Background paper to World Bank Agricultural Technology Note 30, "Toward more sustainable coffee", published June 2002. Production costs and income from sustainable coffee Kristina Sorby, RDV Production methods, costs and yields differ significantly between countries, regions and even specific sites. A few case studies have been selected to present these differences and to compare the farmers' incomes in conventional and certified sustainable coffee production. The conventional production systems represent a span of different levels of technification. The traditional low-input systems are very similar to the organic or shade- grown production methods and a shift in production might not require many changes (see background paper #2). The introduction of organic or shade-grown techniques could even boost the production and result in a higher yield than before. Where chemical inputs had been used before shifting to organic production, a decrease in yields is normal during the first years of production. A long-term perspective on yields should be taken since the natural ecosystem needs to reestablish before stable yields and increased incomes can be expected. The benefits are, however, broader since they include the reduction in reliance on inputs and the health and environmental benefits from reduced use of agrochemicals. Comparison of sustainable coffee to high-input systems The Cooperative League of USA (CLUSA) is working with 8,000 coffee producers in a program to introduce organic coffee production in East Timor. The program has after three years rendered an increase of the producers' incomes of 125%. A similar program in Nicaragua generated an increase in net income of 214% to the 1,000 farmers involved. The increase is directly attributed to the high price premiums of organic produce, and the reduction of marketing costs due to the establishment of direct buyer-producer linkages. In Nicaragua, CLUSA studied the differences in production costs between a conventional high-input system and organic production (see table 1). The total cost of production is only slightly lower in the organic coffee, but the large difference lies in the price received for the produce. Table 1. Production cost (US$ per Mz*) Type of Coffee Production cost Certification Cost Operational Cost Total Cost Organic Coffee 436.47 24** 250.09*** 686.56 Conventional Coffee 608.71 0.00 142.11 750.82 *1 Mz= 0.7 Ha ** Certification cost 1CWT/US$3.00 ***Includes transportation, dry milling, certification, management cost and financial cost. Source: Kuehn (2002), based on production results of 1475 farmers from the regions of Madriz, Jinotega, Las Segovias and Matagalpa in Nicaragua, and data from the Ministry of Agriculture, MAGFOR This is an informal publication of the Agriculture and Rural Development Family of the World Bank. It is intended to encourage the exchange of ideas among Bank staff and all others interested in development issues. This paper carries the name of the author and should be used and cited accordingly. The findings, interpretations, and conclusions are the author's own and should not be attributed to the World Bank, its Board of Directors, its management, or any member countries. Comparison of sustainable coffee to low-input, traditional systems In Guatemala, the production of organic coffee reached 3,595 tons in 2000 (Damiani 2002). It was estimated in 2001 that organic coffee was produced on 1.8% of the total coffee producing area in the country. The introduction of organic farming by the producer organizations in Cuchumatanes Highlands was studied by Damiani (2002). The shift to organic production was fairly easy for the farmers in the region since it required relatively little change in production methods and investments. The reason for the low adoption of technified systems was the lack of infrastructure in form of roads and extension service, as well as the lack of funds to buy inputs. These farmers significantly increased their yields by 38 to 67% in only five years after they introduced new (organic) farming practices, such as enhanced shade regulation, application of organic fertilizers, soil conservation measures and more efficient manual control of pests and diseases. The cost of production increased compared to the previous system since more labor was needed for soil conservation and to harvest the higher yield. In 2000, the organic farmers received a price that was 30% higher than their neighbors that produced conventionally. In 2001, the price premium was 18% and the organic farmers received US$ 8.2 /quintal (1 quintal = 44.5 kilograms) of coffee over the average price of US$ 45.3 /quintal. Table 2 shows the costs in the different production systems used in the regions studied. The higher production cost for the purchased organic fertilizer is mainly due to the large amount of labor needed for transportation and application of the fertilizer, but also a result of a larger yield which requires more labor at harvest. The low-input traditional system does not use any fertilizers, but the yield from this system is significantly lower compared to the two other systems, which can be seen by the differences in cost of processing. 2 Table 2. Cost of production per hectare in the different production systems studied in Guatemala (US$) Production Labor Cost of Cost of Cost of Total system cost* inputs** processing certification*** production cost Certified organic 462 29 111 68 670 coffee production, fertilization with on farm prepared organic fertilizers Certified organic 487 640 138 86 1,351 coffee production, including use of purchased organic fertilizers Conventional 410 - 90 - 500 coffee production, low-input technology *The calculations take into account differences in labor needs during harvest. ** Includes the cost of organic fertilizer plus labor required for transport and application of organic fertilizer. ***Farmers pay for certification costs to their associations according to their production of coffee. Source: Damiani (2002), based on information provided by the Cuchumatanes Highlands Rural Development Project and World Neighbors. Cifuentes (undated) performed a case study in the same region where he noted the yield to have increased from 0.86 tm/ha (1 tm = 20 quintales) to 1.40 tm/ha (62% increase), while the production costs remained the same. The production capacity for the area was estimated to enable a yield of 1.80 tm/ha. The farmers' organizations started to sell their larger quantities, which enabled them to negotiate a higher price of US$25 /tm, instead of US$20 /tm as before. The family income increased from an average US$ 1250 to US$ 1970 per year. The traditional production system in Chiapas, Mexico, is similar to the previous example from Guatemala. The farmers cultivate coffee without chemicals and under shade, and the shift to organic production was fairly easy (Damiani 2001). The largest change was the increased labor involved in soil conservation and fertilization. During a period of eight to ten years, the yield increased with 50% due to the use of new farming practices. The prices the farmers received were in 2000 US$89 /quintal of coffee, which is 45% higher than what the conventional farmers received (US$61). In 2001, the organic farmers received US$68 /quintal, 62.5% higher than the US$42 paid to the conventional small producers. Table 3 presents the costs associated with the production of the three different production systems used in the region. 3 Table 3. Cost of production per hectare in the different production systems studied in Mexico (US$) Production Labor Cost of Cost of Cost of Total system cost* inputs** processing and certification production transportation cost Certified organic 522 17 118 23 680 coffee production Conventional 507 135 103 - 745 coffee production, more intensive technology Conventional 361 13 79 - 453 coffee production, low- input technology *The calculations take into account differences in labor needs during harvest, transportation and application of agrochemicals (in case of conventional high-input system). **Includes chemical inputs (in case of conventional high-input system) and harvest tools and aids. Source : Damiani (2001). Based on information provided by Banrural. Fair Trade Fair Trade does not involve the production techniques in its standards and can be applied on any production system as long as the social standards are met. However, the price premiums are rendering the farmers a substantial increase in income. By selling their products under the Fair Trade label, coffee producers in Haiti have been able to survive the coffee crisis (Charveriat 2001). About 300 families are supplying coffee to the cooperative of Carice. The farmers received 90 US cents/lb for their coffee, 50% more than the normal local price. The net average benefit per member reached US$ 36, which would support a family's rice consumption for a whole month. References: Cifuentes, I. (undated): Prodducción y comercialización de café orgánico, por organizaciones de productores en Guatemala. Proyeto de Manejo Sostenible de los Recursos Naturales de la Sierra de los Cuchumatanes. http://www.fidamerica.cl/mercados/documentos/cuchuguatemala1.pdf (accessed May 1, 2002). Damiani, O. (2001): Organic agriculture in Mexico : Case studies of small farmer associations in Chiapas and the Yucatan Peninsula. Office of Evaluation and Studies, IFAD. Rome. Damiani, O. (2002): Organic agriculture in Guatemala : A study of producer organizations in the Cuchumatanes Highlands. Office of Evaluation and Studies, IFAD. Rome. Kuehn, S. (2002): Comparison of conventional and organic coffee. CLUSA. Paper presented at the World Bank ESSD week, April 11, 2002. 4