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In the coffee value chain, these externalities primarily occur at farm level.
Producers are the most vulnerable by the externalities. Assessing the true
price and true ROI can help Solidaridad and its partners to develop better
incentives, better sourcing and investment strategies for the coffee supply
chain in Colombia
This report aims to assess Colombia coffee production from a societal cost-
benefit perspective. More specifically, this analysis will focus on the cost-
benefit relation between a selected set of Good Agricultural Practices that
are promoted by Voluntary Sustainability Standards and are considered as
part of the practices integrated into Solidaridad´s approach to Climate Smart
Agriculture in Colombia.
Secondly, this analysis will look into the (True) Return on Investment of
investments in the Good Agricultural Practices and Climate Smart
Agriculture.
Better insights into all costs of production (both financial and external)
enables investments to target higher impacts and reduce the investment
risks associated with coffee production. The development of this cost-benefit
driven approach requires an extensive and quantified analysis of
sustainability.
Five criteria in cost-benefit assessment
We propose five criteria that should be met to validate the belief that
investments in CSA are an important element towards a better coffee sector:
a) It is sustainable. The approach should be effective in reducing
externalities, both of social and environmental nature
b) It is contributing to a decent livelihood for the farmer. Smallholder
farmers, whose livelihoods are under severe pressure, should see
their household income increase, preferably towards making a
living income.
c) It is feasible in the marketplace. Coffee prices are very competitive.
The CSA approach should not lead to higher prices, unless this can
be clearly related to a higher-quality product
d) It is profitable to the farmer. If investments are required to make
the switch to CSA farming, the investments should be under control
and generate sufficient profit per dollar invested
e) It is cost-effective to society. The investments should not only
benefit the farmer, but also provide benefits to nature, by providing
large natural capital benefits per dollar invested
The true price of a product is defined as the sum of the market price and the
external environmental and social costs. The last two elements constitute
the so-called external costs.
Calculating the true price provides:
An overview of all external costs of coffee production. As such, it
serves to test sustainability;
An assessment of farmer income, as ‘underearning’ is part of one of
the social external costs – A production system has underearning
only if entrepreneurs earn below the living income. As such the
calculation includes a test of whether decent livelihoods are
provided for;
The value for the market price. This helps to test the feasibility
criteria.
This learning initiative will allow Solidaridad and its partners with true pricing
to measure, compare and boost their investments in sustainable and
resilient coffee supply chains.
Solidaridad and its partners have helped across Colombia smallholders with
Description of the project
interventions to make their farms both more sustainable and resilient. To
scale the interventions, it is important to know what the exact impact of past
and current interventions has been and what additional effective
interventions exist or are needed. Solidaridad and its partners aim to further
empower smallholders and enable them to improve their capacity to adopt
sustainable practices.
Concept
Context analysis
Study methodology
Results True Price analysis
Results true ROI analysis
Recommendations for the use of True Price for pricing decisions by
stakeholders of the value chain
Recommendations for the use of True ROI for investment decisions
by private funds, multilateral financial institutions, governmental
entities, producer organizations and other stakeholders of the value
chain
True Price:
Adrian Ruiz – Position. Role