Our 2020 Sustainable Agriculture Standard outlines two financial requirements for the buyers of Rainforest Alliance Certified commodities: the Sustainability Differential (SD) and Sustainability Investments (SI). While these requirements are in place for all the crops we certify, we recognize that different supply chains have different challenges and we are providing additional guidance for some key crops.
For more information, please visit our posts about Shared Responsibility or our FAQ on the 2020 Supply Chain Requirements.
Cocoa specific requirements
We recognize the need to contextualize these principles to meet the needs and operating realities of each of our sectors. The requirements for the cocoa program are designed to address the structural inequalities in the cocoa sector, persisting low levels of income and the challenges producers face in negotiating prices in an extremely price sensitive environment.
The cocoa requirements will come in three phases:
Phase 1 – April 2020
From April 2020 onwards, all buyers of Rainforest Alliance cocoa from Côte d’Ivoire and Ghana will be required to pay a premium to certificate holders. All premium payments must be reported in our traceability system. This is enforced by the Policy for Farm and Chain of Custody Certification in Cocoa. All buyers of UTZ cocoa globally were already required to pay a premium to certificate holders but Rainforest Alliance buyers were not yet required to do this.
Phase 2 – July 2021
From July 2021, when audits under the 2020 Sustainable Agricultural Standard begin, we will provide farm and farm group certificate holders with the data and training to develop investment plans and for buyers to make SI and report on them alongside the SD. These will both be assured through audits at both farm and supply chain level. Please note the sustainability differential and sustainability investment requirements will replace premium obligations in the existing Rainforest Alliance and UTZ programs, as certificate holders transition to the new system. For more information about the difference between the premium and the SD please see our FAQ on the 2020 supply chain requirements.
Phase 3 – July 2022
We will be setting the minimum SD at $70 per MT. The SD will have to reach the farmer in full (per MT), and we will roll out traceability tools to monitor electronic receipt of this amount at the level of the individual farmer / group member. In addition, we will be requiring buyers also make Sustainability Investments at the certificate holder (group) level.
The minimum is not the ending point. Rather, we see the minimum as an important component in improving farmer income and livelihoods and part of a broader trajectory to work with supply chain actors and farmers to close the living income gap. Our approach to achieving a living income and enabling a sustainable livelihood is focused on helping farmers to grow their business and become more profitable and resilient, while at the same time, preserving natural resources. Long-term planning and investments are needed, not just a price hike. Therefore, we are working on long-term, systemic solutions that link producers, supply chains, and governments to support sustainability transformation in the cocoa sector.
Our vision for a sustainable cocoa sector is one where farmers and certificate holders (groups) play a more financially equitable part in the supply chain. Our requirements are designed to strengthen the farmers’ ability to negotiate and to achieve a higher price, whilst maintaining access to markets that allow them to achieve this price. These requirements address the need to both reward individual farmers for their commitment to sustainable agriculture, as well as create access to resources needed at the group level to implement effective group management.
A minimum Sustainability Differential, not a fixed premium
Starting July 2022, the Rainforest Alliance will require a minimum SD of $70 per MT of cocoa. This is the cash per MT paid to the individual farmer. The SD is the additional payment producers receive in recognition of the choice they have made to farm to the Rainforest Alliance Standard. How they choose to use that payment is up to them. They can reinvest in the farm, use it for family needs or other costs they may have. We believe this is critical in creating a sustainable system whereby producers make their own choices.
In addition to this payment will be a requirement for buyers to make SI to the certificate holder based on the investment plan provided by the certificate holder themselves. This will enable an environment where the costs of achieving certification and farming sustainably are shared by all actors who benefit from production and sale of certified goods.
We are introducing a minimum Sustainability Differential to address the fact that in some countries the amount paid in current premiums remains unrealistically low. We do not want the increase to stop at $70. The $70 minimum is intended to provide industry with an indication of what is the minimum acceptable level of the SD. We are setting the minimum at this level to ensure that the industry remains responsible for properly rewarding farmers for their sustainability efforts with a higher SD. As such we expect average SD payments to exceed $70 per MT.
We will encourage higher SD payments through transparency and reporting on average SD payments. If we see a shift of all SD payments towards $70 then we will intervene with extra measures. $70 is the start, not the norm.
We believe the entire sector has a role to play in ensuring that the minimum does not become the maximum and we are counting on everyone recognizing this shared responsibility to make sure that it doesn’t.
The minimum Sustainability Differential and how it relates to Sustainability Investments
The $70 minimum SD is only one part of the many benefits offered by the Rainforest Alliance program. Farm groups and individual farmers also benefit from the mandatory Sustainability Investments.
The current UTZ premium includes both a cash payment to producers and cash investments but does not include in-kind contributions. We are separating the cash payment to producers – the SD – and monitoring this separately from all other investments. We are then combining the cash and in-kind investments into one category – the SI.
By separating the cash payment from the investments, we aim to ensure the market rewards both individual farmers as well as contributes toward the investments needed at a group level in order to professionalize farming. Sustainable Investments will be based on investment plans built out by groups, via this system we want to empower individual farmers in the identification of the investments and negotiations with buyers of certified products.
Our vision is one where farmers and certificate holders (groups) play a more equitable part in the supply chain. We are creating a stronger voice for farmers in the supply chain.
Questions and Answers
For questions about price and premium please refer to our 2020 supply chain requirements FAQ.
Scope & General
Which crops does this apply to?
This guidance applies only to cocoa. Specific guidance for coffee, tea and bananas will follow.
Why will you only have a minimum SD for cocoa and not for other sectors?
The minimum SD in cocoa is part of our measures to Strengthen the Cocoa Sector. We are currently not requiring a minimum SD for other sectors. We will evaluate the effectiveness of the minimum SD and analyze whether a minimum could also be an effective tool for other sectors. The contextualization of our new Certification Program allows for the implementation of similar interventions in the future. At this time no decision has been taken on a minimum SD for other sectors but this could be considered in the future.
How did you reach the $70 amount?
The $70 amount was the result of very detailed and thorough analysis. Using data from our traceability system we looked at current premium data in detail, looking at country, group and first buyer premiums, averages and variations in the premium, and the potential impact a minimum could have on country and company level. We performed a large study on UTZ premiums in collaboration with Dutch Royal Tropical Institute (KIT) that provided a significant amount of insight. We consulted several stakeholders on the concept.
We arrived at the figure of $70 because we believe that will have a positive impact on most Rainforest Alliance producers while at the same time allow the market to respond with higher SD payments. We aim to eliminate unrealistically low premium payments while still using market mechanisms to properly reward farmers for their sustainability efforts.
It is also important to note that the $70 minimum SD is only part of the story. producers will also benefit from SI on top of the SD. We will establish a baseline for Sustainability Investments buyers make in 2021 and will closely monitor deviations starting from 2022 onwards to ensure that the minimum SD is not negatively affecting investments.
Isn’t this far too low?
The SD should not be compared to other certification premiums or to the price of cocoa. The SD is one specific piece of the overall payment: the cash component that goes directly to the farmer. This is in addition to the investments made at group level, the price the farmer receives for the cocoa, and in Côte d’Ivoire and Ghana additional to the Living Income Differential (LID). A guaranteed minimum of $70 per MT as cash, without any restrictions on how this is spent, is an innovation that is unique in the cocoa certification sector. While we encourage and stimulate first buyers to pay more than the $70 minimum, initially assuring farmers of a minimum cash payment is already a major step forward in certification.
Will you increase the minimum SD after 2022?
If we see a shift of all SD payments towards $70 then the Rainforest Alliance will intervene with extra measures. $70 is the start, not the norm. This intervention could be an increase in the minimum SD but could also be supporting interventions such as providing more transparency or traceability on the SD.
All revisions to the minimum are always communicated at least 2 years in advance and will include the reasons behind the change and the process for reaching a new minimum SD. We will also monitor the adequacy of sustainability investments and if needed, introduce greater specificity in our programmatic requirements on that front as well.
Are you telling producers what to do with this SD?
No, we are not telling producers how they can spend the SD. It is completely up to him/her to decide how to spend the money.
What happens if a company does not pay the minimum SD?
For a company purchasing Rainforest Alliance certified cocoa, not paying the minimum SD or proof of payment not being reconciled with proof of receipt will result in a non-conformity. The Rainforest Alliance may decide to immediately cancel the current certificate of companies and/or decide not to certify the companies if they do not comply with the process for getting certified/endorsed or refuse to close non-conformities. They will not be able to sell products as Rainforest Alliance certified. For specifics around non-conformities, please see the Certification and Auditing Rules.
