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Economics of Sustainable Coffee Production in Los Santos, Costa Rica

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Economics of Sustainable Coffee Production in Los Santos, Costa Rica Economics of Sustainable Coffee Production in Los Santos, Costa Rica Thesis Submitted in Partial Fulfillment of the Requirements for the Degree of Master of Science in International Development Studies at Wageningen University and Research Centre (WUR), The Netherlands By Thom van Wesel 1 2 ‘Economics of Sustainable Coffee Production in Los Santos, Costa Rica’ Course Code: DEC 80433 Author: Thom van Wesel Registration Number: 880617-941-060 Supervisors: Fernando Saenz CINPE, Costa Rica Rob Schipper Wageningen University and Research Centre (WUR) Development Economics | Wageningen University & Research Centre | August 2012 3 Acknowledgement The period working on this thesis represented both a challenging and an invaluable experience. From the moment I started my thesis I have acquired remarkable and new experiences with regards to studying and living abroad, familiarizing oneself with a new culture, language and above all people. For I am very grateful to the persons who have enabled and supported me throughout this thesis. Without them, bringing my thesis to a good end would have been far more difficult and challenging. First of all I would like to thank the household that were willing to participate in my research. I have been amazed often by their hospitality, kindness and openness of families. The families and persons I have encountered have always been willing to receive my, make time and help me with any questions. This would have been very hard to reach without the help of the cooperative ‘Cooperative de Caficultores de Llano Bonito' (CoopeLlanoBonito) whose employees were very helpful in establishing contact with producers. In addition, I would like to thank my supervisors: Rob Schipper, Kees Burger and Fernando Saenz. Their constructive and positive comments have allowed me to progress step by step. Their experiences and input proved very beneficial. Furthermore, I would like to express my gratitude for the my colleagues at ‘El Centro Internacional de Política Económica Para el Desarollo Sostenible’ (CINPE). I enjoyed going to work every day due to the pleasant company of my colleagues. I would especially like to thank Hannia Corrales, she has been very hospitable and has provided me with a home through which I was able to make numerous friends. That has made my time in Costa Rica a very pleasant one. Finally, I would like to express my gratitude to Alexander Sanchez-Sanchez. He made the fieldwork period a very pleasant one and his experience has contributed a great deal. Through his teamwork I was able to carry out the research rapidly by following his example. The exciting and new experiences I have gained during the fieldwork period were made into a remarkable and unforgettable time mainly due to his pleasant and inspiring company. Thom van Wesel, August 2012 Wageningen; The Netherlands 4 Abstract The way in which agricultural producers allocate resources can be influenced by many aspects. Focussing on the environmental dimension in agricultural production can offer a very diverse picture. Agricultural markets seldom incorporate incentives that ensure environmental conservation and these external costs to production are often not incorporated into consumer prices. In this report we try to clarify which producers opt for sustainable production and how this reflects back into the production. The sample of coffee producers we have focussed on in Los Santos, Costa Rica incorporate a range of sustainable practices. Instead of comparing certified versus a control group of non- certified producers we applied a scoring method similar to the one Starbucks uses when selecting suppliers. This enables us to compute a score that indicates the level of sustainability / amount of sustainable methods incorporated into production processes for each producers. Data was first explored using non-parametric correlation statistics. We proceeded by using multiple regression analysis using a non-linear production function on our sample while mainly focussing on economics of coffee production. Afterwards we have again applied multiple and binary logistic regression analysis in order to investigate how the degree of sustainability is reflected back into characteristics of producers, output and economics of production. Analyses on economics of coffee production provide basic results related to agricultural economics. The proceeding analysis on sustainability showed that sustainable producers are often more educated. However, sustainability does not seem to be related to higher labour costs per hectare, more intensive production or longer productive lives for coffee trees. Incorporating more sustainable practices does not lead to improved output levels. In addition, a binary logistics regression indicated that sustainable producers do not participate more in a diversified value chain that is associated with higher prices. 5 Table of Contents 1. Introduction ................................................................................................................................................. 9 1.1 Introduction ......................................................................................................................................... 9 1.2 Research Context ................................................................................................................................ 9 1.2.1. Focus of this Study .................................................................................................................. 10 1.3 Research Questions ......................................................................................................................... 10 1.4 Justification ......................................................................................................................................... 11 1.5 Outline of this Thesis ...................................................................................................................... 11 2. Theoretical Background ........................................................................................................................ 12 2.1. Introduction ...................................................................................................................................... 12 2.2. GCC and GVC Approach ................................................................................................................. 12 2.2.1 The GCC Model........................................................................................................................... 12 2.2.2 The GVC Model .......................................................................................................................... 13 2.3. Incorporating an Environmental Dimension ....................................................................... 14 2.3.1. Introduction............................................................................................................................... 14 2.3.2 The Environmental Dimension in GVC Analysis .......................................................... 15 2.3.3. Sustainable Practices, Standards & Certification ........................................................ 16 2.3.4. Organic & Sustainable Agriculture ................................................................................... 17 2.3.5. Environmental Services ........................................................................................................ 20 3. Methodology ............................................................................................................................................... 22 3.1 Introduction ....................................................................................................................................... 22 3.1.1 Literature Study ........................................................................................................................ 22 3.1.2 Structured Interviews ............................................................................................................. 22 3.1.3 Pre test .......................................................................................................................................... 22 3.1.4 Study Site/Households ........................................................................................................... 22 3.1.5 Data Analysis .............................................................................................................................. 23 3.2 Addressing Sustainability among Producers ......................................................................... 24 3.2.1 Introduction................................................................................................................................ 24 3.2.2 Configuring a Ranking-Approach ....................................................................................... 25 4. Coffee Sector ............................................................................................................................................... 28 4.1 Historical Perspective ..................................................................................................................... 28 4.2 Current Market Situation .............................................................................................................. 29 4.2.1 Global Context ............................................................................................................................ 29 4.2.2. National Context .....................................................................................................................
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