green beans (processing ratios):
converts to 4.6 USc/lb.
- Compare to 13.7 USc/lb. at the export level (for the
most recent period)
- Transmission of 33% of the export premium to the
producer
6. Quality premiums VSS certification: Producer level

15. • Two-thirds of the quality premium not transmitted.
Where did it go?
1. Overheads. 30% of premiums goes to unions, to pay
for doing deals, aggregation, etc. Certification costs.
3 USc/lb (about 20% of the premium). Sometimes
paid by unions; sometimes by primary cooperatives.
2. Cooperative use of premiums. Mostly investments
in communal assets such as schools, roads, etc. but
also offices, cars, etc.
3. Repayments of debts. Bought coffee at too high a
price; price dropped and losses were incurred. Also
loans for wet mills that have to be repaid.
6. Quality premiums VSS certification:
What explains the gap?

16. 8. Conclusions
• Find that one-third of quality premiums of 13.7
USc/lb of higher export prices go to producer
• Median coffee farmer in Ethiopia sells 400 kgs of red
cherries equivalent; If all sold certified and all sold as
red cherries, it would increase his income with 144
Birr per year or 7.5 USD per year…; Even if assumed
complete efficiency (100% transmission), increased
annual income of 20 USD per year…
• This low number, combined with implementation
costs, might explain low growth in adoption of Fair
Trade in Ethiopia as well as little effect on producers’
welfare