Energy, Environment and Development Programme Meeting Summary

Procurement for Development Forum: Meeting IX

Co-convened by the UK Department for International Development and Chatham House
July 15, 2010

The views expressed in this document are the sole responsibility of the author(s) and do not necessarily reflect the view of Chatham House, its staff, associates or Council. Chatham House is independent and owes no allegiance to any government or to any political body. It does not take institutional positions on policy issues. This document is issued on the understanding that if any extract is used, the author(s)/ speaker(s) and Chatham House should be credited, preferably with the date of the publication or details of the event. Where this document refers to or reports statements made by speakers at an event every effort has been made to provide a fair representation of their views and opinions, but the ultimate responsibility for accuracy lies with this documents author(s). The published text of speeches and presentations may differ from delivery.

EEDP Meeting Summary: Procurement for Development Meeting IX

Context The purpose of the Procurement for Development Forum, co-convened by Chatham House and the Department for International Development (DFID), is to provide a setting for leading UK retailers, food importers and food processors to discuss ways in which to improve ethical sourcing practices and impact on development. Now in Phase II, the Forum will aim to expand trade and to add value by focusing on process (how procurement is managed) and on different products (maximizing the value to Africa of what the UK buys). Each meeting will profile one or more value chains developed by Forum working groups and look for opportunities to increase the volume and retained value of exports from African Nations. This meeting, held at Chatham House on 15 July 2010, was the ninth in the series, and designed to achieve a deeper understanding of the impacts and effectiveness of various voluntary certification systems and private retailer standards on sustainable development. With varying degrees of success, many such standards-based initiatives are improving access to markets, strengthening trade relationships and/or earning higher prices for specialty products. Since buyers generally require compliance with multiple standards, however, the costs associated with

implementation can be prohibitive for some producersespecially smallholders and unaffiliated producers. In order to improve effectiveness and alleviate cost pressures on producers, greater collaboration is needed at the pre-competitive level among stakeholders throughout the supply chain. This may involve mainstream training of best practices across the voluntary system and the development of value chain models that are more inclusive and also facilitate smallholder access. The text below summarizes the discussion. Copies of the presentations delivered in the meeting are available on the Forum website.

SESSION 1 | VOLUNTARY STANDARDS SYSTEMS The first session provided an overview of the voluntary standards systemswhere they are now and where are they going to be in the next 10 years or soand looked at current efforts underway to improve existing certifications/systems and to be more inclusive for smallholders. Global Context: Scaling-up Impacts of Voluntary Standards Systems Karin Kreider, the Scaling-Up Director at ISEAL Alliance, provided context to the theme by beginning with an overview of their Members voluntary certification systems
www.chathamhouse.org.uk 2

EEDP Meeting Summary: Procurement for Development Meeting IX

and new and emerging trends within the certification industry. Although current efforts show increasing efforts in the area of collaboration - such as through pre-certification training on Good Agriculture Practices and accreditation bodies that can service multiple certifications - more work in this area is required in order to scale-up impacts and to help achieve social, environmental and economic goals. Current areas of focus to help scale up include: increasing impact beyond individual certifications through joint measures, increasing uptake of voluntary standards (both at the producer level and manufacturer/retailer level) and improving efficiencies of the certification systems. What business models are needed to best facilitate scaling-up and what do users need from these systems to increase participation? Despite criticisms of the already existing standards, the development of new standards continues to be supported by donors, due to market demand (as there is more demand for certified products than can be filled) and expansion of certifications into new resource areas like mining. Other emerging trends cited by ISEAL are, emerging consumer-facing initiatives with retailers; application of standards to areas like sustainable development; explosion of global information systems and transparency (and increasing demand for sustainability data); as well as new demands from BRIC countries for use domestically. In summary, standards are one tool for achieving sustainability and act as a vehicle to help align services. Part of the challenge is fitting the tools together but input is needed from brands and retailers to improve these tools and to help evolve sustainability efforts. Private Standards and the African SmallholderThe GLOBALGAP Story Next, to complement the overview of voluntary certification systems, Andy Graffham from the Natural Resources Institute (NRI) followed with a presentation on private retailer standards, looking specifically at GLOBALGAP and smallholder exclusion. What is GLOBALGAP? Formerly known as EurepGAP, GLOBALGAP is made of 46 retailers (5 are non-EU) and has certified 100,000 producers to the standard, with 60% of these certified under group certificates (which means the actual number of suppliers under this system is much higher). GLOBALGAP has helped improve farming practices on tens of thousands of farms, leading to higher product quality, better yields and increased percentage of export, and as the standard has evolved, it has also led to improvements in worker health and safety as well as environmental benefits.

www.chathamhouse.org.uk

EEDP Meeting Summary: Procurement for Development Meeting IX

Ever since its inception, however, there have been concerns that the cost and complexity of compliance of GLOBALGAP pushes many smallholders out of the supply chain. Written with large commercial operations in mind, critics contend that the GLOBALGAP system is not actually applicable to smallholder operations. In fact, in countries like Kenya, the standard costs can be more than any benefits received by the farmer and so without donor support, the farmers may drop out of the system. Are all these certification costs necessary? Is it possible to reduce the costs of certification to encourage smallholder participation without undermining the integrity of the standard? One option is to use risk based control methods for some aspects of the standard, as a simpler and more lenient alternative. Another is to adapt existing GLOBALGAP provisions to National Interpretation Guidelines (NIG), which has support (but no guarantee of approval of outcomes) from retailers. To make GLOBALGAP more inclusive, NRI is working to link smallholders back to associations like the GLOBALGAP African Smallholder Ambassador (GSA) and others. Set up under GLOBALGAP provisions, the National Technical Working Groups (NTWG) could be adapted to help voice smallholder concerns through the GSAa participant in Sector Committeesso that their interests can be incorporated.

SESSION 2 | COLLABORATION AMONG VOLUNTARY CERTIFICATION SYSTEMS Following the introduction of voluntary standards, the second session provided examples from two sectorstea and cocoathat illustrate examples of collaboration among certification bodies. The tea sector is interesting because it is a commodity that is almost entirely certified for export markets by UTZ, Fairtrade and Rainforest Alliance. Cocoa is also of great interest due to the bottleneck in supply (along with other large issues like child labour) which is effectively forcing users to collaborate in order to find viable solutions. Enabling Change in the Tea Sector Sarah Roberts started the second session by talking about the Ethical Tea Partnership (ETP) and its role in improving the lives of tea workers and producing tea in good social and environmental conditions. Its monitoring programme (based on ETP standard) and work with certifiers and regional managers helps to raise standards on individual estates, as does their work with other partners on training and improvement programmes. To date, the activities of ETP have resulted in significant

www.chathamhouse.org.uk

EEDP Meeting Summary: Procurement for Development Meeting IX

improvements in health and safety, improved audit efficiency through mutual recognition and created other system improvements (encouraged through certification programs). There are also a number of significant challenges that have not been resolved or addressed through traditional monitoring and compliance programsprogress is also partly being restricted by competition among the certifications. These challenges include strategic problems like climate change and the presence of deep rooted attitudes and cultural norms - hindrances such as discrimination, gender issues, and not wearing PPE. For example, the harvesting workforce is predominately female, whereas management is predominately male and from a different working class. Certification wont have much of an impact in these areas (nor is it likely to even uncover the issues in a standard audit) so instead, NGOs like CARE are contracted to address these issues. To deal with these concerns, long-term partnerships are developed with external stakeholders and huge investments are made into capacity building at the local level, by linking specialists and governments/donors together. With almost all of the tea for export markets now certified, the primary focus is now on the domestic market, where the bulk of tea is consumed. Efforts in this area are focusing on improving training in the core 80% or core of materials that are similar among certification programs. This will help bring producers up to ETP base code, after which they can get certified by the certification of their choosing.

Strengthening the Ownership of Best Practices towards Sustainable Agriculture Shifting from the tea to cocoa sector, Eric Servat provided a case study on the endeavours of Rainforest Alliance in creating core training modules along with FLO and UTZ Certified. In the cocoa sector, approximately 80% of production is by the informal smallholders sector, most of whom cannot access certification systems. Certifications are often too costly for these producers, especially since the standards do not even address quality or productivity. However, with pressure from the market to deliver certified product and the quality/quantity of supply decreasing annually, there is no choice but for the certification programs to collaborate to get the smallholders into the certification systems. These systems are of benefit to the producer as they help to achieve traceability to the farm level and to empower producer associations.

www.chathamhouse.org.uk

EEDP Meeting Summary: Procurement for Development Meeting IX

As a result the Rainforest Alliance led an initiative called Certification Capacity Enhancement (CCE) - pre-competitive producer training to be conducted by national extension agents. Along with buy-in from the other certification bodies and funding for the project from GTZ, there is strong commitment from big industry players like Mars, Armajaro, ADM, Barry Callebaut. The CCE is based on the backbone of work from STCP in Cote dIvoire and CRIG in Ghana, to which a common module on principles developed by the certifications is added. Onto this model, an additional certification specific moduleeither FLO, UTZ or RAis included. Further collaborations exist with RA and UTZ Certified because they have a similar structure that is based on management systems so the two groups also conduct joint training on Internal Control Systems (ICS). Critical to the long-term success of this program is the involvement of the intermediaries and government agencies. Where no co-operatives exist, the main producers are working through the middlemen and if the beans are certified, the price paid to producers by intermediaries must be higher than for non-certified beans. Although studies have indicated that there is a positive association with certification and social and environmental impacts, it is evident that an increase in yields will necessitate a long term commitment. In order to disseminate the training models created to improve farming practices, the certification agents will in part be dependent on the presence of national extension bodies (or agriculture consultants). In some countries these services exist but in others, the certification groups will need to find different agents to deliver the training. Also important is the involvement and commitment from government. Unfortunately, where the pilots have failed to engage local government from the outset of the project, such as in standard setting and indicator interpretation, it will be difficult to solicit interest and buy-in. Future initiatives in other countries should learn from this oversight and ensure governments are involved early on in the process (and prepared to take ownership of the project).

Discussion Despite examples of collaboration, one participant noted that everyone still wants their own standard and that as long as this persists, the proliferation will continue to be a barrier to scale-up and to rural development. In effect, most codes are about 80% similar to each other so neutral goals of improving practices (as noted in this session) and in reaching the volumes and capacity required are essential. The differentiation of the 20% can then be exploited for marketing opportunities. It was added that this 80% of commonality generally relates to being compliant with national
www.chathamhouse.org.uk 6

EEDP Meeting Summary: Procurement for Development Meeting IX

and international laws so there is actually a lot of overlap with auditing. If governments enforced and monitored as they should be doing, then certifications could actually focus on building up quality and quantity of production and help small farmers be more professional (organised and able to coordinate production with demand). What are ways in which auditing could be more effective and efficient? Previous presentations mentioned multiple certifications conducted by one service provider and organizations like ETP which do not audit to their own base code if covered by another certification. However, there is still the question about the effectiveness of auditing because it is difficult to uncover violations that stem from deep rooted issues like discrimination in a one day audit. It was furthered by another Member that even if an issue is uncovered, it may be very difficult to: 1) follow up on and 2) to report on because the auditing company is (usually) only paid for an assessment based on a single trip visit. To achieve change, remediation and capacity building activities are required but this is likely in the domain of donor funded activities. It was mentioned that perhaps even the type of audit being conducted was problematic. Would an impact assessment at least be more useful that the conventional audit? Unfortunately, there is a different skill required for these assessments so who could do this and equally important, who would pay for it? The group agreed that audits alone would not create change at the ground level. While still an important component of certification programs, there needed to be more support through capacity building and training instead of audits alone. Should requirements for training therefore be integrated into monitoring activities to ensure it was not an optional requirement? This would mean that capacity development in addition to second tier achievements would be part of the continual progress requirement. At this point, one member cautioned that the shift from a compliance based approach to a capacity building approach could potentially bankrupt private industry unless financing is secured from the outset. Increased productivity gains could likely help to finance the capacity building approach but it should not be through premiums. In addition to financial strain, another member commented that the movement around developing capacity building and training activities could easily result in hundreds of different programs if efforts were not immediately taken to harmonize the approach from day one. Instead, it would be more useful to develop a simple capacity building system based on common principles that could be used to drive improvements.

www.chathamhouse.org.uk

EEDP Meeting Summary: Procurement for Development Meeting IX

SESSION 3 | VOLUNTARY SYSTEMS FOR THE MAINSTREAM MARKET In the last session, there were three presentations that focused on mainstream approaches that appealed to the broader market and were more inclusive of smallholders. Are these approaches more efficient or cost effective than niche certifications? What is the added value to producers and other groups in the supply chain? Daan, Nick, and Donna discussed mainstream approaches using examples from the flower, cocoa and cotton sector. Mainstreaming CertificationLessons from the Frontier First in this session, Daan de Vries, a program manager from UTZ Certified currently working in the cocoa sector, talked about the approach of UTZ Certified and efforts to drive innovation and to help align the different certifications. Founded by Ahold, UTZ was initially intended to be an assurance program for buyers but due to demand, later developed into a label. However, it was always intended to be a mainstream certification that focused on driving income improvement through productivity, quality and efficiency rather than premium. While premiums are still provided, the main benefit is to create loyalty rather than act as a main driver for improvement. With a mass balance approach and no labelling fees, UTZ Certified aims to keep costs low. UTZ sees its main competition in uncertified trade, not with other certifications as these only make up a small percentage of the market. Consequently, the other certifications are perceived to help manage risk as well as to help drive innovation and stimulate cost-effectiveness among the different groups. That said, the focus on labels (and having too many of them), diverts consumer attention away from the brand and to the labels, which may cause confusion. From the mainstream perspective, the brand should be the focal point. Research indicates that 95% of consumers buy products because they like the brand, the quality, the taste, the price but also expect their favorite brand to take care of responsible sourcing. Backing a brand with a credible assurance program also opens up wider market opportunities. In terms of collaboration with other certifications, there are already a number of initiatives underway that focus around standardization or alignment of certification and standard setting procedures, as well as the streamlining the actual auditing process to make it more efficient. For instance, all the major certifications are members of ISEAL and therefore bound to the same code of conduct for standard development. To minimize audit inefficiencies, the certifications are also working towards allowing

www.chathamhouse.org.uk

EEDP Meeting Summary: Procurement for Development Meeting IX

single audits to be conducted for multiple programs (joint auditing), since the standards already overlap a lot in their practical implementations. This would greatly reduce costs to farmers in terms of financial expenditure as well as the time required in preparation and planning. Ultimately, sustainability is a long term investment. This means that buyers need to issue long term contracts to suppliers in order to encourage appropriate investment in time and resources. There are rewards associated but these will be realised on the longer time scale. African Product Opportunities Straight to the Desks of ASDA Buyers As Commercial Liaison for African Marketplace, Nick Jacobs presented on the recent initiative with IIED. The focus of this initiative is to support food companies to expand procurement to include small-scale producers in Africa. Supported by the Gates

Foundation, the role of the Marketplace was therefore to find smallholders that fit certain criteria and then introduce them to the category managers, thereby shortening the supply chain and bringing the product to market in the fastest way possible. The first pilot was with ASDA, the UK's second ranked supermarket chain and part of the Wal-Mart group. To participate, the retailer: 1) opened up a direct communication channel to the senior category buyers and 2) agreed to pay a fixed price year round. Before bringing a product to ASDA, the African Marketplace first had to ensure the products satisfied the following criteria: Fully developed ideas Risk free in both brand reputation and commercial exposure Compliant with required standards Cost neutral or better Capable of being applied as a product substitution in the first case Have potential to gain more exposure if successful

The first product brought to the ASDA store was Rainforest Alliance certified flowers and it is intended that this model be replicated with other products. However, there is an enormous amount of work involved first to find the best suppliers and then to work with them to get them up to export quality. They key here is to make it as easy as possible for the buyers to select quality suppliers because they receive no incentives to procure from ethically sourced farms. If this model can be transferred and expanded to other products and to other retailers, it will further develop small scale procurementone of our P4D goals.
www.chathamhouse.org.uk 9

EEDP Meeting Summary: Procurement for Development Meeting IX

A Mass Market Solution for the Cotton Sector Shifting from food to cotton, Donna Day Lafferty, the Development Director of the Better Cotton Initiative (BCI) concluded presentations for the last session by providing insight from another sector on a mass market solution to production. Aiming to become the baseline standard for raw material production, the BCI system intends to increase the volume of more sustainably produced cotton available to the market for the whole cotton product portfolio. Niche cotton sold at a premium like Fairtrade and Organic cotton, would also benefit from the increased volume of sustainable cotton as farmers could use Better Cotton as a stepping stone to certification. As a mass market solution, the Better Cotton system is different from other certifications in a number of ways in that it (the System): - Encourages blending, does not produce certified products or allow on-product labelling. Instead, point of sale, in-print and online literature is used to enable consumers understanding of the retailers commitment. - Keeps the barriers to entry as low as possible while maintaining credibility by setting minimum production criteria (includes allowance for GM cotton and non-organic pesticides). It provides training for continuous improvement and efficiency in production practices, including minimizing use of water. The intent is to minimize the impact for farmers as well as spinners, mills retailers and brands. - Does not offer a predetermined premium paid for the cotton but rather expects the production of high quality cotton produced with minimal inputs to be more profitable to farmers. Further bargaining for higher prices via producer organisations and access to fair finance will further increase profit and minimize debt-burden. - Aims to minimize cost of assurance by replacing third-party auditing of all producers with an extensive peer reviewed self-assessment. Third-party verification by FLA is only used at a level intended to provide credibility. -Accepts cotton from three types of cotton farmers: i) smallholders (selfemployed/family smallholdings), ii) smallholder employers and iii) large farm employers. - Plans to develop an IT system to track & trace cotton to the ginner, with a Unique Bale Identification Code (UBIC), thereby linking retailers preferred system from ginner onwards. BCI is collaborating with UTZ on this initiative, building on existing systems.

www.chathamhouse.org.uk

10

EEDP Meeting Summary: Procurement for Development Meeting IX

Meeting Remarks and Close Speakers at the meeting were all thanked for their interesting and insightful presentations. To conclude the meeting, the Chair summarized the meeting topics and discussion. There was a wide range of initiatives mentioned that all function to leverage change; some of which have a narrow focus and influence relatively small sections of production. However, these initiatives can be shining examples of how to increase development impact by improving terms of tradeyou dont have to be Fairtrade to trade fairly! Examples of good practice should be those that can influence beyond the scheme itself. Broader initiatives like UTZ certified and BCI, for instance, raise the bar for a much wider spectrum of producers and their focus on supply chain partners is a different mechanism but can be just as effective in bringing about change. The final message is therefore that while all roads lead to Rome, there are many ways to get therewe are all striving to achieve the same things so we should focus on the great pool of commonalities among us instead of bickering among ourselves at the small differences. After all, the name of the game is collaboration and we need to start working together at a greater level and in more innovative ways to get things moving.

www.chathamhouse.org.uk

11