Certifications – such as Rainforest Alliance or Fairtrade – are a significant presence in the food and beverage industry. But how do they come about?
Certifications are in some ways a bottom-up creation, as consumer pressure is vital in bringing about their development, according to Ofir Ardon, CBO at crop supply intelligence company Agritask.
How do consumers influence the creation of certifications?
Responding to consumer pressure is a key role of certifications, Ardon says. Certifications, much like products themselves, are the reflection of a business responding to the desires of its consumers.
The Fairtrade certification, for example, was set up in 1992 after demands for fairness in the Mexican coffee trade.
Consumer pressure exerts itself through buying preferences. If two products cost the same, a consumer will likely choose the product that is more “in line with what he sees for the benefit of the world”. Certifications respond to this, trying to attract these consumers’ preferences. To paraphrase the economist Friedrich Hayek, they’re voting with their Euro.
The presence of these consumer preferences is significant for the industry. “It’s enough to get CPG companies to start competing over these elements,” Ardon says.
However, he adds, consumers have not yet reached the level where they’re willing to pay more for a certified product.
Certifications cover a range of topics, including the healthiness of a product, its environmental sustainability, and the wellbeing of those at a low level in the supply chain.
What areas do consumers care about?
The areas consumers care about certifications depends on the product itself, Ardon explains. For crops that are related to a negative environmental impact, consumers are more likely to require environmental certification. For staple foods they consume on a daily basis, health will be at the forefront of their minds.
There are a range of other factors as well. “It depends on the category of purchasing. It depends on the geography. It depends on the client or the consumer segments, at least the mix between them.”
There are also trade-offs between different categories of concern. In Ardon’s view, the measures taken towards making the supply chain more environmentally sustainable by regulations such as the EUDR could potentially have a negative impact on smallholder farmers, those of whom are unable to comply with its parameters will not be able to export to the EU.
Another trade-off, he suggests, is between health and sustainability. If you want an organic certification, you must refrain from the use of pesticides. But more sustainable forms of agriculture, such as regenerative agriculture, require the use of pesticides. In the end, a consumer must choose between these two things.
The myriad certifications on the market, which are the expression of a network of consumer concerns, has in the past meant some businesses having to comply to multiple such certifications. On the extreme end of this, Ardon says, Agritask has seen one company required to comply with 250 separate certifications.
Compliance like this has the potential to create vast organisational complexity. One of Agritask’s roles is to help companies streamline this process.
That’s not to say that some forms of consumer concerns are not more prominent. For example, perhaps unsurprisingly, environmental concerns are ‘very very strong’ at the moment.
Overall, consumer pressure is growing steadily. In the end, Ardon suggested, acquiring certifications is, for companies, a way of responding to it without spending on branding and positioning, as the latter becomes less necessary when the former is sending the right message.
What’s the role of consumer pressure in developing regulations?
Much as in the case of certifications, the passing into law of regulations is, Ardon told us, linked to consumer pressure. Even the upcoming EUDR, he suggested, is linked to consumer pressure.
“It’s what the consumers want from the food and beverage companies, but it’s [also] what the voters want from politicians,” he says.
In many instances, regulations can be an alternative to certifications. Both require producers to comply to certain standards. However, the key difference lies in the applicability: certifications are voluntary, and regulations are not.
Regulations are often predated by certifications. For example, the EUDR is predated by sustainability certifications. However, individual sustainability certifications, according to Ardon, are unable to account for the scope and totality of the EUDR, which demands traceability throughout a commodity’s entire supply chain.
“Measuring a person, how many parts of his body are healthy and how many parts are not? It’s not the same as ensuring that 100% of the person is healthy.”
In the end, despite the often more stringent nature of such regulations compared with certifications, “it’s the same effort and technologies and processes that the supply chains we need to put in order to comply with both areas, both the certifications and the regulations.”
For example, companies will use the same personnel to gather information, and the same technology to report it, for regulations and certifications. However, the amount a company is willing to spend on this might be different between regulations and certifications.