Costs and Benefits for Crop Certification – Coffee and Soybean Cases in Brazil

Certification of agricultural products is increasingly being discussed in contemporary agribusiness in Brazil and worldwide. There is still a lot of concern about added value, given the relatively high costs and the efforts to implement international certification. The purpose of this contribution is to negotiate the costs and benefits of certification in Brazil by examining the certification of coffee and soybeans, one of the leading agricultural markets worldwide.

Significant added value has been achieved in the (initial) implementation of a typical socioeconomic culture certification since improved agricultural practices have increased agricultural productivity and quality. In addition to these benefits, it also has economic benefits, which can be calculated using the formula below. This profit usually determines whether an enterprise accepts crop certification.

AV = (iQ x iP + rCP) – CI

AV = added value
iQ = increased sales volume (eg) rCP = reduced production costs
CI = Costs

Sales volume of agricultural product (Q) needs to increase as a result of increasing consumer demand for certified products and certification bodies with a 10 to 20% reduction in production cost (rCP). Implementation of management processes makes production process more efficient , and to avoid machine errors or human errors, but nevertheless convincing that the producer is an immediate profits, the price premium (iP). In support of the analysis, at this stage, two major Brazilian products are examined: coffee – example for a plant in which more the certificates used in Brazil – and soybean – are a plant specimen in which the proof is true five years ago for Brazilian agriculture. On this basis, we can forecast the future costs and benefits of agricultural certification.

In the industry-specific protocols (eg Illy or Nespresso), Brazil's most coffee certificates are social-environmental certifications, UtzKapeh, Rainforest Alliance and Fairtrade. Certified coffee in Brazil is still low, but most of the coffee exported is certified. The pricing of certificates is evaluated per NYSE per bag, where coffee is sold as a commodity. Today the fee is 2.5% between certified coffee and UtzKapeh 6% for Fairtrade coffee. However, if the UtzKapeh certificate entered the Brazilian market in 2002, the premium paid by the buyers was around 10% of the bag's value. It seems that today UtzKapeh has become a lot of customers who are looking to certify their suppliers. The fee fell from 10% to 2.5%, and started to see UtzKapeh as a market turmoil (like other certificates). The soybean share remains low and the world's certification bodies only started to develop standards that are relevant to soybeans, primarily because of the demand for European industries. Socio-environmental certification (for non-genetically modified soybeans) is the example of Pro-Terra. Pro-Terra's certified tonnage per tonne of soybean is today around $ 16 (or 3%). The cost of implantation (CI) varies depending on the situation of the economy. Taking into account the standard social-environmental certification, such as tracking UtzKapeh's standards, the Brazilian company pays an average of $ 5,500, including consultants' costs of around $ 1,500. With the $ 10 bag premium, you can make a profit of 700 bags, which means that on average 20 bags per hectare of 35 hectares – it would be a small farm. In the case of soybeans, there is a $ 16 per tonne of production per tonne of 438 tonnes or 146 hectares (an average of 3 tonnes per hectare) of 146 hectares – a small and medium plant in Brazil. So you see that even small and medium-sized farms can cover certification costs in the first year, and large economies could recover these initial costs even sooner.

Classification is to be considered as another marketing tool for modern agribusiness. The history of existing certificates in Brazil shows that in a few years time it appears that the market will be a standard for which it was introduced. Initially, vendors and certified sellers of agricultural products have a different advantage. This has immediate financial benefits that exceed the implementation costs. Over time and with the growing supply of certified manufacturers, certification becomes a tool for market access and loses its initial differentiation and financial benefits. The remaining benefits include increasing productivity and quality, reaching the target market (sales amount) and reducing production costs. In any case, it can be concluded that certification is an added value for the agricultural product and is therefore a tool that all businesses in the agri-food chain, not just Brazil, should consider in order to improve their results.

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