Certification as an upgrading strategy for small-scale farmers and their cooperatives : a value chain analysis for Nicaraguan coffee

For many small producers in developing countries coffee is a major income source. However, the coffee market is characterized by high price volatility and increased power concentration among buyers in consuming countries. Due to the very low international coffee prices during the recent coffee crisis and an increased demand among consumers for healthy and ethical products as well as for high quality, interest in standards and certification has increased substantially in coffee producing and consuming countries. Responding to the demand for differentiated products and accessing these new and potentially more profitable markets is especially challenging for poor small-scale farmers in developing countries. Although certification schemes and standards are widely applied and promoted, little research has been conducted identifying the complete value chains for certified coffee, their structure and gross income shares among the different chain actors. The framework for this study is based on the value chain concept. The research analyses selected conventional and Fairtrade value chains in terms of prices paid at different levels, information flows among chain actors, governance structures and upgrading strategies. The focus is on Nicaragua’s small-scale coffee producers, organised in cooperatives, and their upgrading strategies with special attention paid to organic and Fairtrade certification. Qualitative interviews have been conducted with all relevant chain actors. Results show that the structure of the value chain has a major influence on the benefits for individual farmers and their involvement in upgrading strategies. Although higher prices are paid to producers for organic-Fairtrade coffee than for conventional or conventional Fairtrade coffee, the producers’ share on the final retail price is substantially lower in the certified chains than in the conventional chain. Producers face limited bargaining power on the quality premiums paid by buyers in consuming countries. The paper emphasizes the need for transparency and appropriate chain management to improve small-scale farmers’ integration in value chain upgrading activities. An enhanced knowledge transfer among chain actors could increase farmers’ understanding of differentiated markets and provide them with information on the coffee attributes sought by consumers. Being able to meet consumer expectations on attributes and quality standards could empower farmers with greater bargaining power and enable them to demand adequately higher prices. Simultaneously, business skills and management capacity need to be enhanced especially at the level of producers and leaders of grassroot cooperatives, but also at second order cooperatives’ staff.