The Impact of Voluntary Sustainability Standards on Agricultural Exports: Friends or Foes?

Agricultural commodities make up a substantial portion of exports for many developing countries, particularly in Latin America and the Caribbean (LAC). This means that any changes in agricultural practices can significantly impact their trade flows. Voluntary Sustainability Standards (VSS) are private certifications that ensure products and production processes meet a wide range of sustainability metrics, aiming to foster sustainable practices across supply chains. These standards play a pivotal role in the region, as they can either boost or potentially restrict trade flows. 

So, how do these standards affect international trade? Are they friends or foes? This post dives into a recent IDB study, which examines data on 12 main VSS schemes¹ across eight key agricultural commodities from 2013 to 2021, providing new insights into their evolving influence on trade. Rather than focusing solely on specific standards such as organic certifications or GlobalGAP, the study analyzes 12 major VSS schemes to provide a comprehensive view of their role in international trade. 

VSS certifications: characteristics and trends 

In 2021, 25.7 million hectares in developing countries were certified – 37% of this area was in LAC. A closer look at the evolution of certified areas reveals an upward trend in all cases (Figure 1). From 2013 to 2021, the total certified area in LAC increased by 37%, rising from 6.8 to 9.3 million hectares. In other developing regions, however, this area more than doubled. 

 Figure 1. Growth of VSS-Certified Harvested Area in LAC and Developing Countries 

Source: Dolabella and Saeteros (2024). 

The coverage ratio of VSS certifications² varies across commodities and countries. For example, in 2021, only 1.7% of soybeans and 2.7% of bananas were certified by VSS globally. On the other hand, cotton and cocoa were the most certified commodities, with at least 20.3% and 21.5% of their total harvested areas certified, respectively.  

Trade effects  

Several mechanisms are listed as reasons why VSS might positively or negatively affect trade (Figure 2). Thus, the overall trade effects of VSS adoption across countries and products is an empirical question. 

Figure 2. Potential Channels for the Effect of VSS on Trade 

Source: Adapted from UNCTAD (2023). 

Which of these forces are tipping the scales? 

• VSS boosts agricultural exports. Increasing the share of VSS-certified areas by one percentage point leads to a 1.9% increase in trade flows. However, this impact varies based on the amount of land already certified. The effect is more pronounced when little or no land is certified, but it diminishes as more land becomes certified. This suggests some benefits for early adopters among producers. 

• Bananas, palm oil, tea, and cotton drive the trade-enhancing effects of increased VSS certification. Increasing the VSS coverage for bananas and palm oil by one percentage point boosts trade by 4%.  

• Trade effects are larger for lower-income countries exporting to high-income countries. If a low-income country increases its VSS coverage by 1p.p., its exports are likely to increase by more than 20%. This suggests an important role for VSS certifications in reducing the information asymmetries between consumers and producers. 

• For LAC exporters, the results suggest a shift in export destinations, with increased production under VSS schemes leading to an increase in exports to high-income countries and a decrease in low-income counterparts. (See panel B from Figure 3). 

Figure 3. Trade Effects of VSS adoption by importer income level 

Source: Dolabella and Saeteros (2024). 

• The proliferation of VSS schemes for a particular commodity reduces certification benefits. This effect is particularly strong for major producers. This can be attributed to the additional costs of complying with multiple standards and divergent requirements. On the consumer side, more options might lead to confusion and contribute to a sense of greenwashing. 

• Less saturated global markets offer greater export potential. When the global VSS coverage for a commodity is near zero, increasing local VSS coverage can lead to an export increase of 4.4%. However, as more farmers certify their production, this positive effect begins to diminish and eventually turns negative. 

Taking stock: Recommendations 

The evidence suggests that the trade effects of VSS adoption tend to be positive, though with significant heterogeneity and nuances. Translating these results into policy actions involves several considerations: 

1. Integrate VSS requirements into national legislation. Working closely with certification bodies to align national standards with internationally recognized VSS requirements could strengthen exporters’ competitiveness. This would help exporters be better prepared for environmental regulations, such as the EU Deforestation-free Regulation. 

2. Promote Mutual Recognition and Coordination Among VSS. Simplifying compliance through mutual recognition agreements between VSS can avoid duplication of costs and expand market access. Additionally, meta-regulators such as the ISEAL Alliance might help in this process. 

3. Use multilateral and bilateral trade agreements to promote VSS adoption. Additional tariff preferences for certified products and mutual recognition of VSS rules among partners would mitigate VSS costs while promoting sustainable production. 

Conclusion 

VSS certifications appear to be a valuable tool for enhancing trade, particularly for developing countries exporting to developed markets. These certifications signal quality and sustainability, boosting demand, facilitating market access, closing institutional gaps, and supporting economic development. However, the benefits can vary across commodities and may diminish as standards proliferate or as more production becomes certified. Policymakers and stakeholders must consider the specific contexts and challenges associated with different commodities and markets to maximize the VSS benefits. 

References 

Dolabella, M., & Saeteros, M. (2024). Friends or Foes? The Impact of Voluntary Sustainability Standards on Agricultural Exports of Developing Countries. Working Paper IDB-WP- 01597 

UNCTAD. (2023). “Voluntary  sustainability  standards  in  international  trade.”  UNCTAD Report DITC/TAB/2022/8. Geneva: UNCTAD. 

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¹ 4C (The Common Code for the Coffee Community), the Better Cotton Initiative (BCI), Bonsucro, Cotton made in Africa (CmiA), Fairtrade International, GLOBALG.A.P., IFOAM Organics International, ProTerra Foundation, Rainforest Alliance, the Round Table on Responsible Soy Association (RTRS), the Roundtable on Sustainable Palm Oil (RSPO), and UTZ. 

² Some producers certify their production with two or more labels. To deal with this issue, we follow the literature and consider a minimum level of certified production area (i.e., the coverage of the most widespread VSS) at country-product level.