M.C. van Rooy SCIs: a club theory approach case study Master thesis IRIO

M.C. van Rooy

SCIs: a club theory approach case study

Master thesis IRIO

4/21/2014

MASTER THESIS IRIO

CERTIFICATION CLUBS

Assessing the club theory approach to sustainability certification initiatives: a case study of UTZ Certified.

Author: Merel van Rooy | Supervisor: drs. A.R.M. Gigengack 0

M.C. van Rooy


Master thesis IRIO

DECLARATION BY CANDIDATE

I hereby declare that this thesis, “Certification clubs: assessing the club theory approach to sustainability certification initiatives. A case study of UTZ Certified.”, is my own work and my own effort and that it has not been accepted anywhere else for the award of any other degree or diploma. Where sources of information have been used, they have been acknowledged.

Name: Student number: E-mail address:

Signature:

Date April 21, 2014

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Merel van Rooy 1854461 [email protected]

M.C. van Rooy


Master thesis IRIO

Table of Contents List of abbreviations ............................................................................................................................................................... 4 1. Introduction .......................................................................................................................................................................... 5 2. Concepts ................................................................................................................................................................................. 8 3. Theoretical framework..................................................................................................................................................... 9 3.1 Classification of goods ............................................................................................................................................... 9 3.2 Externalities................................................................................................................................................................. 11 3.3 Club theory and SCIs ................................................................................................................................................ 12 3.4 Club Theory and International Political Economy Research .................................................................. 17 4. UTZ Certified ....................................................................................................................................................................... 20 4.1 UTZ’s pursuit of efficacy ......................................................................................................................................... 20 4.1.1 Position and functioning of SCIs ................................................................................................................. 20 4.1.2 The pursuit of efficacy by UTZ..................................................................................................................... 24 4.1.3 The Code of Conduct ........................................................................................................................................ 27 4.1.4 Monitoring and enforcement procedures .............................................................................................. 28 4.1.5 Evaluation of UTZ’s pursuit of efficacy .................................................................................................... 30 4.2 Emergence and organizational development of UTZ ................................................................................. 31 4.3 Conclusion .................................................................................................................................................................... 36 5. Club theoretical approach to UTZ .............................................................................................................................. 38 5.1 Conceptualizing UTZ as a club ............................................................................................................................. 38 5.1.1 Club members .................................................................................................................................................... 38 5.1.2 Club benefits ....................................................................................................................................................... 40 5.1.3 Externalities ........................................................................................................................................................ 41 5.1.4 Club Sponsor ....................................................................................................................................................... 42 5.1.5 Conclusion............................................................................................................................................................ 43 5.2 Efficacy of UTZ ............................................................................................................................................................ 44 5.2.1 Prakash and Potoski ........................................................................................................................................ 44 5.2.2 Evaluation of the standard of UTZ ............................................................................................................. 45 5.2.3 Evaluation of the monitoring and enforcement procedures ......................................................... 48 5.2.4 Application of the model ................................................................................................................................ 50 5.2.5 External relations and partnerships ......................................................................................................... 51 5.2.6 Conclusion............................................................................................................................................................ 52 2

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Master thesis IRIO

5.3 Emergence and development of UTZ ................................................................................................................ 54 5.3.1 Emergence of SCIs ............................................................................................................................................ 54 5.3.2 Club size and expansion to other commodities .................................................................................... 56 5.3.3 Conclusion............................................................................................................................................................ 58 6. Conclusion ........................................................................................................................................................................... 60 References ................................................................................................................................................................................ 62 Appendix A: Interview Ward de Groote ....................................................................................................................... 67 Appendix B: Communication with Henk Gilhuis ...................................................................................................... 79 Interview .............................................................................................................................................................................. 79 E-mail..................................................................................................................................................................................... 82 Appendix C: Consumer to farmer model...................................................................................................................... 83 Appendix D: Timeline of UTZ developments ............................................................................................................. 84 Appendix E: Theory of Change

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List of abbreviations ACC BCI CB CIP CoC CSN CSO CSR DRC FLO FSC GAP GVC ICO IIED IPE IR LEI NGO RA RSPO SAI SCI UN UNCTAD

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Ahold Coffee Company Better Cotton Initiative Certification Body Cocoa Improvement Program Code of Conduct Coffee Support Network Civil Society Organization Corporate Social Responsibility Democratic Republic of the Congo Fairtrade Labelling Organization Forest Stewardship Council Good Agricultural Practices Global Value Chain International Coffee Organization International Institute on Environment and Development International Political Economy International Relations Agricultural Economic Institute Non-Governmental Organization Rainforest Alliance Roundtable on Sustainable Palm Oil Sustainable Agriculture Initiative Sustainability Certification Initiative United Nations United Nations Commission on Trade and Development

Master thesis IRIO

M.C. van Rooy


Master thesis IRIO

1. Introduction “We cannot wait for governments to do it all. Globalization operates on Internet time. Governments tend to be slow moving by nature, because they have to build political support for every step.” Kofi Annan The former Secretary-General of the United Nations (UN), Kofi Annan, made this statement in July 2000 at a high-level meeting of the UN Global Compact, a UN initiative started by Annan seeking to align the interests of business with the principles of the UN (Annan, 2000). He was not alone in his conviction that non-governmental actors, especially business and civil society, have an important role to play in global governance. Following many corporate scandals in the nineties, ranging from the revelation of sweatshops to the bankruptcy of Enron, business refocused on corporate social responsibility (CSR) (Rowe, 2005, p. 126). Many codes of conduct (CoCs) and later on self-regulation and certification initiatives emerged. Activists from civil society organizations (CSOs) co-operated with business to make these efforts credible and meaningful. In the past two decades, these initiatives have gained ground and certification seals have become a common sight on all kinds of products. The scholarly attention to the increasing number and importance of these sustainability certification initiatives (SCIs) came from traditional International Political Economy (IPE) schools discussing their government-like rule-making authority, the political power struggles between private and non-private actors and the democratic legitimacy of these new ‘private regimes’ (Haufler, Cutler, & Porter, 1999; Bartley, 2009; Fuchs & Kalfagianni, 2011)1. The approach studied in this thesis is the ‘theory of clubs’, stemming from a nontraditional school of IPE: public finance. This approach is different, as it focuses on how public goods can still be provided by market actors when the conditions to organize output and input efficiently via markets are not present.2 The theory’s central question is exciting: are these private SCIs capable of balancing out current imbalances in the market system? Aseem Prakash and Matthew Potoski (2009) were the first to apply the theory of clubs to the phenomenon of SCIs. They proposed that this relatively new approach should serve as an allencompassing framework for analyzing SCIs. This thesis will investigate whether the club approach is a meaningful way to analyze SCIs, by focusing on UTZ Certified (UTZ). As will be explained shortly, UTZ is an example of a most-likely case. Researching this case contributes to the discussion of whether the club approach is indeed suitable to serve as an all-encompassing framework for analyzing SCIs in general. The research question will be answered in three parts. The club approach will be considered a meaningful way to analyze UTZ if three conditions are met: 1. The central concepts of the approach should be applicable to UTZ;

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See Vogel (2008) for an overview of literature about the regulatory dimensions of SCIs.

2 Or: when externalities are present. Externalities are a central concept of club theory, introduced and explained

in chapter 3.

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2. The club approach framework to analyze the efficacy3 of SCIs should be applicable to UTZ, as the club approach emphasizes this aspect of SCIs; 3. The approach should account for the development of UTZ. This paper is structured in the following way: the concepts used in this study and the theoretical framework of club theory is introduced in chapters 2 and 3 respectively. Chapter 4 introduces the case of UTZ Certified elaborately, paying specific attention to the efficacy and development of the organization in two separate sections. Chapter 5 approaches UTZ from the club perspective, separately discussing the three parts of the analysis. The sixth and final chapter answers the main research question. UTZ is an interesting SCI, as it is an early certification initiative initiated by business actors: Ahold Coffee Company (ACC) and the Guatemalan coffee roaster Nick Blocklandt started the program in 1997 under the name of Utz Kapeh, meaning “good coffee” in the Malaysian language Quiché. ‘UTZ Kapeh’ experienced a rapid growth leading to expansion towards other commodities. In 2007, the name was changed to UTZ Certified Good inside (UTZ , 2008, p. 4) to reflect this diversity.4 Apart from its business-roots, UTZ is interesting because it was specifically designed as a mainstream coffee initiative with standards that are also suited for larger estates. That was not the case for the standards of the other main SCI at the time, Max Havelaar5 (Solidaridad, 2012). In about ten years, this strategy has proved successful: companies like Sara Lee with their brand D.E. Master Blenders 1753, IKEA, Mars, Nestlé and Lidl now sell UTZ certified products. By the end of 2012, 13% of all cocoa produced worldwide, 8% of the global coffee harvest and 2% of all tea produced worldwide originated from UTZ certified farmers. UTZ aims to certify 50% of the total coffee, cocoa and tea production by 2020 (UTZ, 2013a, p. 4). Because of its business origins, its mainstream positioning and its rapid growth, UTZ is a fitting case study for the club approach. The theory of clubs is not apt to explain political processes and many other SCIs have political or activist roots. UTZ has been explicit in its conviction to stay close to business whilst serving public interest. The approach of the theory of clubs is relatively new and few authors have been engaged in the theoretical pursuit of adapting the theory to SCIs. The approach was pioneered by Aseem Prakash and Matthew Potoski and experienced theoretical advancements by David P. Baron, Matthew Kotchen and Klaas van ‘t Veld. The work of these authors will be used when attempting to apply the club theory perspective on UTZ. An application of the club theory perspective to UTZ is meaningful, because the perspective is still developing and this research can point out what has already been achieved and what difficulties still need to be overcome in order to make it an accepted perspective. The tropical commodity chains that UTZ is concerned with, are of particular importance to sustainability: they contribute to global inequality with the production in the South and consumption in the North and unequal distribution of income along the chain (Talbot, 2004, p. 20). The club approach offers a way to organize the “input-outcome allocation” more efficiently. Besides for those interested in the study

Efficacy: ‘the ability to produce a desired or intended result’ (Oxford Dictionaries , 2013). In this thesis, ‘UTZ’ will refer to either name of the organization. 5 Max Havelaar later became Fairtrade Labelling Organization (FLO). 3 4

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of SCIs in general, this research is of value for those interested in aspects of one of the most important SCIs: UTZ, about which surprisingly little research texts exist yet. This study is primarily based on examination and analysis of the existing literature. Additionally, information about UTZ has been derived from annual reports, documents provided by UTZ and interviews with two prominent people involved with UTZ: Ward de Groote, co-founder of UTZ and former managing director of ACC, and Henk Gilhuis, director of the department of Monitoring and Evaluation of UTZ.6

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The transcripts of the interviews with De Groote and Gilhuis are attached in appendix A and B respectively.

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2. Concepts This chapter will introduce the definition of concepts used in this research that are not introduced separately when used in this study for the first time. It does not include most of the theoretical concepts, because they will be introduced in the next chapter. Activists Activists are actors rationally pursuing goals in the public interests. Activists in this thesis are actors from civil society organizations (or non-governmental organizations, NGOs) striving to make industries more sustainable. Certification Certification is a declaration by a third party that states the certified party/product/actor fulfills the criteria set by the third party. There are many examples, including but not limited to swimming certificates for children, certified initiatives for medical personnel and sustainable production certification for products. Rationality Rationality is making decisions by the power of reason; logical and structural assessment of one’s options using the information given in order to decide the strategy that fits one’s interests best. Stakeholders A stakeholder of an organization or business is a person, group, organization or system that is or can be affected by the organization’s actions (Van Dale, 2014). Sustainability Sustainability refers to a situation which is durable and long-term. Environmental sustainability refers to e.g. using resources responsibly. Sustainability includes social sustainability as well: an economic system that creates chronic poverty on the one side and the buildup of wealth on the other cannot be considered socially sustainable. Sustainability Certification Initiatives (SCIs) This thesis refers to SCIs instead of ‘green clubs’ (Van 't Veld & Kotchen, 2011), ‘voluntary programs’ (Potoski & Prakash, 2009) or ‘voluntary environmental programs’ (Kotchen, 2013; Prakash & Potoski, 2007). ‘Voluntary programs’ is broader than certification initiative and this thesis limits itself to clubs that use ‘certification’ as an exclusion mechanism for the club. ‘Environmental’ or ‘green’ only refers to environmental sustainability, whereas this study includes ‘social’ sustainability certification initiatives as well.

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3. Theoretical framework This chapter introduces the theoretical framework of this research: club theory. Sections one and two will introduce the basics of the theory of clubs and the link with externalities. Sections three and four outline how the traditional theory of clubs is adapted to the study of SCIs and how this perspective relates to other IPE theories.

3.1 Classification of goods Even Adam Smith recognized that the ‘invisible hand’ did not always work optimally and that when the market failed, government should take action. One potential source of such a market failure is the provision of public goods (Cornes & Sandler, 1996, pp. 3-5). Samuelson (1955) researched the characteristics of public goods and their relationships with other goods. His classification resulted in a bi-polar spectrum of goods: on the one hand pure public goods and on the other pure private goods. Samuelson differentiated between public and private goods on the basis of rivalry of consumption7: private goods are rivalrous of consumption and pure public goods are nonrivalrous of consumption. An example of a private good is a sandwich: if someone consumes it, no one can consume that same sandwich again. An example of a public good is national defense: if someone consumes it, it has not reduced any of the consumption opportunities for others. Everything in between Samuelson termed an ‘impure public good’. James Buchanan added to nonrivalry of consumption the characteristic of excludability8 in his 1965 paper “An economic theory of clubs”. Excludability means that a low-cost exclusion mechanism can be provided. Buchanan introduced clubs9 as institutions that provide club goods, i.e. goods that are both nonrival and excludable. An example of a club good is a swimming pool: if one person ‘consumes’ (or swims) in the swimming pool, another person can still ‘consume’ the swimming pool. The low-cost exclusion mechanism can be a ticket booth (Buchanan, 1965, p. 2). Another insight is that club goods always have a point where crowding sets in, so-called ‘congestion’, meaning there is a finite number of club members. The number of people that can enjoy the swimming pool simultaneously is not infinite; at one point the pool gets too crowded. Buchanan’s insights suggested that the great spectrum of impure public goods did not necessarily have to be provided by the government, but could be provided by “clubs” (Cornes & Sandler, 1996, pp. 3-5). The theory of clubs provides the framework for determining how the large class of impure public goods can be provided efficiently. Another class of goods is common pool goods: goods that are nonexcludable, but rivalrous. A classic example of a common pool good is the global fish stock: it is very difficult to withhold the benefits of the global fish stock from others as everybody with a fishing rod has access. Consuming

Nonrivalry of consumption is used interchangeably with the indivisibility of benefits: “a good is nonrival or indivisible when a unit of the good can be consumed by one individual without detracting, in the slightest, from the consumption opportunities still available to others from that same unit” (Cornes & Sandler, 1996, p. 8). 8 Nonexcludability: “goods whose benefits can be withheld costlessly by the owner or provider generate excludable benefits. Benefits that are available to all once the good is provided are termed nonexcludable.” (Cornes & Sandler, 1996, pp. 8-9). 9 Club: “a voluntary group deriving mutual benefit from sharing one or more of the following: production costs, the members’ characteristics, or a good characterized by excludable benefits.” (Cornes & Sandler, 1996, p. 347) 7

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the global fish stock means detracting from consumption opportunities of others, so the global fish stock is rivalrous. The two characteristics of rivalry and nonexcludability cause market failure: normally (assuming some sort of property rights), scarcity leads to higher prices and less consumption but because of the nonexcludability, this market mechanism fails to accumulate, which leads to nonefficient markets (hence, market failure) (Prakash, 2000, p. 186). On the basis of rivalry and excludability the following distinction in types of goods can be made:

Excludable Nonexcludable

Rivalrous Private (food, clothing, cars…) Common pool (global fish stock)

Nonrivalrous Club (movie theatres, private parks) Public (sunsets, air, national defense)

Table 1: Categorization of goods

This categorization of goods should be seen as a spectrum: the extent to which they are ‘rivalrous’ or ‘excludable’ varies. Clubs are institutions that provide or allocate club goods. The optimal sharing arrangement, or club membership, is more than one (purely private goods) and less than universal10(purely public goods). The purpose of ‘traditional Buchanan clubs’ such as a swimming pool or movie theatre is the production of the club good and the central problem is consequently determining the optimal membership or sharing arrangement, or determining the point where congestion sets in (Buchanan, 1965, pp. 1-3). SCI-clubs This research conceptualizes the institutions of SCIs as ‘clubs’. The definition of a club used in this study is: “a voluntary group deriving mutual benefit from sharing one or more of the following: production costs, the members’ characteristics, or a good characterized by excludable benefits.” UTZ can be regarded as a club, if one interprets the group as a group of firms11 who derive the mutual benefit of ‘good reputation’ from participating in the initiative (Kotchen, 2013, p. 280). ‘Reputation’ in an industry is a ‘good held in common’ (Potoski & Prakash, 2009, p. 34). Within the scope of the industry, it has the public good characteristics of nonrivalry and nonexcludability. Reputation of the industry is nonrival, because if one firm ‘consumes’ reputation, another firm can enjoy the same quantity of reputation at the same time. Reputation in the industry is also nonexcludable; no firm can exempt itself from the industry reputation, unless an exclusion mechanism is provided like a certification seal. Hence, ‘good reputation’ is produced, when an exclusion mechanism separates the firms adhering to sustainable practices from the ones that do not. This way, the sustainable firms can reap the benefits of the investments in more sustainable production.

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Universal in this context means all actors in the population considered. The firms can have different identities; farmers, traders and buyers (see section 5.1.1).

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Although there are strong resemblances with ‘traditional’ clubs like movie theatres and swimming pools, there are some differences as well. One is the ‘viewpoint’ of the club: traditional clubs aim for the production of the club good and take the benefits of the club members into account, whereas SCI-clubs in some cases focus on the production of positive sustainability externalities. These externalities are the main justifying reason for the existence of the SCI (Prakash & Potoski, 2007, p. 776). Before discussing other differences between ‘traditional’ clubs and SCI clubs, the concept of externality deserves more attention.

3.2 Externalities An externality is ‘a positive or negative side-effect of (economic) actions on non-related parties whose interests have not been taken into account and who receive no compensation or penalty’. An example of a negative externality is pollution: others are harmed by the production without receiving compensation. An example of a positive externality is fireworks: others benefit from the pretty sight without paying for admission to the fireworks (Parkin, Powell, & Matthews, 2008, p. 347). Negative and positive externalities cause an inefficient equilibrium when it is left to the market, as not all costs of benefits are internalized by the private decision maker. Therefore, too much of the polluting good (and too little fireworks) is produced. Hence, externalities are a form of market failure. To achieve the socially optimal equilibrium, action should be taken to internalize costs of the negative externality. For example, consider a coffee farm that uses water inefficiently causing water pollution and scarcity of clean water, in other words, causing environmental and social costs. Suppose the costs of producing coffee in this water-polluting way are as follows: Coffee produced (bags 60 kg) 1 2 3 4

Private costs $ 10 $ 25 $ 40 $ 60

Table 2: Example of the production costs of a coffee farm

Environmental damage $0 $3 $6 $9

Total Costs $ 10 $ 28 $ 46 $ 69

In table 2 ‘private costs’ are the costs the coffee farm makes to produce coffee. The environmental damage is the damage to the environment, not considered by the coffee farm. The total costs represents the cumulative environmental and private costs. Suppose the revenue for one bag of coffee is $14. If no compensation for environmental damage is required, the coffee farm will produce 3 bags of coffee.12 To achieve socially optimal production, the costs of the environmental damage should be internalized, compensating the harm done. If the environmental damage is included in the costs, only 2 bags of coffee will be produced.13

When the farm produces three bags of coffee, the revenue (3 x $14= $42) is more than the costs ($40), whereas when the farm would produce 4 bags, the costs ($60) would be more than the revenue (4 x $14 = $56). Assuming the coffee farm pursues profit maximization, it produces 3 bags of coffee. 13 Private costs ($25) plus environmental costs ($3) equals the revenue (2 x $14 = $ 28). 12

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There are several strategies that can be pursued to achieve the socially optimal production. The traditional ones involve government action: government could, for example, tax the coffee farm and clean the polluted water with the tax money. If the coffee farm was taxed $3 for each bag of coffee, the private costs would go up by $3 and the farm would produce only two bags of coffee. Other actions governments undertake are emission charges or marketable permits (and fireworks could be subsidized) (Parkin, Powell, & Matthews, 2008, pp. 346-350). Actions of private actors can lead to the socially optimal production as well. Following the Coase theorem, if government does not intervene, it is likely that the involved actors will bargain to an agreeable outcome (Cornes & Sandler, 1996, p. 86). The socially optimal production can be achieved only if three conditions are present: the existence of property rights, a small number of involved parties and low transaction costs. Consider the example of the coffee farm and suppose the environmental damage caused by the water pollution only negatively affects three families living near the farm (a small number of parties is involved). Suppose these families own the land and groundwater around the coffee farm (property rights exist) and experience $ 2 damage each from the production of the three bags of coffee, then rational actors reach an agreement: each family could pay the coffee farm $ 2 to produce only two instead of three bags of coffee. As this offer is profitable for the farm, it is accepted. Interestingly, it does not matter which party has the property rights: suppose the coffee farm owns the land and groundwater and the families rent it, the families could pay less rent. Apart from the small number of parties and the property rights, another precondition for the Coase theorem to work is that transaction costs should be sufficiently low: as the transaction costs get higher, the advantages of the deal will decrease to a point where no agreement can be reached. International externalities Production has become increasingly globalized and with that the production of externalities. Governments do not always have the power, capacity or willingness to take action to produce public goods and can instead urge the actors involved to internalize the costs of the negative externalities. Moreover, the conditions for the Coase theorem are not always present. The tropical commodity chains and other production chains that are extremely globalized encounter these restrictions of government action. In that case, according to the theory of clubs, clubs can function as an institution for efficiently dealing with externalities.

3.3 Club theory and SCIs The concept of a ‘traditional Buchanan club’ has been adapted to fit the phenomenon of SCIs. Moreover, insights from collective action research have been added to make the club approach more meaningful to SCIs. Distinction between traditional Buchanan clubs and SCI-clubs The club approach to SCIs differs from ‘Buchanan’ clubs in a number of aspects, represented in table 3.

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Central purpose Viewpoint Member Benefits Membership costs


Buchanan Club (movie theater) Production of benefits for members Within-club Club product: possibility to watch movies on a big screen with excellent acoustics Directly to club

Table 3: distinction between SCIs and traditional 'Buchanan' clubs

Master thesis IRIO

SCIs Depends on the sponsoring actor Depends on the sponsoring actor Social externalities, private benefits and club benefits like branding Costs to fulfill requirements, some paid to the club, some not

As mentioned, the central purpose of a SCI club is not the production of club benefits for their members, but the production of positive sustainability externalities (Potoski & Prakash, 2009, p. 20). Kotchen and Van ‘t Veld (2009; 2011) add to this view by distinguishing between different club ‘sponsors’ that fall into three groups: industry, activist groups14 and governments15. A club sponsor is the actor who is governing and organizing the club. A difference between an industry club sponsor and activist club sponsor is that an industry club sponsor has a within-club viewpoint and an activist club sponsor has a total economy viewpoint. A club with a within-club viewpoint only takes the utility for the average club member into account and is not focused on the maximization of sustainability externalities, but on the maximization of benefits of their members. A total economy viewpoint also takes into account the utility of nonmembers. An activist sponsored club aims for the maximization of sustainability externalities (Kotchen & Van 't Veld, 2009, p. 310). As externalities in this thesis are side-effects on nonrelated parties, the total-economy viewpoint is more accurately described as an ‘outside-club’ viewpoint. Traditional Buchanan clubs, such as a movie theatre have a within-club viewpoint: movie theatres generally only take into account the preferences of those people who buy tickets or have a subscription. Because of the within-club viewpoint, industry sponsored clubs are closer to traditional Buchanan clubs. Both industry and activist sponsored clubs differ from traditional Buchanan clubs with regard to the membership costs: whereas for traditional clubs, members pay a fee directly to the club which offsets part of the production costs, the bulk of the membership costs of SCI-clubs is not a direct payment to the club, but adhering to the club’s membership requirements of production. At the end of this section, the three types of clubs (traditional clubs, industry sponsored and activist sponsored SCI-clubs) are graphically displayed. Firstly, what different types of benefits SCIs produce in what way, will be discussed.

Kotchen and Van ‘t Veld use ‘environmentalist groups’ instead of ‘activist’. As an environmentalist group is only concerned with the environment and this study uses a broader definition of sustainability, including social sustainability, this type of sponsor actor is referred to as ‘activist’. 15 Clubs sponsored by governments are not considered here, as this study is concerned with private certification initiatives. 14

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SCIs: clubs addressing market failures SCIs address two (potential) causes of market failures: imperfect information and the public good nature of many sustainability externalities. Firstly, the market only works perfectly when consumers can make rational choices based on perfect information. Imperfect information leads to non-optimal choices and hence market failures. SCIs address this cause of market failure, because they provide information to consumers about production circumstances of products of which they were previously unaware. If consumers know a product has been produced with child labor (or guaranteed without), they may choose the product not produced by children. Subsequently, information about production circumstances provided by SCIs improves functioning of the market. Secondly, public goods are under-provided due to the free-rider problem. Rational actors do not have the incentive to contribute, but through certification certain aspects of the public good are privatized – creating an incentive for private actors to produce public goods compatible with firm or individual decision-making (Kotchen, 2013, p. 278). The mechanism works in a way like the Coase theorem: normally, ‘reputation’ in an industry has the characteristics of a public good. Implementing costly sustainable production practices when others do not, does not yield any private benefit for a company. When a firm joins an SCI, the production practices are communicated, reducing information asymmetries between firms and stakeholders. The SCI allows stakeholders to receive positive sustainability externalities and in return, the firm receives branding benefits. Moreover, the reputation becomes a club good, as it is now excludable because of the certification seal and ‘property rights’ are established. Hence, SCIs effectively ‘subsidize’ the voluntary provision of public goods. The sustainability externalities produced by SCIs do always have the characteristics of public goods. They can have the attributes of private benefits (clubs requiring firms to pay higher wages), public benefits (clubs requiring firms to reduce emissions) or club benefits (clubs requiring firms to hire more women) (Prakash & Potoski, 2009, pp. 19-24). Apart from sustainability externalities and branding benefits, SCIs can also produce private benefits. These benefits accrue to only one firm, for example when a club creates a win-win situation when adhering to the requirements of responsible water usage of a club results in cost reduction and higher profit for a club member. Prakash and Potoski (2009, p. 33) argue that, from a collective action research point of view, these benefits are less interesting as individual rational actors are presumed to take these actions unilaterally, without joining the club. However, as will be shown in the case of UTZ Certified, these private benefits and ‘win-win’ situations can provide a powerful motivation for a member to join. Summary The next three figures show a traditional ‘Buchanan’ club (figure 1) and two SCI-clubs: an activist sponsored SCI (figure 2) and an industry sponsored SCI (figure 3).

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Figure 1: traditional ‘Buchanan’ club (own compilation)

Figure 2: Activist sponsored club (own compilation)

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Figure 3: Industry sponsored club (own compilation)

The figures of the SCIs are more complex than the Buchanan club, because the rest of the world is affected as well. For activists clubs, this is the goal of the club and the other benefits are only a means, for an industry club it is the other way around. The difference between an industry and activist sponsored club is relevant, as it has implications for what can be considered an efficacious club (effective in achieving its goal). As will be explained shortly, Prakash and Potoski have developed a model to account for the efficacy of clubs. In their view, certification initiatives aim for the maximization of sustainability externalities, like activist sponsored clubs do. Hence, whether their model is applicable to UTZ, depends on whether UTZ can be considered an ‘activist’ sponsored club aiming for the maximization of sustainability externalities. If UTZ has the characteristics of an ‘industry’ sponsored club, the efficacy will be measured on different terms, namely the maximization of the production of club benefits. Curbing collective action challenges through club design The club theory approach to SCIs builds on collective action research within political science. Why do individuals work together, what common objectives do they have and what makes their action effective or not? The sub-questions of this thesis about the development of the organization and efficacy stem from these traditional collective action problems. The theory of clubs complements collective action research in the voluntary domain: when do private actors voluntarily commit themselves to do more than social regulation requires and under what conditions do these actions produce positive sustainability externalities? The club approach emphasizes rational economic

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reasons for firms to voluntarily commit themselves to exceed government regulation: the value is worth more than the investment.16 An efficacious club curbs two collective action problems. Firstly, the free-rider challenge: a rational actor has an incentive to free-ride on the efforts of others (Olson, 1965). Because the reputation in the industry is held in common, firms may want to free-ride on the efforts of others to be environmentally responsible, without having to bear the costs of being environmentally responsible themselves. The free-rider challenge also comes to the fore in the formation of (SCI-) clubs: firms have various incentives to not take action on social responsibility, like a spill-over from the good reputation of socially responsible firms to non-socially responsible firms or the (potential) failure of stakeholders to reward the efforts. The free-rider challenge is curbed by the exclusion mechanism of the certification seal, which represents and communicates the production standards. The second collective action problem is shirking: once a member, the club members have an incentive not to live up to their obligations, a firm can save costs while still enjoying the better reputation (Prakash & Potoski, 2007, p. 778). This challenge is curbed by monitoring and enforcement procedures. If the risk times costs of getting caught is higher than the benefits derived from not living up to the standards, firms will adhere to the production standard. The stringency of the standards and the monitoring and enforcement procedures are two key elements of club design that determine the efficacy of club (Prakash & Potoski, 2011, p. 46). When designing these club features, social planners should consider that while more stringent standards produce more environmental benefits per member, they also bring with them costs which will reduce the number of members. In order to maximize the amount of sustainability externalities produced (efficacy for an activist sponsored club), the club should choose the right strictness of the standards and monitoring and enforcement procedures.

3.4 Club Theory and International Political Economy Research This section will point out where the theory of clubs approach stands in the IPE domain and how it relates and contributes to other theories. Political-institutionalist research Although traditional scholarship in International Relations is state-centric and downplays the role of private actors, various theories within IPE have concerned themselves with the study of SCIs, especially research focusing on global governance, civil regulation, regimes and authority. From the global governance domain, codes of conduct and rules that SCIs make, have been conceptualized as global civil regulation. The standards SCIs develop, implement and monitor, are similar to state and legal structures (Meidinger, 2006, pp. 48-49). Civil regulation can compensate for the shortcomings of public regulation and governance and could be the answer to a regulation gap. The legitimacy of civil regulation, governance and implementation is not rooted in public authority (Vogel, 2010, pp. 68-69). This results in concerns about the democratic legitimacy of such regulation: often, the input and output sides of legitimacy often do not meet the democratic demands of inclusive participation, transparency and accountability (Fuchs & Kalfagianni, 2011). In the absence of government-like

16

At this point, the theory differs from some other theories in IPE, see next section (3.4).

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organizations to effectively push companies to behave in a socially and environmentally responsible manner, the actions of SCIs can result in powerful ‘private regimes’17 (Haufler, Cutler, & Porter, 1999, pp. 16-19). SCIs may even be a strategy of business to forestall public regulation (Rowe, 2005, p. 4; Potoski & Prakash, 2013, p. 405). Other theorists are less concerned about the (potential) illegitimate power of SCIs. In their view, SCIs emerge from long-term political bargaining processes between governments, CSOs and firms on the question on how to regulate capitalism. Hence, SCIs have the consent of CSOs and governments and are legitimized by these actors (Bartley, 2009, p. 110). Governments are sometimes paralyzed because of WTO regulations, while SCIs do not face these restrictions (Bernstein & Cashore, 2007, p. 350; WTO, 2013). SCIs exist because of their popularity with governments and CSOs, because they can make it through the political process (Bartley, 2010, p. 2; Kotchen, 2013, p. 278). Certification is according to this political-institutionalist view not a solution to market problems, but a political settlement and institution building project. Position of the theory of clubs The aforementioned regulatory, democratic legitimacy, sociological and political bargaining perspectives can be complemented by the collective action research and the club approach. The club approach does not deny that SCIs take many forms, including government supported clubs or private bottom-up industry sponsored initiatives. Certainly, some may do more harm, green-washing activities of unsustainable firms, than produce sustainability externalities. The image of a political struggle for power and regulation does not inherently conflict with the theory of clubs perspective. The political bargaining process to regulate capitalism can be seen as a search for a response to market failures by rational actors pursuing their own interests. The emergence of clubs has been modeled in the club perspective as a game, where different actors – firms and activist – interact strategically (Baron, 2009; 2011). Activists, governments and firms have different interests but need each other. Exactly because of the legitimizing power, firms will take into account the interests of activists and governments when determining the standards and enforcement procedures.18 Political interests are not necessarily downplayed by the theory of clubs perspective, but their power is expressed in market forces. Firms are presumed to obey regulations for monetary reasons. Penalties for not living up to regulations are market penalties, directly or indirectly (Bartley, 2010, p. 7). This contrasts with the sociological view that actors may be intrinsically motivated to self-regulate and comply with the regulation. In this view, monitoring and enforcement of rules should not be emphasized, but rather roles and norms and socialization, which will discourage shirking (Rowe, 2005, p. 130). Hence, firms have ethical and social learning capabilities and may have an intrinsic motivation to do what is right. It relates to regime theory and constructivism: private regimes initiated by SCIs can create and change the scope of possible strategies perceived by actors to exist. Where this sociological approach emphasizes the global governance trend and shaping factors in the gradual development of actors’ interests, the theory of clubs approach takes one snapshot of this Following the definition of Krasner, regimes are ‘implicit or explicit principles, norms, rules and decisionmaking procedures around which actors’ expectations converge in a given area of international relations’ (Hasenclever, Mayer, & Rittberger, 1997, p. 9). 18 Barons contribution will be further elaborated upon in section 5.3. 17

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development: interests of actors are given and the analysis focuses on how SCIs should be designed to fit their members’ characteristics to be as efficacious as possible. The theory of clubs approach offers unique insights, conceptualizing politicized problems like global poverty and environmental degradation as market failures and inability to solve these as collective action problems. Clubs, correctly designed, are a mechanism to curb the collective action problems and address the market failures. The maximization of positive sustainability externalities is unique to activist sponsored SCIs; the goal of the club is production of sustainable public goods that can be enjoyed the whole population, also non-members. The club approach is not an all-encompassing International Relations (IR) or political theory, but analyzes SCIs on an ad hoc basis in terms of efficacy. Kotchen (2013, pp. 291-292) proposes that future research should incorporate many clubs by measuring the impact of different clubs, modelling competition and the evaluation of standards over time. Such a less ad hoc - investigation with consideration of wider global governance developments should be informed by politicalinstitutionalist insights, emphasizing democratic legitimacy, the formation of interests and the struggle for power in global governance. How the previous material will be applied in subsequent chapters In the subsequent chapters, the club approach will be applied critically to the case of UTZ. On the basis of what has been discussed in this chapter, a more detailed strategy to answer the sub-questions of this thesis can now be outlined. For the first sub-question - which important theoretical concepts are applicable to UTZ – the concepts can be specified: club membership, club benefits, club sponsors and the club’s goal (or viewpoint). Whether the concepts make sense in the case of UTZ certified, and how they are interrelated will be the focus of section 5.1, based on information given in chapter 4. With regard to the second sub-question which deals with club efficacy, it is now possible to conclude what efficacy is according to the club theory approach. Efficacy is measured in terms of sustainability externalities produced (activist club) or club benefits produced (industry club). In order achieve this production, two collective action problems should be curbed: free-riding and shirking. Hence, in section 4.1 attention will be paid to these two features of club design. In section 5.2, these design features are analyzed according to a framework proposed by Prakash and Potoski. In addition, in order to evaluate whether this perception of efficacy of the club approach is shared by the organization of UTZ in chapter 5, the pursuit of efficacy by UTZ is discussed in section 4.1. The results of the evaluation of this latter question will also be discussed in relation to sub-question 1, as it deals with the applicability of the concept of ‘efficacy’ in the perspective of the theory of clubs to UTZ. Finally, the strategy to answer the third sub-question - dealing with the development of the organization - can be specified. According to the club approach SCIs emerge as a result of rational assessments of private actors who are motivated by self-interest to found or join a club. A way to determine the strictness of the standards has been modeled by Baron (2009; 2011) and his work will be used to analyze this process in UTZ. As for the development of the organization after its creation, the ideas of maximization of sustainability externalities, congestion and optimal membership are crucial for the club approach. Section 4.2 elaborates on two developments that stand out in the development of UTZ and section 5.3.2. analyzes them from a club perspective. 19

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4. UTZ Certified This chapter will discuss the efficacy, emergence and organizational development of UTZ. It is divided into two sections: the pursuit of efficacy by UTZ and the emergence and development of the organization. This sequence is not chronological, but it serves the structure of the analysis in the next chapter better. Chapter 5 mirrors the structure of this chapter almost perfectly, with the only exception that chapter 5 starts with one section discussing the applicability of the theoretical concepts to UTZ. Information retrieved from the interviews with Ward de Groote, co-founder of UTZ and Managing Director of ACC at the time, and Henk Gilhuis, Director of the Department of Monitoring and Evaluation, will be used in this chapter.

4.1 UTZ’s pursuit of efficacy Efficacy is ‘the ability to produce a desired or intended result’ (Oxford Dictionaries, 2013). This section will discuss how UTZ produces which intended results. As was discussed in the previous chapter, the theory says the intended results (or goals) of a club depend on the identity of the sponsoring actor. In this section, the pursuit of efficacy of UTZ will be outlined. In the next section about the development of the organization, information about the governance of UTZ (and identity of the key sponsoring actor) will be given. Before we can go into detail about how UTZ specifically intends to produce the intended results, the position and functioning in the supply chain of SCIs in general will be discussed. The coffee chain will serve as an example. Afterwards, UTZ’s activities and perspective of efficacy will be discussed. This will shed light on who can be considered the ‘members’ of the club, what can be considered the ‘product’ of the club and what is the ‘goal’ of the club. Then, the standards and monitoring and enforcement procedures, central to the framework of efficacy constructed by Prakash and Potoski, will be described. Finally, impact studies researching the efficacy of UTZ will be discussed. 4.1.1 Position and functioning of SCIs

Figure 4: Coffee supply chain (TCC, 2009, p. 9)

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Figure 4 depicts the coffee supply chain (representative of other tropical commodity supply chains UTZ is active in, most importantly cocoa and tea). Coffee is grown at smallholder farms or at larger estates.19 Twenty-five million smallholders produce eighty percent of the world’s coffee (Fair Trade, 2013, 2). The smallholders sometimes organize themselves in cooperatives, but this does not have to be the case. After the coffee is produced (ninety percent of the world’s coffee is produced in developing countries), the coffee is exported to industrialized countries, often via traders such as Neumann Gruppe, Volcafé and ECOm. who together trade more than fifty per cent of the world’s green coffee (Wegner, 2012) Then, the coffee is roasted, which adds the most value and the biggest profit margins. Four large transnational corporations (TNCs) -Kraft, Nestlé and Sara Lee and Tchibo- occupy fifty percent of the world’s coffee market (Oxfam, 2010, p. 12; Arnouts, 2012). The roasters sell their coffee via retail or catering to the consumer. Because of the powerful position of the large roasters, the coffee chain is regarded as an example of a ‘buyer-driven’ chain (Ponte, 2004, p. 3; Arnouts, 2012).20 The term ‘buyer’ refers to the large roasters21 and should not be confused with consumers. Also, a ‘farmer’ can be a wealthy owner of a large estate, or a smallholder farmer. 22 Emergence of SCIs in the coffee chain The buyers have not always had this powerful position in the chain. The chain went through a big transformation in the 1990s. Before 1989, the producing countries’ governments were powerful actors in the chain due to an export quota system of the International Coffee Organization (ICO) that had existed since 1962. Producing countries and consuming countries negotiated agreements, to make sure coffee would not be excessively supplied and the price would be maintained between the agreed range of 120-140 US dollarcents/lb (ICO, 2014). Producing countries’ governments often intervened in the national coffee sector; the coffee was sold through state-controlled monopolies and public enterprises (Akiyama, 2001, p. 83). In 1989 the quota system of the ICO collapsed, because of the inability of member countries to agree on the distribution of new quotas, difficulties the ICO experienced with monitoring the quotas and the implementation of neo-liberal policies advocating deregulation, privatization and open markets in important countries such as Brazil (Muradian & Pelupessy, 2005, p. 234). The ICO is still involved with the coffee industry, now functioning as an intergovernmental discussion forum and a collecting data agency. After the collapse of the quota system, the coffee market became very volatile leading to a coffee crisis. For years, governments had accumulated stocks of coffee due to the export quota. When the system collapsed, all these stocks flowed onto the global coffee market, causing a sharp decline in price (UNCTAD, 2003, p. 14). Many farmers were left in poverty, decreasing health and education possibilities for their families and forcing them to migrate to the cities. Because many national economies of the producing countries were dependent on coffee for their foreign exchange, they were

Smallholders own less than 5 hectares of land, large private estates more than 50 (Hortons, 2012, p. 5). A buyer driven chain “refers to those industries in which large retailers, marketers, and branded manufacturers play the pivotal roles in setting up decentralized production networks in a variety of exporting countries, typically located in the third world.” (Gereffi, 2001, p. 30). 21 Sometimes, roasters and retailers are one company, like Starbucks or ACC. 22 A commodity producer refers to the farmer. 19 20

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destabilized (Akiyama, 2001, p. 86). Buyers became more powerful at the expense of the producing countries’ governments. Where earnings for producer countries were 10-20 billion with a value in retail sales of 30 billion USD in 1990, ten years later producers received 5.5 billion with a value in retail sales of 70 billion dollar (Kolk, 2005a, p. 230). As from the mid-1990s activists started exerting pressure on business. For example, in 2002, Oxfam launched a campaign against the big roasters in the coffee industry called ‘Mugged: poverty in your coffee cup’. This campaign was a reaction to the coffee crisis that impoverished coffee farmers and Oxfam held the big roasters Kraft, Nestlé, Procter & Gamble and Sara Lee responsible (Oxfam, 2002). These campaigns coincided with changes in consumer preferences and food safety crises in the 90s. Consumers were increasingly concerned about the way the product was produced, whether it was healthy, safe and sustainably produced by a farmer that could make a living (Ponte, 2004, pp. 10-13). Also, the coffee market saw a quick development of specialties coffees one of which was sustainable coffee. Coffee was drunk in new environments like the luxury Starbucks chain and the sustainability claim contributed to the feeling of luxury (Arnouts, 2012). Often, the roasters responded to these pressures with a code of conduct (CoC) and in order to make these CoCs credible, certification initiatives arose (Kolk, 2005a; Linton, 2005; Ingenbleek, 2009). Certification initiatives Certification initiatives bridge the information gap between the consumer drinking the coffee and the farmer producing the coffee cherries. This information is also called the ‘credence attributes’23 of a product. The production standards and monitoring and evaluation procedures of certification organizations differ. Certification initiatives in the coffee sector that determine the competition landscape for UTZ are Max Havelaar/Fair Trade and Rainforest Alliance (RA). Table 4 introduces the characteristics of the different certification organizations. The SCIs focus on different aspects of the coffee supply chain: Fair Trade Labeling Organization (FLO) focuses on smallholder cooperatives, on social standards and is consumer oriented: consumers pay a price premium for the FLO credence attributes. Rainforest Alliance and UTZ partner (mainly) with large estates. An important difference that distinguishes FLO from UTZ and RA in its application of a fixed price premium. The market share of certified coffees is increasing rapidly and the leading companies have ambitious goals: Nestlé, Kraft, Tchibo and DE Master Blenders have set the goal to increase the sale of sustainable coffee24 to 25 percent of total sale in 2015 and the Dutch coffee sector aims for three quarters of the sale in the Netherlands to be sustainable in 2015 (IDH, 2012).

Credence attributes are the attributes of products that are different from physical or performance characteristics, because they cannot be observed by consumers. They can include the conditions under which the product is produced, how workers are treated and how well they are paid (Baron, 2009, p. 41). 24 Sustainable coffee is coffee that is certified by any of the certification initiatives (except for the 4C Association, which focuses more on a change in mindset within the industry than actual production practices and certification). 23

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Table 4: Three SCIs in the coffee chain

Certification and logo

Fair Trade

UTZ Certified

Rainforest Alliance

Country of origin Club sponsor*

The Netherlands

The Netherlands

USA

NGO (Fair Trade Labelling Organization) Ensure equitable trading arrangements for disadvantaged smallholders who are organized into cooperatives. Began in 1970s as Max Havelaar in the Netherlands. Now several national organizations under the umbrella of the Fairtrade Labeling Organization (FLO). Coffee first labeled product in 1989. Cooperatives

industry/NGO

NGO (sustainable network organization) Integrate productive agriculture, biodiversity conservation, and human development.

Goal of the club**

Development of the club

Main partners *** Standards for farmers*

Smallholders organized in democratically run organizations, ban on most toxic pesticides, integrated crop management.

Creating a world where sustainable farming is the norm.

Started as an initiative of Ahold Coffee Company in 1997, officially launched independent certification program in 2002.

Began in 1992 by Rainforest Alliance and a coalition of Latin American NGOs. First coffee farm certification in 1996.

Cooperatives and large estates GAP and worker welfare, based on adaption of EUREPGAP standards25, International Labor Organization, traceability and food safety.

Large estates Sustainable farm management, integrated pesticide management, worker welfare, community relations, biodiversity conservation through maintenance of shade cover or protection and restoration of native forest reserves.

Commercial conditions****

Fixed premium; PreNegotiable price Negotiable price premium financing and long term premium relationship and premium to balance demand and supply Sources: * (Raynolds, Murray, & Heller, 2007, pp. 152, 155) ** (Coffee Coalition, 2006, p. 5) *** (Muradian & Pelupessy, 2005, p. 2037) **** (TCC, 2009, pp. 6-7)

EUREP-GAP was an initiative led by European retailers to outline broadly accepted good agricultural practices (GAPs) in response to food-safety crises in the 1990s (Auld, 2010, p. 217). 25

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4.1.2 The pursuit of efficacy by UTZ In order to describe the pursuit of efficacy of UTZ, we should know which goals UTZ pursues and in what way. Gilhuis explains that UTZ aims to create benefits for both producers and buyers in the hope this will set in motion a structural change, creating a world where sustainable farming is the norm. The Theory of Change26 visualizes this process. Theory of Change As described in the Theory of Change, UTZ is active in four categories of action undertaken at the farmer level and the industry/sector level. These activities should eventually change the whole supply chain (Gilhuis, 2013). The four categories are: 1. Field Development 2. Standards and Certification 3. Traceability 4. Market Development Actions in these four categories should accelerate a process of change on the farmer level, in the supply chain and on the market level. Examples of activities are: for field development, the training the farmers and designing effective training sessions; for standards, the creation of a meaningful Code of Conduct; for traceability and monitoring, creating and maintaining the on-line traceability system of the Good Inside Portal; and for market development, marketing activities. These activities contribute in various ways (as indicated by the arrows) to the following outcomes: 1. Farms are economically viable and resilient: they are better able to recover from and adapt to shocks; 2. Farmers who implement good farming practices with respect for people and planet are able to make a decent income; 3. Farmers, workers and their families have a decent standard of living including housing, water, sanitation and food security; 4. Farmers, workers and their families enjoy better health; 5. Children of farmers and farm workers go to school; 6. Natural resources are safeguarded for future generations; 7. Green House Gas emissions per unit of produce are reduced; 8. Biodiversity is better protected. Unfortunately, the Theory of Change document is still a working document; the colors, numbers and shapes are not defined yet. One should be aware that there is a difference between ‘attribution’ and ‘contribution’; when UTZ farmers implement good agricultural practices, this can be attributed to UTZ. Thereby UTZ contributes to a more sustainable world. The contribution is thus more indirect (Gilhuis, 2013). The Theory of Change document does not separately indicate the goals that can be attributed to UTZ and to which goals UTZ contributes. It is still a useful document, as the activities are clearly listed (in the third column) and the arrows indicate how UTZ envisions how these activities contribute to the (direct or indirect) goals it has set.

26

See Appendix E.

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Benefits and costs for buyers The activities of UTZ can only lead to structural sustainable changes by creating benefits for buyers and farmers. There are three types of benefits for buyers (or roasters): firstly, benefits with the characteristics of club goods. As buyers can be more certain the commodities used are produced in a responsible manner, the certification serves as a proof of their CSR policy. The provision of good reputation and management of reputation risks are the branding benefits. Another example of benefits with the characteristics of club goods is fewer food security risks. In Europe, there are ceilings for certain kinds of chemicals and buyers need to check this and not sell the product if it exceeds the maximum. If the farmer adheres to GAPs, this loss is prevented. Another case is the Japanese food law of 2006, that requires importers, traders and food processors to demonstrate that certain chemicals are not used in production. UTZ provides a way for these actors to demonstrate compliance to these laws by sending along a guarantee form through the chain (UTZ , 2007, p. 7). Secondly, there are private benefits. De Groote shares from his own experience that the direct relationship with the producer through UTZ Certified resulted in private benefits for ACC. Buying directly from the farmer meant that the beans were more fresh: they did not have to go to the market and in stock. This resulted in better quality blends, which could be sold at higher prices. As it was not necessary to use jute sacks, instead the beans went straight into the container, more beans could be carried in one cargo reducing logistical costs. There was cost reduction because of the elimination of the distributive traders as well. Lastly, on the longer term, UTZ produced positive sustainability externalities, like improvement of the capabilities of the supply base. There are many inefficiencies in the chain, like the use of too much fertilizer in Vietnam that are economically inefficient and endangers the food safety (COSA, 2013, p. 17). Eventually, the chronic poverty and bad circumstances in a supply base threatens the sustainability of the supply chain and backfires on the buyers. An example Gilhuis mentions is the ageing problem in the cocoa sector: the average age of a cocoa farmer in Africa is 55 years. According to Gilhuis, this is a result of the lack of investment in education, health care and market institutions. By training farmers and professionalizing their farming and management practices, the roasters secure their supply base (Gilhuis, 2013; de Groote, 2013). De Groote and Gilhuis claim that initially reputation management is the main motivation of firms to join UTZ, and that those structural supply base advantages are of lesser importance. That reputation management is the main motivation of businesses to join UTZ is supported by Kolk (2005a, p. 231), who says that Sara Lee, with its brand Douwe Egberts, joined UTZ in 2004 only after increased pressure by Oxfam International, who gave the roaster the lowest scores in sustainability, and emphasized “there was nothing to celebrate” when the company was celebrating 250 years of Dutch activities. The costs for the buyers are as follows: firstly, roasters pay a fee per kilogram27 to UTZ, which covers part of the operational costs of the organization, traceability system, regional assistance and marketing materials. Secondly, if they buy from a trader, they reimburse the costs this trader makes to keep the certified commodity separated from non-certified commodities. Finally, they often pay a price premium to the farmer, which has ranged between 4 and 5 US dollar cents per pound of green 27

For coffee, this fee is $0,0265 per kg of green coffee (International Trade Centre, 2013).

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coffee since 2005 (UTZ , 2008, p. 10; 2013a, p. 14). This is lower than the other SCIs; FLO pays a fixed social premium (apart from the guaranteed minimum price) of 10 cents. RA does not structurally report the premiums paid in the program, but according to the State of Sustainability Initiative report (2010, p. 79), the premiums range from 4 to 14 cents with an average of 11 cents. Benefits and costs for farmers UTZ is an empowerment model for farmers: UTZ provides training sessions on GAPs, management skills and negotiating skills. These training sessions should enhance efficiency through extensive record-keeping, good management practices (when they manage a large estate) and make their business sustainable in the long term. Benefits with club good characteristics are the certified coffee market and for example, the (online-) workshops on GAPs. Moreover, there is anticipation of a price premium for the crops. This price premium has to be negotiated with the buyer. UTZ does not interfere in this process, but does provide the farmer with information about what price premiums have been negotiated for the commodity in question in that region. UTZ keeps record of this through the obligation of farmers and buyers to enter the price paid in the online track and trace system. This way, the program improves the terms of trade of the farmer as he changes from a price taker to a price negotiator. The main objective is a better price and better products. Private benefits differ per farmer, but could include more yield, less use of fertilizer and a more motivated workforce (in the case of a large estate) (UTZ, 2005, p. 6; Gilhuis, 2013). 28 The costs for the farmer are firstly the costs associated with improving their practices to adhere to the CoC and secondly the costs for the audit of the Certification Body (CB).29 A consequence of these costs is that in practice UTZ actually certifies either very large estates or cooperatives of farmers because smallholder farmers cannot afford to pay for the audit. Therefore, UTZ provides an incentive for smallholder farmers to organize themselves in cooperatives (Gilhuis, 2013). Other supply chain actors: traders and consumers Other actors associated with UTZ are traders, that are certified according to the chain of custody requirements, if they physically relocate more than 50 metric tons of UTZ commodities per year. This kind of certification has been implemented since 2005 (UTZ, 2013a, p. 24). Certified traders can enter the online traceability system. For each commodity, there are specific ‘chain of custody’ requirements that are very technical in nature, focusing on quality control and traceability (ibid.; Gilhuis, 2013). The costs that these firms in the chain of custody make are passed on entirely or partially to the buyers. UTZ does not prescribe or follow that however, it depends on the relation between the firms and their buyers. In practice, this means that the cost for the traceability are paid for either directly or indirectly by the buyers in the chain.

Sustainability externalities are the same as for the buyers. (International Trade Centre, 2013). According to Gilhuis, the average is one thousand euros. 28

29 The costs vary between 500 and 4500 USD per audit

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At the end of the supply chain one finds the consumers. UTZ certifies own brands and does not operate in niche markets: consumers do not pay for the credence attributes.30 This differs from many other SCIs, like FLO31, who focus on consciously buying consumers that are willing to pay more for the credence attributes provided, a ‘farmer to consumer model’. The farmer to consumer SCIs do establish niche markets; the product has different attributes and consumers pay a premium for those attributes. UTZ does not focus on these types of consumers. Although the website of UTZ does mention that value is created for consumers, there are no costs involved for the consumers (UTZ Certified, 2013). Therefore, UTZ has a ‘buyer to farmer model’ or a ‘business to business model' (Kolk, 2011, p. 5). Says De Groote: “UTZ works, because it is close to business […] The assumption that consumers have the final word does not hold.” This difference is important for later analysis according to the theory of clubs, as it has implications for who should be considered the club member, what ‘population’ is relevant for UTZ, what the intended result is of UTZ and how the organization tries to achieve that.32 4.1.3 The Code of Conduct The basis for the production of benefits is the CoC that ensures that a certified farmer employs more sustainable agricultural practices which in turn is the basis of the reputational value of the buyer. The CoC is the production standard of UTZ, the strictness of which is one of the two key design features identified by Prakash and Potoski determining efficacy. To determine the strictness of the CoC of UTZ, details will be given about how the CoCs are designed and work and what their relation is to national and international law. The CoC is based on the EUREP-GAP Protocol for Fruits and Vegetables. There are many different codes: one general one for coffee, two for cocoa (one for individual certification and one for group certification), two for tea (one for farmers and one for factories) and two for rooibos (one for processing and one for production). UTZ certifies both individual farmers and groups of farmers, which can be an association of producers or an exporter who organizes the contracts for the producers. When there is group certification, there must be an ‘Internal Control System’ in place, a quality management system that indicates how to improve the organizational skills and performance and guarantees that all members are complying with the CoC (Gilhuis, 2013). Producers can thus be either individual farmers or groups and will be referred to as the certificate holder. Each code has a certain number of control points, either mandatory or additional.33 The CoC is partly based on national and international legislation. For example, there are ten International Labor Organization (ILO) conventions incorporated in the CoC. Furthermore, the

The buyers of UTZ are mainstream roasters. The certification seal is used on own brands of supermarkets and budget product lines, to luxury products. Although perhaps some buyers do, for simplicity reasons it is assumed that none of the buyers has passed-on the costs of the certification to the consumers. 31 Other examples include the Forest Stewardship Council (FSC) and Organic. 32 For a depiction of a business to business model, see UTZ depicted as a club at the end of section 5.1 and consider the difference with a consumer to farmer model in appendix C. 33 Additional control points entail that some have to be complied with and others are only recommended. Additional control points are for example, ensuring that farming practices do not interfere with national parks, use natural species to create shade and reforest land that is not useable for agriculture. Every year some additional points that were optional become mandatory until the fourth year. 30

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strongest national environmental regulations apply to ensure that the commodity can be sold all over the world. For example, for the use of fertilizers, farmers are not allowed to use fertilizers that are non-approved by countries, regions or international agreements and codes.34 This way, the standards are stricter than most national regulations, because different national or regional laws are applicable. Other control points are meant to help farmers interpret general good practices and make them more detailed. An example of such a control point is the interpretation of ‘responsible use of fertilizers’ by indicating that after usage the cup used for fertilizers should be treated as follows: “rinse the cup three times and perforate it to prevent re-use” (UTZ, 2012, p. 8). Development of the code Initially the CoC was improved every two years to assure that it remained up to date and accepted. For example in 2006, special attention was paid to smallholder accessibility (UTZ , 2007, p. 14). As per 2010, the Code Development Procedure complies with the ISEAL35 Alliance Code of Good Practice for Setting Social and Environmental Standards. The ISEAL procedure requires that the Codes are revised every five years after several rounds of stakeholder consultation. Currently UTZ plans to merge the different codes into two core code modules (one for individual and one for group certification), in combination with a commodity code for coffee, cocoa, tea and rooibos. The emphasis in every module will be more similar, because there are four blocks: Management, Farming Practices, Working Conditions and Environment (UTZ, 2013c, pp. 4-7).36 4.1.4 Monitoring and enforcement procedures The second key club design feature according to Prakash and Potoski, are the enforcement and monitoring procedures. Stricter monitoring and enforcement makes the club more credible and thus the reputation more valuable, but at the same time membership more expensive – especially for the farmers. This section will outline the procedures to get certification as a farmer and how they are monitored afterwards. Then, possibilities and probabilities of ‘cheating’ will be discussed. The claim that a farmer produces according to the CoC needs to be verified. The process for farmers to get certification is as follows: firstly, one should register with UTZ and receive a checklist of the CoC and apply the criteria at the farm or cooperative. Next, a CB should be hired by the farmer or group of farmers to inspect the candidate certificate holder. If the requirements are found to be met, a certificate is granted (UTZ, 2005, p. 6). CBs are independent organizations who are trained to conduct inspections on behalf of the UTZ CoC and Chain of Custody requirements. The costs of getting certification depend on the CB hired, as the CB determines the price for the audit.37 Upon obtaining Examples include regulations from the European Union (EU), United States of America (USA) or Japan or chemicals that are classified by the World Health Organization in 1a or 1b, are identified as Persistent Organic Pollutants (POPs) by the Stockholm agreement, or are included in the Annex III of the Rotterdam Convention, or are on the Pesticide Action Network (PAN) dirty dozen list. 35 ISEAL (Alliance) stands for the International Social and Environmental Accreditation and Labelling Alliance. After becoming a full ISEAL member in 2010, the Code is revised according to the requirements of this organization (UTZ, 2010). 36 At the moment of writing, the code was in the second stage of the revision process. 37 From 2006 onwards, UTZ has increased the number of these CBs in order to increase competition and drive the certification costs down for the farmers. To increase the number of producers that are certified, the producers (especially smallholders) must be helped and supported to comply to the CoC. Although UTZ 34

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the certificate the farmer has the right to sell the coffee as UTZ certified and enter the online traceability portal. Every year, the CB checks whether the farmer or the cooperative is still living up to the standards. Additionally, ten per cent surprise audits are conducted, at the CBs discretion (UTZ, 2012, p. 20). The basis for the audit in the case of group certification is the internal control system. The CB checks if all the numbers and procedures are functioning correctly. Afterwards, the CB takes a random sample (Gilhuis, 2013): if farmers in the cooperative do not comply and this has not been reported to the CB in advance, the certificate holder must take corrective actions within twelve weeks. If this corrective action is not undertaken, the CB suspends the certificate for three months, or longer if more mandatory control points are not complied with. At the end of the suspension period, the CB conducts an audit again to check if all control points are complied with. If the certificate holder does not comply with the points again, the certificate is withdrawn and a new certificate for the next period cannot be issued. If the certificate holder did report the non-compliance, he or she should take corrective measures before the next external audit. The non-compliances are reported to UTZ in the online traceability portal (UTZ, 2012, p. 26). Cheating Group certifications are more vulnerable to cheating, especially when there is a large demand for certified coffee. There is a risk that non-certified coffee will flow into the supply of the cooperative 38 (Fox, 2007, p. 51). Gilhuis explains this using the hypothetical case of a farmer in a group of a thousand farmers claiming to have produced a hundred bags of coffee, while in reality he only produced fifty and bought the other fifty from his neighbor who is not certified. In this case, he will only get caught if he coincidentally is checked by the audit. A second possible way of cheating is selling coffee bought as ‘regular’ coffee as if it were UTZ certified by the buyer or trader.39 This way of cheating is very difficult, because of the certified chain of custody and the “state of the art” traceability system that has many precautionary measures (Gilhuis, 2013). Selling regular commodities as UTZ almost never happens, but there is of course no absolute guarantee. When it does happen, UTZ “carpets the company” (Gilhuis, 2013). Selling UTZ as regular is a much bigger problem: “you drink certified coffee more often than you think!”, Gilhuis says. This is a problem of leakage, which affects the farmers who have invested a lot in the audit and in more sustainable practices but do not receive a premium for their efforts (ICO, 2012). In 2009, UTZ Certified farmers produced 308 thousands bags of coffee, but only 78 thousands of those were actually purchased as such (TCC, 2009, p.16). The other independent noncorporate certification initiatives have similar results. In 2010, the production of sustainable coffee was 16 per cent of the global production, and the sales 9 per cent (Wegner, 2012). previously performed this task too, there were possible conflicts of interest: getting the producer certified was in the interest of UTZ too. Therefore, the Coffee Support Network (CSN) was created in 2005 to provide support to groups of small-scale coffee growers to obtain certification. CSN is an external body, managed by Solidaridad. and funded by Solidaridad and other CSOs that channels funding and expertise to producers, builds local capacity for technical assistance and certification and establishes connections with other development programs and creates public-private partnerships (UTZ , 2007, p. 14). 38 This way of cheating will be referred to as farmer-level cheating. 39 This way of cheating will be referred to as chain of custody-buyer level cheating.

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4.1.5. Evaluation of UTZ’s pursuit of efficacy Efficacy of a SCI-club is hard to evaluate, because it is often hard to establish which effects can be attributed to an SCI and in which way and to what extent a SCI contributes. In any case, evaluation should be done by third parties (in this respect, Gilhuis mentions a Dutch saying, an old slogan of the cleaning product WC Eend which literally translates as: “We of WC Eend recommend WC Eend”). UTZ cannot evaluate its own impact: part of the stakeholder management and credibility assurance is letting external, independent parties investigate the impact of UTZ (Gilhuis, 2013). Only a limited amount of evaluation reports is available and they all have different methods for measuring the impact. In this section, four reports are discussed. The first report is about the impact of the Cocoa Improvement Program (CIP), of which UTZ is one of the founding and most important contributing organizations, written by consultancy firm KPMG. KPMG is for the most part positive. The CIP is assessed on four significant changes (KPMG, 2013, p. 13). The CIP contributed to: a) The professionalization of producers by improving knowledge and skills on good agricultural practices. The training sessions were effective and the more training sessions, the better the GAPs were implemented by the farmers. Moreover, they had more knowledge about saving in banks, and more knowledge about the quality of the products which increased the negotiating power. This professionalization contributed to more trust between actors in the supply chain. An improvement point is that the CIP was focused on relatively well-organized and easily reachable cooperatives. b) Improving the willingness to invest in the cocoa sector by the private sector and to create more public-private partnerships. The contribution of CIP to this goal was praised, because of the strong standard that they created, yield improvement and provision of financial support. c) Establishing sustainability as an important value in the cocoa sector and accelerating the mainstreaming of sustainable cocoa. CIP contributed to this mainly because of the right timing and rapid expansions. A downside of the speed of these expansions was that only 46 per cent of the sustainable cocoa produced was sold as certified, the rest was sold as regular cocoa. d) Increasing value creation by producers by improving cocoa quality and lifting yields which contribute to improved livelihoods of producers. As mentioned, not being able to sell all cocoa as certified meant that farmers did not have a positive return on the investments. The value creation thus depends on increasing yield. The quality of UTZ cocoa is higher than regular cocoa. In general, KPMG concluded that certification changes the supply chain for the better, but public-private partnerships and timing are of key importance. Training is an effective tool to professionalize farmers. Points of improvements are to gain more insight in the low percentage that is sold as certified cocoa and to reduce the costs for farmers to get certified. Moreover, they indicated that the quality and quantity of auditing was harmed because of the rapid expansion. One international manufacturer states in the report: “it is only anecdotal evidence, but plenty of suppliers are coming to us and saying that there are farmers who are certified today who have never received any training” (KPMG, 2013, p. 46). 30

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The second report is a research conducted by COSA on UTZ certified coffee farms in Vietnam (COSA, 2013). COSA investigated certified coffee farms in Vietnam and a control group. The certified farms used significantly less agrochemicals than the control group while yielding the same results. The certified farmers did not earn much higher profits and neither were the people’s working and living conditions much better, but on average the working conditions in Vietnam are good because of the strong national social legislation. Half of the farmers perceived quality improvements of their coffee through certification. The buyers, however, perceived a big difference in quality – but as the farmers did not recognize it they were not able to negotiate a premium. A third report written by Consumers International also finds that the premium of UTZ is not that high and the marginal profit does not increase for farmers. UTZ compensates this through increased market access and the ability to negotiate long-term contracts (Consumers International, 2005, p. 54). A fourth investigation worth mentioning is the one by Verkaart (2009, p. 54), who found that Ugandan coffee farmers had better quality and better productivity but this did not have an immediate influence on household income, although in the longer run this can be the case. Farms with certification had better labor conditions and living standards. In sum, the impact reports provide the following conclusions about the impact of UTZ: the training is effective, but there are loopholes in the auditing. GAPs are implemented better on certified farms, but this does not immediately result in better income for the farmers. Value creation for the farmers is not optimal, no information on the value creation for buyers really exists – except for the fact that the coffee industry is not under fire anymore and the value creation which is implied by the growth of UTZ. There are ways to cheat and this happens, but no cases have been found about false UTZ claims. The second section in the next chapter, 5.2, will put these results in the perspective of the club theory.

4.2 Emergence and organizational development of UTZ This section provides the information necessary to investigate whether the club approach can account for the development of UTZ. To that end, firstly the formation of UTZ will be described and next, two significant organizational developments will be expounded: the growth of the organization and the change in governance structure. The growth of the organization is interesting for club theory as it deals with the club size. The governance structure is interesting, as we have seen that sustainability externalities are indeed included in UTZ’s Theory of Change and are an important goal of the organization. To decide whether UTZ principally aims to maximize sustainability externalities (activist club) or the club benefits (industry club), the key sponsoring actor needs to be determined. Formation of UTZ Section 4.1.1. has outlined the dynamics in the coffee sector at the moment of the formation of UTZ: liberalization and the following shift in power in the value chain from producers to buyers, the coffee crisis and the activist pressure on buyers to take responsibility and the emerging SCIs in the sector. This section will outline the process of the formation of UTZ and point out the crucial elements.

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Pressure on ACC The emergence of UTZ in the Netherlands is often explained as a reaction to the emergence of the FLO, functioning as the ‘conscience of the coffee market’ (Abbing, 2002; Wageningen UR, 2012). The presence of Fair Trade products on the shelves reflected negatively on the characteristics of the basic products. The Agricultural Economic Institute (LEI) has made a categorization of certification organizations concluding that ‘size-seekers’- certification organizations with lower standards and broad scope, seeking many members like UTZ – often respond to ‘idealists’ with higher standards (Ingenbleek, 2009, p. 19). In section 5.1.2. the standards of FLO and UTZ are compared and the conclusion is reached that FLO indeed has higher standards than UTZ. De Groote echoes this conclusion by stating that FLO was a point of concern because it accused the mainstream coffee roasters of child labor practices and severe poverty at the estates. ACC could not confirm nor deny the claims as it did not know who produced the coffee. More urgency to react to the accusations was due to criticism by Minister Herfkens of Development Cooperation who questioned the sustainability and traceability of the products of ACC in 1996 (Vermeulen, 2010, p. 49). The Board of Ahold took action to revise its sourcing practices afterwards and asked De Groote to find out under what circumstances the coffee was produced. He came to the conclusion that the production circumstances were not all that bad and claims that seventy-five per cent of the farmers produced under acceptable circumstances (De Groote, 2013). 40 Creating a certification organization Size-seekers more often react by having a sustainability strategy in order to respond to critical questions of CSOs, than by establishing a certification organization (Ingenbleek, 2009, p. 19). In the case of UTZ, the idea of creating an independent certification organization was the idea of the founders De Groote and Blocklandt (Arnouts, 2012, p. 84). Ahold supported UTZ from the beginning and financed it, but De Groote emphasizes that he had difficulties persuading the Board initially – stating they saw him as an idealistic “scouts club”. It took personal dedication of De Groote (and entrepreneurship) within the company to follow through. De Groote says he wanted to make UTZ independent because of credibility considerations (Gilhuis, 2013; De Groote, 2013). There was criticism from Max Havelaar and the Coffee Coalition41 on UTZ that the initiative was taken too much in splendid isolation (Abbing, 2002). The organization started negotiating with other actors like Cordaid, the Nationale Postcode Loterij and the Rabobank. The choice not to involve CSOs from the beginning was a conscious choice, says De Groote: “if I had let them in at the beginning, the bar would have reached the ceiling.”42

Pressure on ACC increased, because of the characteristics of ‘reputation’ of a ‘good held in common’ in the industry. See 5.3.1 for further discussion on how the increased pressure is due to the characteristics of ‘reputation’ and 5.3.2 for a discussion how this leads to UTZ’s buyer to producer model and growth. 41 The Coffee Coalition was part of the Tropical Commodity Coalition, a coalition of CSOs and trade unions that focused on cooperation between different stakeholders in tea, coffee and cocoa to improve social, environmental and economic conditions. The TCC has stopped its activities in January 2012 (TCC, 2012). 42 To see how the interaction between activist and industry can be modeled, and how this leads more or less strict standards, see section 5.3.1. 40

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Growth and expansion to other commodities Over more than ten years, the organization of UTZ developed in many different aspects. In the following paragraphs an overview of the development of UTZ is given. The data and information used in this section are derived from the annual reports UTZ issued from 2004 until 2012, unless otherwise specified. The timeline in appendix D summarizes the most important changes in every year. The foundation, formally established in 2001 was launched publicly in 2002. The first clients were the supermarkets of Ahold, Albert Heijn in the Netherlands and the ICA supermarkets in Sweden. Casino supermarkets in France were soon to commit as well, because of the good relations built through their partnership in the European Retail Alliance (Moore, Bruce, & Birtwistle, 2004, p. 5). The commitment of Sara Lee was a boost for UTZ, because it was the first big non-Ahold affiliated partner. Over the years, Sara Lee stayed committed and more clients like McDonalds Europe, Coca-Cola Japan and IKEA joined. The amount of coffee produced by certified farmers increased rapidly, as represented in graph 1. UTZ became an important player not only in the sustainable coffee market, but in the coffee market as a whole. In 2012, eight per cent of the global coffee harvest was produced by UTZ certified farmers (see graph 1) and in 2010, the market share of UTZ coffee reached more than 40 per cent in the Netherlands (UTZ, 2013b).

Graph 1: Development of UTZ's coffee production

Apart from this growth in coffee activities, UTZ broadened its activities towards other commodities and experienced growth in these commodities as well. In 2007, UTZ kapeh changed its name to UTZ Certified to incorporate these planned expansions and as of that year it expanded to cocoa, tea, palm oil and cotton. UTZ cocoa production grew quickly when companies with luxury products and more 33

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basic products joined: from the luxury store Bijenkorf to discounter Lidl. The tea brand Pickwick, part of Sara Lee, committed to UTZ which sparked growth. Now, 45 per cent of all tea produced by Pickwick is UTZ certified (Pickwick, 2014). According to Gilhuis, UTZ is currently orientating to expand to hazelnuts, fruit and juices in the future. The code revision should make it easier and less time consuming for UTZ to make codes for new commodities (Gilhuis, 2013). In 2009, UTZ started a project with the World Wildlife Fund and the Dutch government to trace ethanol made from certified sugar. Additionally, the 2009 annual report mentions a certificate system developed by UTZ for biomass produced in Mozambique together with Solidaridad (UTZ, 2010, p. 24). In later reports, these activities were not mentioned anymore.43 UTZ developed itself as an expert on traceability services with its system Octopus in tropical commodity supply chains. UTZ is the frontrunner in this field and offers traceability services (without certification) to Roundtable on Sustainable Palm Oil (RSPO) and Better Cotton Initiative (BCI) (UTZ, 2013a, p. 24). The following table illustrates the growth of the organization: the revenues increased, the number of employees and also the number of producing countries. Year Total income in euros 2002 Not available 2003 410,773 2004 954,128 2005 1,654,766 2006 1,627,476 2007 2,147,073 2008 2,481,828 2009 3,107,024 2010 4,424,950 2011 5,554,462 2012 6,800,000

Table 5: Growth of UTZ Certified

Employees (FTEs) 2 4 11 17 23 2544 18 21 31 32 43

commodities Coffee

Cocoa Palm-oil Tea Cotton

From a club theory perspective, these (possible) expansions are interesting as they increase the scope of possible future club-members to firms in these new supply chains. Hence, the expansions affect the club size (or the point where congestion sets in, see section 5.3.2.). Change in governance structure UTZ has experienced a change in governance structure over the years, which has important implications for determining the sponsoring actor. The board became more multi-stakeholder in structure and UTZ developed strategic partnerships with various CSOs. Initiated by industry, the organization needed to prove accountability and transparency to address public concerns about potential conflicts of interest of Board members. Therefore, policies of disclosure and ethics were developed in 2005. Nick Blocklandt, who co-founded the organization

Explanation was not given by Gilhuis when asked. The standards map does include these activities in their overview. 44 As of 2007, the field representatives (in that year 10) were not part of UTZ anymore, but part of the CSN. 43

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with Ward de Groote and had been chairman of the organization since 1997, left the organization in 2004. UTZ claims its Board has been a truly international and independent multi-stakeholder group since 2004 when the board consisted of two producers, a trader, a roaster and an CSO from five different countries (UTZ, 2005, p. 9). These changes were also caused by some entrance conditions posed by Sara Lee who joined in 2004 and demanded that the governance needed to be more multistakeholder (UTZ, 2005, p. 16). The governance structure of UTZ now is displayed by figure 5.

Figure 5: Governance of UTZ (UTZ, 2013f, p. 5)

External relations and cooperation UTZ did not have harmonious relationships with other certification initiatives at first. Initially, Max Havelaar/Fair Trade and UTZ had very strained relations and they debated publicly. Through the strategic partnership of UTZ with Solidaridad in the end of 2003, the relations improved and in 2004 the initiatives published a joint statement emphasizing the complementary value of both organizations. In 2007, Nico Roozen, director of Solidaridad and founder of Max Havelaar, became the new chairman of the board. Since then, UTZ has worked to maintain good relations with other initiatives and development organizations. UTZ has been involved in the 4C association45 since its beginning and participates in many industry and CSO platforms were sustainability is debated and defined, like the roundtables on sugar, soy, cotton and palm oil. Moreover, UTZ became an ISEAL

4C is a platform that brings together stakeholders to bring together stakeholders in the coffee industry (www.4c-coffeeassociation.org). 45

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member, relates to EUREP-GAP and developed good relations with various governments (UTZ , 2007, p. 14). Currently, UTZ is exploring possibilities to make the auditing more efficient and to cooperate with Max Havelaar and Rainforest Alliance. The CSN has a program that strives to bring together the markets for UTZ Certified and Fair Trade for smallholders in Central America. Double certification increases the sustainability of production and drives down costs for both of the certification programs. UTZ worked together with Oxfam Novib and the DE foundation to improve the Honduran coffee sector, and with ABN AMRO Foundation and the National Federation of Colombian coffee producers to do the same in Colombia (ibid.). UTZ cooperates with the Guatemalan national organization for responsible coffee Anacafé of which the agreement was even signed by the Guatemalan president. Financially, UTZ has tried to become self-financed in its core business. For other projects, new commodities and training, they rely on subsidies and CSOs whilst working in partnership (UTZ, 2007, p. 27). UTZ Certified has an administration fee for roasters which covers the cost of the online traceability system, member portal, code development, maintaining the network and support in sales communication. Graph 2 shows decreasing reliance on subsidies and increasing income from traceability. The subsidies have been mainly given by the Dutch development organizations Hivos and Solidaridad, and the Dutch ‘good causes’ lottery DOEN.

Traceability and subsidies as percentage of total expenses 120% 100% 80% 60% 40% 20% 0% 2003

2004

2005

2006

2007

Traceability fees

2008

2009

2010

2011

2012

Subsidies

Graph 2 Financial development of UTZ

The previous findings affect the club analysis in various ways: firstly, as will be discussed in section 5.1.4, the club sponsor has changed from industry to activist. Secondly, UTZ increasingly cooperates with other CSOs, as is indicated in section 5.2.5, the effects of this cooperation for the efficacy of the club should be taken into account.

4.3 Conclusion This chapter has introduced how UTZ functions and pursuits efficacy and how it has emerged and developed. Aspects of the organization that need to be explained according to the club approach in 36

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the next chapter, have come to the fore. To recapitulate, firstly, the position of certification initiatives was illustrated with the coffee chain. Secondly, The pursuit of efficacy was dealt with by discussing the Theory of Change and UTZ’s activities, specifically how the organization provides value at what costs for certain actors in the supply chain. Thirdly, the CoC was discussed and fourthly the monitoring and enforcement procedures and cheating possibilities. Finally, various reports evaluating in different ways to what extent UTZ is efficacious have been summarized. The information provided in section 1 will be analyzed in section 1 (concepts), 2 (efficacy) of chapter 5. Especially what viewpoint UTZ has and whether UTZ’s efficacy can be determined through the model of Prakash and Potoski will be a challenge. Section 2 discussed the emergence and two key developments of the organization. UTZ was initiated by business actors and the choice to create an independent certification organization was made because of credibility considerations. The governance structure of UTZ became ever more multi stakeholder. What type of club sponsors UTZ has will be discussed in the next chapter, as well how the strictness of the standards and monitoring and enforcement mechanisms was decided. The implications of UTZ’s cooperation with various CSOs and other SCIs for the club theoretical analysis are the last feature which will be discussed in the next chapter.

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5. Club theoretical approach to UTZ This chapter is divided into three parts, reflecting the three sub-questions dealing with concepts, efficacy and organizational development. Firstly the key concepts (club membership, club benefits, club sponsors and the club’s viewpoint) will be applied to UTZ, secondly the efficacy model of Prakash and Potoski will be applied and discussed, and thirdly the emergence and organizational development of the organization will be discussed according to the club approach.

5.1 Conceptualizing UTZ as a club In this section, the key concepts of the approach will be applied to UTZ. In chapter 3 it was shown that SCI-clubs differ from traditional Buchanan clubs: traditional Buchanan clubs produce the club product which benefits the members. SCIs provide sustainability externalities, which is the key justifying rationale behind their existence.46 Activist sponsored clubs aim to maximize sustainability externalities, industry sponsored clubs aim to maximize the benefits for members. In this section the club theory will be further specified to fit the case of UTZ, starting with who can be considered the club members. 5.1.1 Club members Club members join the club voluntarily to derive mutual benefit from membership from sharing one or more of the following: production costs, the members’ characteristics or a good characterized by excludable benefits. The benefit must be higher than the costs associated with membership (Cornes & Sandler, 1996, p. 347). UTZ affects different actors in the supply chain. In section 4.1.1., four groups are mentioned: the farmers, the traders, the buyers and the consumers. Which actors involved with or affected by UTZ can be considered club members? Buyers In previous applications of the club approach to SCIs47, club members have been conceptualized as the firms that join the program to profit from the reputational benefit it provides. For UTZ, this entails that the buyers, like ACC, C1000, IKEA, Mars, Bijenkorf are the club members. They voluntarily commit themselves, to derive mutual benefit from the members’ characteristics (sustainable companies) and a good characterized by excludable benefits (reputation). The membership fee is the fee to UTZ and sometimes the costs the traders make, depending on the relationship with the trader. Hence, the buyers in the chain can be considered members. Producers The producers (or: farmers) have not been conceptualized as members in these former applications, although the definition of members used in this thesis would fit the producers in the chain as well.48 A traditional Buchanan club may cause sustainability externalities as well, but this is not (part of) the reason of existence of the club. 47 Relevant applications are the Responsible Care Program of the chemical industry (Prakash, 2000), the Kimberly Process in the diamond industry (Haufler, 2009), labor standards in the apparel and footwear industry (Bartley, 2009) and standards in the shipping industry (DeSombre, 2009). 48 The applications studied do not give an explicit definition of club members. The definition used in this thesis is a classical one, which I do not assume leads to much controversy. 46

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The reason former applications of the club approach have not recognized the producers as members is possibly because of the second characteristic of membership: a member should join on a voluntary basis. In global value chain (GVC) research, much has been said about governance and power relations between actors in value chains.49 The governance type and power asymmetry has far-reaching consequences for membership: in some value chains, suppliers are ‘captive’ to their buyers and do not have a choice but to produce for the ‘lead’ firm (Gereffi, 2012, p. 27; Gereffi, Humphrey, & Sturgeon, 2005, p. 84). 50 This means that it is not voluntary and hence, they are not to be considered members. For UTZ and others, it cannot be expected that if the roaster joins the SCI, there will be immediate effects for farmers. The farmers are not dependent on specific buyers to sell their product, so will not automatically join but voluntarily chose to join when they anticipate they will derive more mutual benefits than the membership will cost. The practical implication for UTZ or other SCIs regulating value chains with this kind of governance type, is that the producers (or farmers) should be considered members as well. Traders UTZ has a buyer to producer model; the focus is on the farmers and roasters. Both of these groups of actors voluntarily join the club, in order to derive mutual benefit from membership. The third group of actors is the traders (or ‘chain of custody’ actors). Continuing the line of reasoning, the certified traders should also be considered members of the club. They need to go to considerable effort to get certification and the benefit for them is market access, just like the farmers. There are no signs that their certification is mandatory. Dependent on the relationship with the buyer, they can transfer the costs they make to grant traceability of the product either partially or wholly. This aspect makes membership very attractive for traders.51 Consumers The last actors in the supply chain are consumers. Consumers do not fit the definition of members: they do not actively choose to ‘join’ the club in order to derive mutual benefits, by sharing membership characteristics, nor share production costs or a good characterized by excludable benefits. Consumers do not have any costs either, as UTZ is a buyer to producer model (or roaster to farmer model) and not a consumer to farmer model. The different types of members derive different benefits from the club. Before we can discuss the efficacy of the club, a closer look is taken at the club benefits.

49 The insights

of Gary Gereffi’s model introduced in the article ‘The Governance of Global Value Chains’ (2005) are useful in understanding how determinants of an industry make for governance types with powerasymmetries to a more or lesser extent. 50 A case could be producers supplying parts of Apple electronics. Their production and income is so dependent on Apple, that if Apple joins some kind of SCI that also sets rules for the suppliers, the suppliers automatically join because otherwise they are out of business 51 Traders are only ‘member’ of an SCI if they are certified and are not always part of the supply chain.

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5.1.2 Club benefits Except for sustainability externalities discussed in the next section, UTZ produces two types of benefits: club benefits and private benefits. The benefits are different for the type of members. Buyers: reputation The most important club benefit that is produced by UTZ is the ‘good reputation’ for buyers. It is the precondition for the other benefits: without reputation with the public good characteristics in the industry, the club would not have emerged. Reputation is a product with four distinguishing characteristics relevant for its role the emergence and development of SCIs and UTZ in particular. The first characteristic has already been discussed: reputation is a ‘good held in common’ by the industry (Prakash, 2000). To see how reputation was nonrival and nonexcludable in the coffee industry when UTZ emerged, consider how the pressure CSOs exerted on the coffee industry, influenced the reputation of all companies in the industry. ACC felt pressured, even though it was not the primary target of the campaigns of the activists. The presence of Fair Trade products on the shelves had a negative reputational effect on the characteristics of all the basic products. This nonexcludability was changed because the club started producing ‘good reputation’ with the exclusion-mechanism of certification. A second characteristic of reputation is that it has to be granted by others. This gives other actors power in the supply of ‘good reputation’. A third, connected, characteristic is that reputation is very susceptible to scandals and critique: even if a firm has invested a lot in the reputation of the company, one scandal can annul all these investments (Bartley, 2009, p. 111; DeSombre, 2009, p. 140). Reputation management, ensuring that the reputation is not attacked publicly – becomes key to safeguarding the investments made. Activists capitalize on these last two characteristics of reputation, campaigning to damage reputation when they think that is necessary and providing insurance in reputation management when they are sponsoring the SCI.52 The fourth characteristic is that it is intangible and its worth is only captured in monetary terms by the interpretation of the actor, in this case the buyer. This characteristic makes the emergence of a SCI unpredictable: it depends on the corporate culture, consumers’ characteristics or even personal dedications of leaders in the company. Traders and farmers: Income benefits As was explained in section 4.1, the anticipated income benefits (more production, better quality product, price premium, market access) are the main benefits UTZ produces for farmers. Some of the income benefits have the characteristics of private goods (such as the anticipated price premium) whereas other benefits have the characteristics of club goods (such as market access, the online training sessions and knowledge about the GAPs).

52

See section 5.3.1.

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The previous material about UTZ’s members and benefits can be graphically depicted as follows:

Figure 6: UTZ depicted as an SCI-club

Club membership has implications for what is to be considered the club product and externalities produced. Moreover, the optimal membership point can be different from the buyer members’ perspective than from the farmer members’ or trader members’ perspective as all different produced benefits have separate optimal production points (Cornes & Sandler, 1996, p. 404). 5.1.3 Externalities Conceptualizing UTZ with different members has implications for what can be considered the ‘externality’: consider that if only the roasters (or: buyers) are considered members of the club, the purple arrows in figure 6 would be the only arrows the club would consider the ´member benefit and costs´ (like previous applications of club theory to SCIs did). The pink and the blue lines do not exist in these former applications and those benefits and costs are included in the green line of sustainability externalities. Remember that the definition of an externality is a positive or negative side-effect of (economic) actions on non-related parties whose interests have not been taken into account and who receive no compensation or penalty. Obviously, the interests of the farmers and traders are take into account by UTZ. Core activities of UTZ revolve around the traceability of the supply chain, certification of traders and farmers and training farmers in good agricultural practices and negotiation. These activities are at the core of the organization, just like the ‘marketing activities’ that benefit the roasters. 41

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In chapter 3, it was shown that activist clubs strive for the maximization of sustainability externalities and industry clubs strive for the maximization of member benefits. If the ‘old’ club approach to SCIs is followed, the conclusion would be that as UTZ is not as much focused on the interests of the roaster members, but more on the interests of the ‘rest of the world’ (including in this case, the traders and farmers), UTZ would be an example of an activist club. With the members identified as three different types of members, the picture becomes more complicated. If UTZ is considered an activist club, it would strive for the maximization of (positive) sustainability externalities, that is to say all those positive side-effects of non-related parties whose interests have not been taken into account and who receive no compensation or penalty. These would only include the positive externalities for consumers and the structural supply chain changes and changes in agricultural practices over the long-run, and not the traceability of the UTZ products, not the changes in agricultural practices that farmers need to adhere to according to the CoC. The price premium is in a grey area: although it is not an obligatory part of the UTZ program, it is part of the UTZ program and the anticipation of (amongst others) the price premium is one of the benefits UTZ offers to farmers. Even if UTZ with farmer-, trader- and roaster members would be considered an industry club (instead of an activist club), the maximization of the club benefits would be closer to the social optimal production than if UTZ is an industry club with only roaster members. As one can see, the definition of the club members has far reaching consequences for what is considered the clubs ‘intended goal’ and hence, efficacy in reaching that goal. Additionally, the difference between the pursued outcome of an ‘activist’ and ‘industry’ sponsored clubs becomes smaller. What can be concluded about the way UTZ sees its production of externalities? The club members and benefits have been designed to go hand in hand. The crux is: when they do not, or one relatively more than the other, which one will take the upper hand? Identifying club sponsor can shed a light on this. 5.1.4 Club Sponsor Section 4.2 sketched the change in governance structure of UTZ: it has been created by business actors and initially there were no harmonious relations with activists. Eventually, a more multistakeholder governance structure was created and the chairman Nico Roozen of the rivaling activist SCI FLO even became chairman of UTZ. Today, UTZ’s governance structure involves both activists and industry actors. As there are many partnerships with activist organizations and the balance points to an upper hand for activists. UTZ’s Theory of Change and the interview with Gilhuis provide the basis for concluding that UTZ should be considered an activist sponsored club. The core activities (member benefits) of UTZ are designed, in order to set in motion a structural change (externalities). When asked about the efficacy of UTZ, Gilhuis points to the difficulties of attribution and contribution. Even though UTZ aims for structural changes and externalities, these are often hard to attribute to the activities of UTZ and therefore sometimes the core activities that can be attributed are more in the spotlight. Often, the (assumed or estimated) production of sustainability externalities goes hand in hand with the maximization of club benefits. But, the Theory of Change and the interview with Gilhuis show that

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the focus on club benefits only function as an instrument to achieve the maximization of sustainability externalities. 5.1.5 Conclusion In order to apply the club theoretical concepts to the case of UTZ, three steps were taken. In chapter 3, it was shown that theorists applying the club theory to SCIs had adapted the image of a traditional Buchanan clubs to SCIs, including sustainability externalities. The only club members in this application to SCIs were the firms who strove for the better reputation, the buyers. Careful consideration of the supply chain actors, the definition of membership and externality, nuances this application, represented in figure 6. The traditional application only emphasized the reputational benefits of the buyer members. Although the characteristics of ‘reputation’ (a public good in the industry, granted by others, easily loses value and immaterial) make that it is the central incentive for buyers to create the club, it is not the only benefit the club produces. The benefit of reputation (and other club and private benefits) for the buyer members, is interdependent with the (club and private) benefit produced for the two other types of members: the producers and traders. The producers should only be considered members if they would join the initiative voluntarily. A GVC analysis of power asymmetries can be an interesting tool to determine the rate of voluntarism, a subject for further research. Furthermore, it was shown that because of the identification of different members of UTZ, the discrepancy between an industry- and an activist sponsored club becomes smaller. The inclusion of more types of members hence can lead to a better alignment of social interests and private interests, even in the case of an industry sponsored club. A precondition for this effect is that the benefit produced for the members are designed to produce positive sustainability externalities. For public policy purposes, this aspect may be interesting when dealing with industry sponsored clubs. UTZ can be regarded as an activist club, although it was created by industry. Therefore, the efficacy should be measured in terms of the extent to which it maximizes the sustainability externalities, which will be discussed in the next section. Overall, the concepts of the club approach are applicable to UTZ, covering the operation and strategy of the club. The concepts have been applied returning to the original economic club theory and critically assessing the previously implemented club approaches to SCIs. This process has led to a more nuanced and accurate understanding of UTZ as a club, paving a promising way for club analysis of efficacy and organizational development of UTZ.

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5.2 Efficacy of UTZ This section puts the information given in section 4.1 about efficacy in a club theory perspective. Prakash and Potoski’s emphasis on collective action problems can still be applied, even though their application of club theory is less nuanced than we have applied in the previous chapters.53 As discussed, according to their model the strictness of the standards and the strength of the monitoring and enforcement mechanisms (‘swords’) are key characteristics of club design to determine efficacy (because they curb the collective action problems free-riding and shirking). Firstly, a critical closer look at the measurement methods of the model will be taken and suggestions for improvement of measuring the strictness of the standards and monitoring mechanisms will be given. Secondly and thirdly, the strictness of the standards and swords will evaluated. Finally, the results of their model will be evaluated in relation to the information from the impact reports discussed in the previous chapter. 5.2.1 Prakash and Potoski When deciding upon the standards and monitoring procedures, social planners should think about whilst stronger monitoring and enforcement procedures and more stringent standards produce more sustainability benefits per member, it also brings with it costs which will decrease the club size. It appears that at its inception, UTZ has thought about this trade-off. Its first annual report states: “Every certification program encounters trade-offs between four points [Certification, Supply, Demand, Acceptance] – stricter certification leads to higher “proof” and “impact” in production, and higher acceptance by civil society, but costlier compliance and hence lower supply and demand; a “lighter” certification program will have a lower claim of proof and impact, but higher supply and demand. While past initiatives that have come from civil society and producer origins have not achieved high levels of market penetration. UTZ Kapeh’s ambition is to find the right balance in this equation to create a truly mainstream initiative.” (UTZ, 2005, p. 5)

The relation between the standards and the enforcement mechanisms and the type of benefits is represented in table 6.

The collective action challenges are as much relevant with different types of members as with one type of member. Additionally, Prakash and Potoski do not use the distinction between activist and industry sponsored club, but assume the goal of an activist sponsored club, namely the maximization of sustainability externalities. As this is the same for UTZ, their model applies. 53

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Standards Sustainability Lenient externalities Shirking Branding benefits Costs Sustainbility Strong externalities Shirking Branding benefits Costs

Master thesis IRIO

Enforcement- and monitoring mechanisms Weak Medium Strong Low (1) Low-moderate (2) Moderate High Marginal Low Low

Moderate Low-moderate (4)

High Marginal Moderate-high

(3)

Low Low-moderate

Low-moderate Low-moderate Moderate (5) High (6) Moderate Moderate Moderate

Low High high

Table 6: Prakash and Potoski's classification of institutional characteristics of SCIs (Prakash & Potoski, 2007, p. 781)

The six outcomes of the model are estimates. More stringent standards and monitoring procedures drive up the costs, production of sustainability externalities per member and the branding benefits, and drive down shirking. Although the sixth option, with stringent standards and strong monitoring and enforcement procedures may seem the preferred option, the costs will be very high, limiting the amount of members. The branding benefits are the only benefits considered by Prakash and Potoski. The income benefits of farmers and traders cannot be considered in this model, as it is not straightforward how these would develop. If stringent standards entail a fixed, high price for the farmers, then the benefits would increase in the standard. If however, high costs prevent a large membership, the market access benefit would decrease. Therefore, lenient standards (or weak swords) would be more beneficial. Credible commitment procedure Another institutional feature of importance is a credible commitment procedure which guarantees that the club will not opportunistically change the program’s design features for both the stakeholders and the club’s target members. Without credible commitment to the design features, stakeholders will fail to grant the club the reputation because they will fear that the standards and swords will be lowered instantly – capitalizing on reputations nature to be sticky. Stakeholders will be more suspicious and will tend to not grant the better reputation. For the participants, if the standards and swords are suddenly more stringent and strong, their participation costs will be higher than they had anticipated or they will face exit costs (Potoski & Prakash, 2013, p. 405). UTZ implements the recognized ISEAL procedures to update the CoCs as a credible commitment procedure.

5.2.2 Evaluation of the standard of UTZ The strictness of the standards should be ‘measured’ in order to give them the value of ‘lenient’ or ‘strong’. Firstly, the measuring method proposed by Prakash and Potoski will be discussed. Secondly, the standards of UTZ are evaluated. 45

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Measurement method To evaluate the strictness of the standards, the reference point Prakash and Potoski use is public national (and international) regulation. If the standards entail the actors need to do much more than public regulation the standards are considered strong, lenient standards are the ones that are the same as (or more lenient than) public regulation (Potoski & Prakash, 2009, p. 47). UTZ is active in production in forty countries around the world currently (UTZ, 2013a, p. 28). The broad international scope is one of the reasons making it difficult to apply this measuring method of Prakash and Potoski: the different countries have different legislations. The stringency of the standards can thus be different over the countries where the club is active (Potoski & Prakash, 2009, p. 47). See figure 8, suppose the social and environmental legislation is higher in Brazil, and lower in the Democratic Republic of the Congo (DRC) and the standard of UTZ is lower than the Brazilian legislation, but stronger than that of the DRC. This would entail that UTZ’s Figure 7: Standards in different legislations standard is both strong and lenient and UTZ’s produced sustainability externalities are lower in Brazil and higher in the DRC. If this line of reasoning is followed, the efficacy of UTZ should be determined per country. It would take a lot of effort to analyze the forty different legislations. Some of the standards UTZ provides will be stricter than laws of many countries, like management practices and other professional skills, often not covered by legislation. On other aspects the standard may require less than some countries legislations. So even within the country, the standard could be both strong and lenient. The next problem with the strategy to determine the strictness of the standards per country is that it does not logically follow to the branding benefits of the internationally operating buyers. For example the buyer Sara Lee/Douwe Egberts would have different values of reputational benefits at the same time, a different one in Brazil than in the DRC. This is not how it functions; Sara Lee is not concerned with its reputation in Brazil or the DRC, but is interested in its reputational benefit in consuming countries like the Netherlands. Additionally, the branding benefits are the odd one out the model: where costs, shirking and social externalities are directly produced by the members, the branding benefits (or: reputation) which is granted by consumers or activists. Consumers and activists in consuming countries grant the reputational benefits, not by analyzing the strength of the standard for each different legislative element in the standard, but by having a look at the strictness of the standard overall. The legislation measuring method of Prakash and Potoski does not lead to one all-encompassing judgment of the strictness of the standard, unless one strikes some kind of ‘average’ which would be a bit arbitrary.

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Evaluation If possible54, a better strategy to measure the standards of the club would be to use the relative strictness of the standard compared to other clubs’ standards, or else come up with general characteristics of lenient and good standards,55 as is the strategy with measuring the strength of the swords. 56 Examples could include a fixed price premium, both social and environmental standards, reference to specific international law and a certain degree of specificity. Determining such criteria is important, but an effort outside the scope of this thesis. The standards of UTZ will instead be evaluated by comparing them to other standards of SCIs in the chain, specifically those mentioned in section 4.2. Various studies conducted compare the standards of FLO and UTZ in a very general way, concluding that the strictness of the standards are comparable. Both have broad and inclusive standards, make reference to national and international legislation and prescribe good agricultural practice in a detailed and easily applicable way, although they may have different focus-points (Ingenbleek, 2009, pp. 18-21; KPMG, 2012, pp. 12-14).57 Specific and careful comparison is necessary in order to see the differences between the standards. The report of the State of Sustainability Initiatives is useful in this respect (SSI, 2010). This joint initiative of United Nations Commissions on Trade and Development (UNCTAD) and the International Institute of Environment and Development (IIED) is an assessment of criteria divided in social, environmental and economic indicators and compares many voluntary initiatives ranging from Global Gap to Forest Stewardship Council; from Rainforest Alliance and FLO to UTZ. On social requirements, FLO stands out on the highest coverage, but FLO, Sustainable Agriculture Initiative (SAI) and UTZ reveal higher than average breadth and depth coverage across the indicators. On environmental indicators, UTZ scores lower while FLO is still the best. UTZ does have the best water management. On economic indicators, FLO is still the winner, but UTZ makes up by including (but not compulsory) price premiums. UTZ does not encourage farmers and buyers to have actual contracts or encourage paying living wages above and beyond minimum wages. In sum, even though the standards are comparable, the devil is in the detail: when UTZ’s standards are compared critically and structurally with other initiatives UTZ’s standards are relatively lenient: they are less stringent than those of FLO, and are considered equal or a bit more stringent than those of Rainforest Alliance. This is no surprise, as UTZ’s standards have been formulated as a reaction to the strong standards of FLO and there is a big gap between UTZ and really strong standards like organic/FLO and bio-dynamic. A farmer that would like to join to program certainly has to make an effort, but the standards stay close to regular farming practices so the producer does not have to change its farming practices extremely (De Groote, 2013).

If other club standards within the industry are not available, one could compare with standards in other industries. 55 ISEAL is an example in this respect: an organization formulating good practices for sustainability standards. 56 See next section. 57 De Groote has implied that FLOs standards are stricter than those of UTZ, stating that an interesting model of certification would be for farmers to firstly join FLO and then (after a few years reaping the benefits of that SCI) go to Rainforest Alliance or UTZ and then go onto the regular market (De Groote, 2013). 54

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5.2.3 Evaluation of the monitoring and enforcement procedures Strength of the swords: Weak sword = third party auditing Medium sword = third party auditing + public disclosure Strong sword = third party auditing + public disclosure + penalty Measurement method In order to evaluate the strength of the ‘swords’, Prakash and Potoski distinguish between weak, medium and strong swords. Weak sword clubs only entail third party auditing (such as a check by a CB), medium sword clubs have third party auditing and public disclosure of the auditing reports and strong sword clubs also have penalties when actors do not comply with standards. This straightforward division is curious, as the logic behind the country analysis is suddenly left. The countries UTZ is active in do not only have different legislatures, but also different monitoring and enforcement mechanisms. Some countries may struggle with corruption, weakening the (perhaps formally strict) enforcement. Obviously, a ‘country’-strategy for the measuring the strength of the swords encounters the same counterarguments as the standards. Perhaps that is the reason why Prakash and Potoski make this categorization to analyze the ‘swords’. Doing the same for the measuring method of the standards would bring the methods more in line. Although the three levels of ‘swords’ with the characteristics is a more practical way of measuring strictness (as one can simply ‘check the box’), at least the validity of the aspect of ‘public disclosure of the results’ can be questioned. Prakash and Potoski assume that when the reports are published, the costs after getting caught are higher because the cheating behavior of actors is publicly known. But, whether UTZ publicizes the auditing reports or not, is not that important for the information provision of the consumers and activists. In practice, it depends on the prominence of the SCI and the likelihood that instances of cheating will be widely publicized by the news media (Van 't Veld & Kotchen, 2011, p. 317). For UTZ buyer-members, if products suddenly do not have the certification seal on them anymore, it would be noticed and it would probably be widely publicized, as many of the brands buying UTZ are popular and high-profile brands. Therefore, for buyermembers the potential costs of decertification are big and the sanctioning might not come from the club, but the market sanctioning is severe. Evaluation of the Monitoring and Enforcement procedures The swords are not the same for all actors and phases in the supply chain. This complicates the identification of the three elements. From section 4.1.4 it is concluded that UTZ has two ‘cheating’ levels with different monitoring and enforcement mechanisms:

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Cheating level The producer/farmer level: when the farmer either does not live up to the standards or imports regular produced coffee from a ‘neighbor’ into the group certification supply.

Monitoring and enforcement mechanism Only auditing by a third party (the CB), there is no public disclosure of the results, and there are no penalties other than the withdrawal of the certificate. Weak sword.

The trader/buyer level58: mixing UTZ beans with regular beans.

Auditing by a third party (namely the CB), there is no public disclosure of the results, and there are no penalties other than the withdrawal of the certificate. The monitoring can be considered more constant, because of the online traceability system. No penalty other than withdrawal of the certificate in case of trader, and market penalty in case of buyer. Weak sword (but stronger than the producer/farmer sword)

Table 7: cheating

Choosing the swords Following Kotchen and Van ‘t Veld (2011) the choice of swords impacts the probabilities that actors actually cheat. This choice depends on the probability of getting caught and the risk the actor takes: what would happen if he gets caught.59 The probability of getting caught for the buyer is greater than for the farmers, especially in group certification. The potential risk of getting out of the program forever is also greater for the buyer than for the farmer. When a buyer loses certification, much of the reputation is lost, due to the characteristics of reputation. Actors will not grant a good reputation to ACC if ACC loses the certification at first and then puts the seal on its products again. Contrastingly, when a farmer loses certification, he can just continue with regular business with the additional knowledge he got from joining the program or he or she can take corrective actions and join the program again. Although both levels have weak swords, the monitoring is closer on the trader/buyer level than on the farmer level for UTZ. As UTZ is an activist club, it wants many farmers to be members in order to produce positive sustainability externalities. Stricter monitoring on the farmer level would increase the costs the farmers have and hence, fewer farmers would be willing to become a member. The trader and buyer are one level, as the trader is not always part of the supply chain and the monitoring system is the traceability system, which covers the trader and the buyer. Not much is known about the traders. Therefore this section will only consider farmers and buyers. 59 Kotchen and Van ‘t Veld (2011, pp. 317-320) model this choice assuming that members make the following assessment: there is a probability of getting captured at the beginning of each period and once captured, the member is expelled from the club forever; the probability of getting caught does not depend on the strictness of the standards, so the marginal costs of not getting caught is constant per period per member. If one does not achieve the standards of production, the cheating firm optimally does not abide to any standards, when the member decides to cheat. The enforcement and monitoring is indirectly paid by the club members and the marginal costs of stronger or weaker enforcement procedures can be calculated. In order for member not cheat, there must be an incentive. The reward for complying must be greater than the risk of losing the rewards forever with a certain probability. 58

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Monitoring farmers is probably more expensive than monitoring the trader/buyer level, a relatively cheap system – probably not altering the marginal costs of the buyers that much. For the buyers, the additional guarantee of reputation because of the traceability system is worth more than the additional costs of the traceability system, so it has a positive effect on the size of the buyermembership. For the farmers, the lower cost of monitoring means that more farmers join the program and more positive externalities can thus be produced. Hence, some nuances can be made to the interpretation of Prakash and Potoski of third party auditing, public disclosure and penalties. The strictness of monitoring differs in the program and also the harshness of the potential market penalty (which is not considered a club penalty by Prakash and Potoski) is a determining factor herein. None of the SCIs mentioned in this thesis have internal penalty systems, perhaps because of this well-functioning of the market penalties. This would suggest that none of them have strong enforcement mechanisms. Moreover, with public disclosure the multistakeholder governance structure should be analyzed: a buyer that shirks and gets caught is disclosed to the activists that are incorporated in the governance structure. The factors mentioned by Prakash and Potoski appear arbitrary and not applicable to these chains that are closely monitored by activists and consumers. A conclusion based on the found results would say that the monitoring and enforcement is (in practice) strong for buyers and weak for farmers. 5.2.4. Application of the model The standards are lenient and the monitoring and enforcement procedures weak for the farmers, and (in practice) strong for the buyers, what does this say about the efficacy of UTZ in producing sustainability externalities? When following the table 6 (even though the different measurement methods were used), table 8 can be derived:

Lenient standards Sustainability externalities Shirking Branding benefits Costs Table 8: Results

Strong swords Farmer Buyer Low Moderate High Low Low-moderate Low Low-moderate

When compared to the evaluation reports, this result is appears to agree with the conclusions of the evaluation reports. Firstly, the externalities produced per farmer that joins are low: many farmers already complied with the standards and the standards are relatively lenient when compared to other SCIs active in the chain. For example, the evaluation report about Vietnam revealed no noticeably better working circumstances, but more conscious use of fertilizers. This produces externalities for the environment, but not very drastically. This has been taken into account by UTZ, per farmer the externalities produced are low but the large amount of farmers make up for this (UTZ, 2005, p. 5; Prakash & Potoski, 2011, p. 50). Secondly, shirking is high for the farmers. There are possibilities to shirk and this is admitted by UTZ. Because UTZ does not publicly disclose the results of the audits, it is hard to evaluate to what extent there is shirking. It is plausible to assume shirking on the farmer level to be quite high, because 50

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there is not very strict monitoring and it is rational. Equally, KPMG (2013, p. 46) found some farmers were certified without ever receiving any training. This entails that no farming practices were changed and hence no sustainability externalities were produced. Thirdly, as for income benefits, the evaluation report showed that these were lacking for the farmers: although they did have market access, the price premium mechanism did not work as it should work. Often, an increase in yield was experienced. The costs for farmers are low. Especially because of the lenient standards, often farmers already fulfill the criteria. In that case, the only costs are the audit. In a cooperative, these costs can be shared with many farmers. An individual smallholder farmer will not join solitary. As for the buyers, the externalities are moderate: consumers enjoy products with credence attributes60 without paying for it and the supply chain gets better organized. Unfortunately, the evaluation reports have not focused on this dimension as the externalities produced by the farmers are considered more important. Shirking on buyer level is probably quite low, as the traceability mechanisms are an extra safeguarding procedure and the market punishment can be considered severe. Benefits in terms of reputation for the buyers is the odd one out in this analysis, as the characteristic of reputation that it should be granted by other has not been accounted for. The costs for the buyers are low-moderate: they have to negotiate a price premium and pay for the costs of the traceability system and sometimes the costs made by traders and of course the membership fee to UTZ. Overall, as most of the buyers are large, professional organizations with high turn-over the costs are relatively low. As for the branding benefits one investigation of the LEI points out that consumers in the Netherlands are very familiar with Max Havelaar/FLO and with organic (LEI, 2013, pp. 30-33). Both of these standards have a consumer to farmer model. 61 Consumers were not familiar with UTZ.62 The branding benefits among consumers can thus be considered low. Based on the popularity of the program among buyers and strong growth, it is concluded that there must be reputational benefits. The product of good reputation is a credible CSR strategy, and the ability to answer critical questions of CSOs. Moreover, because the governance of UTZ includes activist parties like Solidaridad, chances are small that activists will attach their own (or colleagues) club, and no critical questions will ever be asked. 5.2.5 External relations and partnerships The partnerships that UTZ has developed over the years with various CSOs and governmental programs can be an important contributing factor for UTZ in achieving its goals and thus its efficacy. Firstly, UTZ does not need to bear some costs because of certain partnerships. For example, the CSN network is funded by other parties but directly contributes to the work of UTZ by providing Credence attributes: the attributes of products that are different from physical or performance characteristics, because they cannot be observed by consumers. They can include the conditions under which the product is produced, how workers are treated and how well they are paid (Baron, 2009, p. 41). 61 See Appendix C. 62 The 1221 respondents were asked to name a few certification brands. UTZ was not among the most eight popular, and the least popular of those eight was named 30 times. According to the report, the other certification brands followed on a big distance of that one. There has not been an investigation of UTZ specifically, but as UTZ started in the Netherlands and its supply is likely that its familiarity would be the highest in the Netherlands. 60

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farmers with the means to get UTZ certified. These factors should be taken into account, because when an SCI is able to make good partnerships, it is possible to have higher standards at lower costs, as other parties than the members bear the costs. Club analysis can incorporate these effects, by carefully considering which activities are paid for by the club and which by other parties. Incorporating partnerships in the analysis may broaden the research scope, as potential partnerships should be mapped out. It may even be relevant to analyze government subsidy policies or identifying certain themes that are ‘popular’ that attract vast financial resources, as a SCI could profit from this through partnership. Although it is outside of the scope of this research to carry out such an analysis for UTZ, further research could profit from attention to these kind of institutional partnerships. Secondly, the envisioned cooperation with other SCIs combining auditing practices, complicates club analysis further. In fact, it causes ‘overlapping’ clubs which should be taken into account when making macro-analyses of industries. It is outside of the scope of this research to sketch the implications of these steps, especially because firstly all SCIs active in an industry should be analyzed consistently according to the club approach before such a research could be conducted. The interaction with other clubs poses other questions as well, such as how does competition work between several clubs, do they drive the standards down – like concepts of the ‘size seekers’ and the ‘idealists’ seems to suggest? Farmers with double certification63 should be better monitored and incorporated in the impact measurements of the various clubs they are a member of. Better monitoring should also take place for the amount of commodities that are produced certified but sold as regular commodity and the price premiums paid, in order to grasp whether structural changes are happening. 5.2.6 Conclusion: Prakash and Potoski’s analysis of club efficacy What can be said about the framework club theory offers to analyze efficacy of SCIs? Prakash and Potoski’s elaboration of the club theory approach based on the collective action problems is rough but promising. Rough, because the standards and swords of SCIs should be subject of more research to determine better categorizations of the strength of the standards and swords. Promising, because there was a correlation found between the results and the findings of the impact reports. From this rough assessment, it is not possible to say with certainty that efficacy of a club only depends on to what extent its institutional characteristics curb collective action problems, but it useful and powerful starting point for scholars and policy makers when designing and evaluating efficacy of SCIs. One of the starting points is making better categories of strengths of standards and swords: standards should be valued on their merits, not per country and the variety of mechanisms for swords should be recognized in the measuring methods. The ignored severe market penalty is an Producers, cooperatives and traders might be incentivized to certify producers for more than one certification scheme. The rationale behind this might be to reduce risk if demand from one channel lags behind. Rainforest Alliance indicated a relatively high level of leakage due to multi-certification (30%), while Fairtrade and UTZ indicated they did not monitor leakage due to multi-certification, providing estimates ranging from 0 to 10 per cent. This kind of overlap between clubs can become increasingly significant as UTZ wants to increase cooperation between RA and FT, at least in monitoring practices. Now, a farmer that is for example both UTZ and RA certified needs to pay two separate audits, in the future this may become one (International Trade Centre, 2013). 63

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example of a missed aspect of strength of UTZ’s sword. One strategy could entail analyzing many standards and swords and categorize them. Moreover, other possibly important aspects in a club’s efficacy should be determined, such as the institutional partnerships. Although institutional partnerships are not part of the model of Prakash and Potoski, the club approach does offer ways to incorporate it in the analysis. Additionally, interactions with other clubs, double certification of farmers and SCIs cooperating in auditing practices should be mapped out further in order to improve impact measurements. Overall, the emphasis of efficacy is a merit of the club approach. The potential strength of this approach in analyzing the clubs is big and offers a promising research agenda.

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5.3 Emergence and development of UTZ This section will put the findings of section 4.2 in a club theory perspective. To recapitulate, it was found that UTZ emerged against a background of a shift in power in the chain towards producers, more activist pressure on the buyers in the chain. ACC had concerns about its reputation and needed to establish an independent certification organization because of credibility concerns. This section will provide a club theoretical analysis of these events, continuing on the analysis of the former section and drawing from interpretations of Baron that models how activists and firms affect the strictness of the standards. The two central developments of UTZ, the shift to a multi-stakeholder structure and the expansion to other commodities are taken into consideration as well. 5.3.1 Emergence of SCIs Baron (2009; 2011) has developed a model to account for the formation of SCI clubs. His model focuses on clubs of firms that produce goods with credence attributes and how the standards for those credence attributes are influenced by social pressure. In his model, there are three actors: the firm, the activist and the consumer.64 There are two possible situations for a club to emerge according to Baron: firstly, the emergence of a club in the absence of activist pressure ‘attacking’ industry reputation and secondly, in the presence of activist pressure. Firstly, SCI-clubs can emerge in the absence of activist pressure. The crux is that the main motivation of buyers to join the certification (and produce credence attributes) is the willingness of the consumer to pay a price premium. In this case, there is product differentiation; ‘regular products’ and ‘certified products’ for which consumers pay extra. Buyers will join the club if there is a possibility to make additional profit on that price premium. The assumption is that as the buyers strive for profit maximization, the standards will be chosen accordingly. The assumption is lenient standards are cheaper than stringent standards, consumers are often not willing to pay much more for credence products and hence, the standards chosen will be lower than in the presence of activist pressure. Secondly, if a SCI-club emerges in the presence of pressure exerted by the activist, there is a tendency to impose the higher standards the activist prefers. The buyer still pursues profit maximization, but now needs to include costs reflecting the damage that the activist can cause in the costs-benefit analysis. The activist pursues maximization of sustainability benefits. The activist can either attack the club or firms outside of the club in the industry, which activists decide rationally. The interaction between the activist and the buyer often results in higher standards than the standards that the buyers would choose in the absence of activist pressure. This dynamic can be observed in the emergence of UTZ. Emergence of UTZ As there was activist pressure on ACC (via the reputation of the industry and also some direct pressure) the second scenario fits the emergence of UTZ best. As UTZ does not operate on niche markets65, the consumer can be left out of the model when it is applied to UTZ, and consumer

64

The farmer is not part of Baron’s model.

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willingness to pay is assumed zero. The only forces that are left are the activist pressure and the buyer striving for maximization of profits.66 As De Groote described, he found that the majority of the coffee producers for ACC already produced according to good agricultural practices, but the reputation of the company was at stake. As it is assumed that ACC is a rational actor, the indirect costs via sales of this activist ‘attack’ on the reputation was perceived by ACC to be significant. ACC started with a project to build a school with the Guatemalan coffee farmer Nick Blocklandt. The activist pressure continued still and because of ‘credibility considerations’ (or: reputation management considerations) the cooperation developed into in a certification organization. At this point, only ACC was a member with their producers and identity of the club sponsor is hence industry. An industry club pursues maximization of benefits for its members. The prime benefit of the club for ACC should be ‘better reputation’. The activists continued to exert pressure, criticizing the initiative as an effort too much taken in ‘splendid isolation’. In order to make the investments count and to secure its reputation, UTZ opened up towards the critique and made increasingly more partnerships, for example with Solidaridad. Including the activists in partnership secured the reputation benefit produced by the club (as the activists will not attack themselves). The activists are rational actors too; they choose the strategy with the lowest costs and the highest reward for their goal. The activists behaved rationally: campaigning against the government would not have been very effective anymore, because of the liberalization of the coffee chain in the 1990s and the WTO restrictions governments faced. Activists decided not to focus on public politics, but on private politics.67 Activists secured their interests by firstly attacking the coffee chain’s reputation, causing ACC to react with certification. The campaign continued however, until activists were included in the governance of UTZ. The dynamics described above are caused by the characteristic of reputation that it needs to be granted by others (which gives power to the activists) and because the value of reputation can manifest itself in (estimated or actual) losses in sales. Suppose ten per cent of sales of the buyer members are of consumers who are vulnerable to the reputation damage and now choose another product.68 If the demand of the activist (for example increasing the strength of the standards) is less than the estimated loss in sales of the buyers, the club will increase the standards.69 From the description of the emergence of UTZ in chapter 4 it is concluded that the farmers have not played a part in the emergence of the SCI. Therefore, following Baron, the farmer is not considered part of the emergence-model. 67 Public politics involves activists influencing public officeholders, private politics involves activists influencing economic activity directly (Baron, 2001, pp. 7-9). Private politics is sometimes more effective: Michael Brune, executive director of RA commented that “Companies were more responsive to public opinion than certain legislatures were. We felt we could create more democracy in the marketplace than in the government.” (Baron, 2007, p. 600). 68 This mechanism can be explained by differentiating between ‘negative credence attributes’ and ‘positive credence attributes’. Regular products do not have any credence attributes, but activist pressure on reputation can produce ‘negative credence attributes’ for certain products. A number of consumers may not be willing to pay for ‘positive’ credence attributes, but will chose a regular product over a regular product with ‘negative’ credence attributes. The buyers estimate what type of consumers they have and if many of these are susceptible to activists’ attacks, the damage of the attack for them will be higher. 69 Only if there is enough commodity available that is certified according to these standards. 66

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The same dynamic takes place when there is an activist attack on the reputation outside the club. If the loss in sales is more than the costs of the club membership, the buyer would prefer to be a member of the club (with the negotiated standard with the activist’ approval). UTZ became an activist club eventually: the activist is now incorporated in the governance structure. The key advantage for industry is that it is a safeguard from further attacks of activists. The advantage for activists is a powerful tool to guide behavior and strive for maximization of sustainability externalities instead of club benefits. How exactly the standards were influenced and how the negotiating process took place is unclear.70 De Groote mentioned with respect to these pulling and pushing on the standards, that if he “let them [the activists from CSOs] in at the beginning, the bar would have reached the ceiling!” But he conceded as well, because “the moment good cause organizations start donating hundreds of thousands of euros, it has to be independent”.71 Although the costs increase with the stringency of the standards, there are also benefits like a more professional supply base, logistical benefits, and better quality of the product. So, although the membership costs of buyers increase in the standard, these structural long-term advantages function as an extra benefit which gets larger with the strictness of the standard and affects the net outcome. This extra benefit is relevant on the long-term and is part of the buyers’ strategic consideration on the longer term to join the club. In order to yield these long-term benefits, the buyers in a club will look more favorable upon an increase in the strictness of the standards.72 Initially, the emergence of a club is because of reputation management however. The longterm structural advantages can be pursued by other means, like individual or collective action in an industry association. Therefore, the short-term reputation management benefits are more relevant in the analysis of emerging SCI-clubs. 5.3.2 Club size and expansion to other commodities In the description of how UTZ has emerged, farmer-members have been neglected in the analysis. It was assumed that enough farmer-members assuming produced according to the standard and were willing to be part of the club. The same goes for the trader members.73 Farmers enter the picture as one limit on the club size. This section will outline how (the preferences and capabilities of) farmermembers, buyer-members, activists affect club size and congestion. Pull forces expanding club size The activist club sponsors, buyers and farmers all profit from a large club membership. For activists, more members entail more production of sustainability externalities. For buyers, more farmer

The standard negotiated by the buyer and activist can be a compromise: eventually the activist will want to settle too because the investment in terms of time, negotiating and campaigns will decrease in its marginal return and other industries are awaiting as well. 71 The dynamics have a downside: it stops at satisfaction of the interests instead of making the standard of production really the best as possible (De Groote, 2013). 72 Up to a point; where an increase in very low standards will lead to considerable increase in long-term benefits, the same increase in very high standards will not anymore. 73 As traders are not always part of the supply chain (and if they are they can often pass-on the costs of their certification to the buyer members, making membership very attractive) it is assumed there will always be sufficient trader members for the club to function. 70

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members entail a more secure supply base and more buyer members entail more exposure for the certification which leads to more recognition and reputation benefits. The marginal reputational value goes up for every firm that decides to become a member (Van 't Veld & Kotchen, 2011, p. 313). The farmer members profit from more buyer members, as this creates more demand for their certified beans and driving up the premiums paid. Moreover, the larger the club gets, advantages of an economy of scale come to the fore: more expertise and experience enable the club to professionalize activities with less costs. Push forces limiting club size The standards limit the club size by limiting the potential members, but lenient standards less than stringent standards. The stricter the standard, the fewer farmers comply to the standards, see figure 9. This limits the growth possibilities of the club.

Figure 9: Relation farmers and standards: the stricter the standards, the fewer farmers comply with them without changing practices.

Eventually, the capacities of the farmers limit the buyers’ membership: the easiest reachable and certifiable farmers are certified at first, they have the lowest costs (low-hanging fruit is picked firstly and most cheaply). The more remote, not organized and least professional farmers are more costly. This development has been noted by KMPG, that it may become difficult to expand the supply base to these farmers which include more costs and work to certify (KPMG, 2013, p. 9). The strictness of the standards determines the amount of farmers that comply or will be able to comply. If the number of farmers is low, the supply of the certified commodity is small as well, limiting the potential amount of buyer-members (unless the club trains many farmers who do by far not comply to the standards, which will be an costly strategy, making the certified commodity more expensive and hence limits the potential amount of buyer-members). Hence, there is a limited amount of certified commodity the club can provide at a certain price. Only a limited amount of buyers can join at that price, eventually crowding (or congestion) sets in. Another factor limiting buyer-membership is the presence or absence of the activist attacks. The certification on the products of the own brands of supermarkets affects negatively the reputation of the not certified comparable products of other brands, especially not certified grade-A products. This causes reputational damage for these brands, incentivizing them to join. After a while, it 57

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becomes more interesting for activists to focus on other industries due to decreasing marginal sustainability benefits. ‘Attacking’ buyers in other industries and/or expanding activities of the club to other commodities will at one point lead to more marginal result. In response to the question what is to be considered the main impact of UTZ, De Groote says “that the product has become discussionfree. Coffee is well organized now. So the world of the NGOs focuses on chickens, pigs, cashew nuts and what more and they leave coffee alone.” This brings us to the expansion of UTZ to other commodities. Expansion to other industries UTZ has built up knowledge and expertise of the coffee industry which was also applicable in other industries like tea and cocoa. It is rational for the activists to not try to pressure for a new club, but to expand the activities of the SCI to other commodities. Over the years, UTZ has developed expertise and tracking and tracing tropical commodity systems as well as developing standards for those commodities. These were the reasons why they had a comparative advantage and could also apply it in other sectors without much costs and with many social benefits. Gilhuis explains they are preparing to expand to hazelnuts, juices and fruits as well, and the new structure of the code should make it easier to expand to new commodities. Presumably, the worst negative externalities were produced in the coffee chain, rationalizing investment of energy and resources in that industry. Knowledge and expertise from the coffee chain were also applicable in the tea and cocoa chain, bringing down the costs for producing sustainability externalities in those chains. After the comparable commodity chains, less comparable commodity chains come into the picture, firstly the ones that are either still the most close to the expertise of UTZ or the ones where the most externalities are necessary. To fit this in the club framework, it should be noted that different industries entails different ‘products’ of the UTZ-club. Reputation has the characteristics of a public good in the industry. Farmers of one commodity rarely also produce the other commodity. UTZ has different standards, for different commodities. Hence, where congestion sets in should be determined within the industry (the commodity the certification deals with). The fact that the activist will change industry entails that one industry will never be 100% certified by one club. More research could be done modeling situations where more clubs in one industry or several industries are active and second order effects like inflation of a certification seal come to the fore. 5.3.3 Conclusion about emergence and development This section found that the consumer-to-farmer model can be amended to the buyer-to-farmer model. In the buyer-to-farmer model, activists are more powerful, especially when the governance structure becomes multi-stakeholder. The reputational benefits created for the buyer-members profit from the guarantee provided by this governance structure. The activist and buyer can be modeled as rational actors striving for their own benefit in an interaction. Eventually, the best option for both actors was to merge into one club sponsor. The buyers were not unwilling to make the standard stricter, as there are also longer-term advantages for them, as long as the farmers are able to fulfill the standards. The (supply of the) farmer members and the (demand of the) buyer members 58

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should be in balance for the club to function, so both are ‘pushing’ factors on the club size. Another push factor on the club size is decreasing marginal benefits in the industry for the activist. Eventually, it becomes more rational for them to focus on other industries where bigger steps can be taken with fewer efforts, especially industries for which the know-how of the previous industry is also relevant (as it drives down the costs). The club approach can provide for explanations and powerful insights of the emergence and development of UTZ and other SCIs. Where club theory for traditional Buchanan clubs can calculate the optimal club size and the exact point where congestion sets in, this is obviously not possible (yet) for complex phenomena like UTZ. At this point, the approach gives insight in the basic tendencies of SCIs to emerge and how they develop – crucial for understanding their place and potential as a governance mechanism. If it would be known about all industries what amount of negative externalities are produced (or: the need of positive sustainability externalities) and one would map how much the knowledge of one industry applies in other industries, it would be possible to estimate which industries are attractive for UTZ to expand to. The ‘if’ in the former sentence points out the limits of the approach: it is hard to map out the externalities produced and hard (if not impossible due to ‘attribution instead of contribution considerations’) to map what activities will produce what externalities and hence, at what point the activist club will decide to expand. When the club approach would serve as an all-encompassing framework to analyze SCIs, much research on this aspect can be expected. If scientists would get close to such an ‘positive sustainability externalities needed’-map, much could be said about the future of SCIs, and even what specialized SCIs are needed, but do not exist yet.

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6. Conclusion This thesis has investigated whether the club approach is a meaningful way to analyze SCIs, by studying the case of UTZ. The theory is considered a meaningful way to analyze SCIs if it fulfills the following criteria: the central concepts of the approach should be applicable to UTZ, the framework of efficacy of the approach should make sense for the case of UTZ and the approach should account for the development of UTZ. The study started with a discussion of the original theory of clubs and how it has been amended by various scholars to fit the study of SCIs. The work of Prakash and Potoski and the insights added by Kotchen and Van ‘t Veld have served as the basis of the theoretical framework. The central concepts of the approach have been specified: club membership, club benefits, club sponsors and the club’s ‘goal’. This research has pointed out that club membership should not only include ‘buyer’ (roaster) members, but also ‘producer’ (farmer) members and ‘trader’ members (if applicable and certified). More types of members entails more types of benefits that the club strives to maximize if it is an industry sponsored club. Therefore the hypothesis is generated that if the benefits produced have positive sustainability externalities, industry clubs with more types of members align private and social interests better than industry clubs with only one type of member. The club sponsors and goal have been identified as ‘activist’. Hence, the goal is the production of sustainability externalities. Although various types of actors are included in the governance structure, the pursued goal has provided the reason to identify the club as ‘activist’. The pursued goal has been derived from the ‘Theory of Change’ of UTZ and the interview conducted with Gilhuis. The interpretation of efficacy of UTZ and an ‘activist’ clubs correspond. Overall, the central concepts are applicable to UTZ. The framework provided by the theory of clubs to analyze efficacy is firstly the insight that the intended goal of an activist club is different from an industry club. Secondly, Prakash and Potoski emphasize that in order for a club to be efficacious, collective action challenges should be curbed. The model they provide to link the ‘output’ and ‘input’ (in terms of standards and ‘swords’) has been critically assessed. Especially the way the strictness of the standards and swords are measured and categorized should be improved, by making clear categorizations of standards and swords based on more substantive research. Moreover, other aspects that contribute to the efficacy of UTZ, like its institutional fit (the timing, the partnerships with activists, CSOs contributing financially) should be added to the model. More research is worth the effort, as there was a correlation found between the results of the model of Prakash and Potoski and the conclusions of the impact reports. Summarizing, although the methods do not make sense for the case of UTZ, the club approach in general and its emphasis on externalities for efficacy do. According to the club approach SCIs emerge as a result of rational assessments of private actors who are motivated by self-interest to found or join a club. This dynamics can be modeled, even in the case of farmer-to-buyer models (instead of the earlier farmer-to-consumer models). The club approach can account for the emergence of UTZ and its growth, change in governance structure and expansion to other commodities. The ideas of congestion and optimal membership, maximization of positive sustainability externalities are crucial in the analysis. The emergence of UTZ and its change to the multi-stakeholder governance structure is a result of rational assessments of principally 60

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buyers and activists, rationally pursuing their own interests. Several pull and push factors affect club size. At this point, the club approach cannot make an estimated guess yet where congestion sets in, although the dynamics can be outlined. Hence, the development of UTZ can be accounted for, but in order for club theory to develop its full potential, more research should be done: primarily, the central concepts should be more clearly and consistently applied by scientists. Additionally, methods should be developed to categorize industries according to the type of know-how necessary to produce positive sustainability externalities, and the ‘sustainability status’ of industries. Moreover, research should include studying the interaction competition or cooperation between different SCIs and ‘overlapping’ clubs. The club approach can then provide ways to analyze how SCIs should develop in order to make industries more sustainable and eliminate market failures. In other words, although the club approach to SCIs is still in its infancy, it is a meaningful way to analyze SCIs. Much research remains to be done for club theory to be able to serve an allencompassing framework. It is a promising research agenda, as this study pointed out that club theory has the potential to live up to its promise to analyze how private actors can balance out many current imbalances of the market system via SCIs. This inclusion of private actors is essential, because –as Kofi Annan pointed out - we cannot wait on governments to do it all.

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Ponte, S. (2004). Standards and Sustainability in the Coffee Sector: A Global Value Chain Approach. Winnipeg: IISD. Potoski, M., & Prakash, A. (2009). A Club Theory Approach to Voluntary Programs. In M. Potoski, & A. Prakash, Voluntary Programs: A Club Theory Perspective (pp. 30-53). Boston: MIT Press. Potoski, M., & Prakash, A. (2013). Green Clubs: Collective Action and Voluntary Environmental Programs. Annual Review of Political Science, 16, 399-419. Prakash. (2000). Responsible Care: An Assessment. Business Society, 39, 183-209. Prakash, A., & Potoski, M. (2007). Collective Action through Voluntary Environmental Programs: A Club Theory Perspective. The Policy Studies Journal, 35(4), 773-793. Prakash, A., & Potoski, M. (2009). Voluntary Programs: a Club Theory Perspective. Boston: MIT. Prakash, A., & Potoski, M. (2011). Private Authority Certification Regimes. In T. Porter, & K. Ronit, The Challenges of Global Business Authority. Democratic renewal, stalemate or decay? (pp. 3965). Albany, NY: SUNY Press. Raynolds, L. T., Murray, D., & Heller, A. (2007). Regulating sustainability in the coffee sector: a comparative analysis of third-party environmental and social certification initiatives. Agriculture and Human Values, 24, 147-163. Rijksoverheid. (2013). Rijksoverheid. Retrieved from Duurzaam inkopen door overheden: http://www.rijksoverheid.nl/onderwerpen/aanbesteden/duurzaam-inkopen-dooroverheden/voldoen-aan-sociale-voorwaarden Rowe, J. (2005). Corporate Social Responsibility as a Business Strategy. In R. Lipschutz, & J. Rowe, Globalization, Governmentality and Global Politics (pp. 122-160). New York, NY: Routledge. Samuelson. (1955). Diagrammetic Disposition of Public Expenditure. Review of Economics and Statistics, 37(4), 350-356. Solidaridad. (2012). UTZ Certified. Retrieved October 10, 2013, from Solidaridad: http://www.solidaridad.nl/merken/utz-certified SSI. (2010). State of Sustainability Iniatiatives review 2010. Sustainability and Transparency. Winnipeg, Manitoba and London, England: International Institute for Sustainable Development (IISD) and the International Institute for Environment and Development (IIED). Talbot, J. M. (2004). Grounds for Agreement: The International Political Economy of the Coffee Commodity Chain . Oxford, UK: Rowman and Littlefield Publishers. TCC. (2009). Coffee Barometer 2009. Amsterdam: TCC. TCC. (2012, January 12). TCC announces its closing. Retrieved January 4, 2014, from TCC: http://www.teacoffeecocoa.org/tcc/News/General/TCC-announces-its-closing UNCTAD. (2003). Economic Development in Africa. Trade performance and Commodity Dependence. Geneva: United Nations. UTZ. (2007). Annual Report 2006. Amsterdam: UTZ Certified. UTZ. (2008). Annual Report 2007. Amsterdam: UTZ Certified UTZ. (2005). Annual Report 2004. Amsterdam: UTZ Kapeh. UTZ. (2010). Annual Report 2009. Amsterdam: UTZ Certified. UTZ. (2012). Certification Protocol version 3.0. Amsterdam : UTZ Certified . 65

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UTZ. (2013a). 10 Years in coffee, cocoa and tea. From good to better. UTZ Certified Annual Report 2012. Amsterdam: UTZ Certified. UTZ. (2013b, November 14). Coffee. Retrieved from UTZ Certified: https://www.utzcertified.org/en/products/coffee UTZ. (2013c). Draft Core Code of Conduct for Group Certification version 0.2. Amsterdam: UTZ. UTZ. Theory of Change, Appendix D. Van Dale. (2014). Stakeholder. Retrieved April 4, 2014, from Van Dale: http://surfdiensten3.vandale.nl.proxy-ub.rug.nl/zoeken/zoeken.do Van 't Veld, K., & Kotchen, M. J. (2011). Green Clubs. Journal of Environmental Economics and Management, 309-322. Verkaart, S. (2009). The effects of UTZ certified and Fair Trade on coffee producers in Tanzania and Uganda. Certification and the People and Profit dimensions of Corporate Social Responsibility. Nijmegen: Centre for International Development Issues Nijmegen. Vermeulen, W. (2010). The role of government in multi-actor sustainable supply chain governance systems and the effectiveness of their intervention . The Hague: Netherlands Environmental Assessment Agency. Vogel, D. (2008). Private Global Business Regulation. Annual Review of Political Science, 11, 261-282. Vogel, D. (2010). The Private Regulation of Global Corporate Conduct. Business and Society, 49(1), 68-87. Wageningen UR. (2012, June 26). Koffiebranders creëren vraag naar duurzame koffie . Retrieved October 25, 2013, from Wageningen UR: http://www.wageningenur.nl/en/show/Koffiebranders-creeren-vraag-naar-duurzamekoffie.htm Wegner, L. (2012). Coffee fact sheet. Wageningen UR Centre for Development Innovation: Den Haag. WTO. (2013). Technical Barriers to Trade Agreement. Retrieved October 2013, 15, from World Trade Organization: http://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm

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Appendix A: interview Ward de Groote Monday October 1, 2013 I interviewed Ward de Groote, founder of UTZ Certified. De Groote worked from 1989 for Ahold Coffee Company in varying functions and eventually as CEO from 2001 until 2008. He founded UTZ Certified in 2000, together with the Guatemalan Coffee Producer Nick Blocklandt. The interview focused the motivations of Ahold Coffee Company to found UTZ Certified, the value added by advantages of UTZ, and his explanation of the success of the company. He sketches an image of a transforming supply chain, because producers and buyers get to know each other. That makes for more efficient processes. UTZ is valuable, because it works for (and is established to) solve information problems and market failure. The interview started with him stating that certification of coffee will disappear. Waarom gaat certificatie verdwijnen? Kijk eens naar aardappelcoöperaties. Die boeren hadden aardappelen in productie totdat de coöperatie op een gegeven moment zei: “Jij kan beter een Bintje op je grond zetten dan een Eigenheimer.” Toen hadden die boeren zoiets van: als ze het niet vreten dan vreten ze het maar niet. En op een gegeven moment zijn ze het toch gaan bekijken van: “Wat haal je nou van een vierkante meter af? En heb je dan meer opbrengst en wat is dan het eindplaatje?” Dus die boeren zijn aangesloten en die hebben al die informatie tot hun beschikking en gaan steeds betere beslissingen nemen. En toen in de tweede cirkel hebben ze gezegd: “Nou, we gaan ook kijken hoe de hele boel gefinancierd is en welke afspraken met je bank je hebt.” Want als je dezelfde hoeveelheid van je land afhaalt is het raar dat de ene boer zoveel betaalt en de andere boer zoveel. Op een gegeven moment hebben ze alles met elkaar vergeleken en dat gaat er in de wereld gebeuren: ze gaan vergelijken. Want een boer, als die de informatie niet heeft over koffie of over cacao, maar wel over een ander product, zal hij op een ander product overstappen. Dus je moet zoveel investeren om te zorgen dat je je supplies op orde houdt, en die boeren hebben uiteindelijk het laatste woord. Niet de consument, maar de boeren hebben het laatste woord. Daar zit de fout met ons denken. We denken van: “we moeten het ze opleggen”, maar ze redden zichzelf wel. We hebben een heel verkeerd beeld over hoe die mensen functioneren en werken, dat was mijn conclusie begin jaren 90 al. 75% Van de boeren produceren onder prima omstandigheden. Oke, dus 75% die functioneert prima? Ja, nou… wat niet prima is, is dat er wetgeving is maar die wordt niet nageleefd. Heb je het bijvoorbeeld over kinderarbeid? Ja, dat zijn lastige dingen. Maar bij 75% waren de zware issues als kinderarbeid helemaal geen issue. Dat gebeurde helemaal niet. Brazilië, helemaal geen kinderarbeid. Eigenlijk kon je al die plantages al meteen UTZ Certified maken, omdat ze er al aan voldeden? 75% wel ja. Ze waren ook zo om.

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En kost het daarom ook niet zoveel voor bedrijven? Kijk, wat zijn de voordelen om te beginnen? Je krijgt meer inzichten over produceren, je krijgt meer vergelijkingsmateriaal en je maakt je ketens korter. Dat is het principe: handel er tussen vandaan, al die mensen die er geld aan moeten verdienen allemaal ertussen vandaan. Oke, dus voor een bedrijf, dat is een van mijn vragen, wat is het voordeel voor een bedrijf en waarom groeit UTZ zo snel? Klopt het als ik zeg dat dat MVO is en reputatie voordelen, en de kosten worden ook nog minder omdat de tussenhandel wordt uitgeschakeld. Het is voor mij onduidelijk wat dan de kosten zijn voor ze, het lijken alleen maar voordelen. Nou, ik zal je vertellen hoe zoiets gaat. Het is een commerciële beslissing: aan de ene kant wil je commercieel geen risico lopen, en daarom zeg je: “ik doe maximale inspanning om aan te tonen dat ik alles doe” . Dat is de kant van het denken van What’s in it for me? En het tweede dat belangrijk is, is dat je veel beter moet gaan organiseren dat je je supplies op orde houdt. Als je dat niet doet en je blijft ze eenzijdig uitmelken die boeren, dan gaan ze op andere producten over. Dat is een probleem voor alle landbouwproducten. Dus er zijn twee kanten: aan de ene kant je commerciële korte termijn dat je imago op het spel staat, dat is de reden om te beginnen, maar op lange termijn zijn je supplies verkrijgen een groot issue. Bij cacao is dat een veel groter issue dan bij koffie. Die boeren gaan nadenken als je geen info krijgt en je hebt continu het idee dat je leeggezogen wordt en je ziet dat je buurman op een ander gewas zit en die heeft wel een tv in de kamer hangen. Dan gaan ze toch nadenken. We hebben hier altijd het idee dat boeren op een bepaalde manier reageren of dat ze het niet weten. Nou, boeren weten het wel hoor, binnen hun eigen grenzen van wat ze allemaal zouden kunnen weten natuurlijk. Dus als ik nu interpreteer wat het product is van UTZ Certified, dan is het 1. De reputatie en 2. De supply base verzekeren. Ja, die boeren die worden er meer van verzekerd dat ze een goede toekomst hebben. En nog een keer, wat zijn dan de kosten van bedrijven? Ja, Migros, Zwitserland, die zijn bij me geweest want die wilden dus weten hoe dat allemaal werkte dan praat ik over meer dan tien jaar terug- allemaal vragen, vragen, vragen, en ik: “Weten jullie alles?” “Ja” “Nou, zo werkt het..” Twee dagen later, directeur aan de lijn: “Ik heb nog een vraag”. Nou dan weet je wat er gaat komen: dan gaat het over prijs. Hij zegt: “Ik heb nog een vraag: wat doe jij met die extra kosten?” Wat zijn de extra kosten? Nou, je hebt de wereld markt prijs, en je betaalt een x premium aan die boeren, dat weet je niet precies, want dat onderhandel je. Ik zeg: “Welke meerwaarde?” Hij zegt: “Je weet wat ik bedoel.” “Nee, dat weet ik niet.” Hij zegt: “Je betaalt die premium op de UTZ koffie, ten opzichte van dezelfde koffie maar dan zonder UTZ.” Ik zeg: “Maar die wil je toch niet meer?” Is hij stil. Hij zegt: “Ja, maar ik moet toch weten waar ik met die kosten heen moet.” Ik zeg: “Nou, als je die koffie vergeet dat die bestaat omdat je alleen nog maar UTZ wil, dan hoef jij niet na te denken over de meerkosten.” Is gewoon een mentaliteitskwestie, want anders ga je dus alle dagen zitten rekenen van: “O, dat kost me dus zoveel.” Dat is onzin. 68

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Dus wat dat betreft is het ook gewoon een soort van mindset van bedrijven? Want er zijn wel meer kosten, want het kost gewoon meer voor een bedrijf. Ja, ja. Dus een soort van idealisme is ook nodig… Nee. Er zijn twee dingen: op korte termijn is je imago niet in het geding want je doet maximale inspanning. Het kost een hoeveelheid inspanning om goede koffie te krijgen. En op lange termijn zorg je dus dat die supplies bestaan blijven. Ik zei tegen DE [Douwe Egberts] toen ze erbij kwamen, ik zeg één ding: “Breng je eigen boeren in.” Toen zeiden zij: “Die kennen we niet.” Nou ja, zelfde probleem. Dus zat ik met die boeren aan de telefoon: “We kunnen onze hele oogst verkopen aan Douwe Egberts, maar heb jij wel genoeg?” Dat is het ultieme model, dan gaat het goed. Zij vragen aan hun bestaande klanten of ze genoeg hebben, waarom niet, oké dan doen we zoveel procent, zoveel procent [premium]… zo kan je alles aan 1 klant verkopen. Zo is het spel. Maar dat was heel jammer want nauwelijks nieuwe producenten werden ingebracht, moesten we nieuwe projecten opzetten in Uganda en Vietnam. Om genoeg supplies te krijgen. Inkopers stonden meer te trappelen dan boeren? Euh.. Nou ja de bedrijven hadden korte termijn problemen. Het is natuurlijk heel lullig als je A-merk bent in Nederland en opeens komt het private label van Albert Heijn met gecertificeerde koffie, waar de pers fantastisch over publiceert. We hadden hele pagina’s in de krant af en toe. NRC, Reinoud Roscam Abbing, was een journalist en die schreef over dit soort onderwerpen en die is daarheen geweest en die stond te huilen dat hij wegging in Guatemala, hij zegt: het kan dus echt! Hij was zwaar onder de indruk en een hele pagina zwaar positief over ons. En dan ben je A-merk en Douwe Egberts vond dat dus verschrikkelijk dus onder druk van het commerciële spel zijn ze daaraan begonnen. Ik zat in de Koffie Vereniging Branche - die is opgericht om de branche te vertegenwoordigen - maar over duurzaamheid en UTZ mocht niet meer gesproken worden. Dus toen zei ik dan ga ik eruit, want dan kan ik me niet meer verenigen met de doelstellingen. Dat was die Koninklijke Vereniging van Koffie en Thee? Ja. En daar mocht niet over gesproken worden? Nee. Zaten ze op het secretariaat en als de telefoon opgenomen moest worden en het ging over duurzaamheid dan mocht er niets over UTZ gesproken worden. Maar dat is nu wel veranderd, toch? Ja enorm, dat zie je dus hoe je ontvangen wordt in een wereld. Dat is heel apart. Goed, ik moet heel even terug op de draad. Van wanneer tot wanneer was je precies bij UTZ betrokken en kreeg je een opdracht van Ahold om een keurmerk op te richten? Nee. Ik kreeg de opdracht om te kijken hoe onze boeren koffie maakten, hoe de omstandigheden waren. Ze wilden weten of wij in staat waren om tot die boer de keten in te gaan en te kijken hoe het daar dan was.

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En waarom wilden ze dat weten? Nou, kijk, als Max Havelaar zegt: “Je betaalt die boer te weinig en er is kinderarbeid in jullie plantages.” Maar wij weten helemaal niet waar onze plantages zijn. Wij weten helemaal niet wie onze koffie maakt. Het was wel vanuit sociale druk dat die vraag op kwam. Ja heel veel. Ja, want er waren er twee die zwaar onder druk stonden: Douwe Egberts, en wij. En ik, buiten dat het een geweldige ervaring was om al die origines te gaan bezoeken, kwam ik tot de conclusie dat het allemaal best wel mee viel. Dat klinkt wel raar nu hoor, maar zoals jij ook naar die producenten kijkt, met alles wat we in het Westen er nu over gehoord hebben, klopt gewoon niet. Daar kwam ik ook achter. Het is helemaal niet zo. Ik wil het niet bagatelliseren, maar ook kinderarbeid moet je heel genuanceerd naar kijken. Want als er geen kinderopvang is en het seizoen van koffie is zes weken lang plukken en dan moet iedereen helpen, laat je dan die kinderen alleen thuis ofzo? Nee, die gaan mee de plantages op, en de jongste spelen en die iets ouderen plukken mee. Is dat heel erg? Ik heb ook wel bollen gepeld in mijn jeugd. Kon ik wat verdienen. Dus je moet dat genuanceerd bekijken. Je kan alleen maar zeggen we moeten het iets ombuigen. We moeten zorgen dat er scholing is, voor ons was het veel belangrijker dat die kinderen naar school gingen dan of ze in de vakanties een beetje mee plukten. Oké, je kreeg dus de opdracht om dat te gaan bekijken en het viel mee. Maar waarom koos je dan voor een keurmerk, een onafhankelijk keurmerk in plaats van een andere strategie om bijvoorbeeld een betere communicatie op te zetten. Er zijn natuurlijk meerdere mogelijkheden. Ja, dat kwam omdat ik persoonlijk wel heel veel met die boeren had. Het moet wel echt zijn. En we kunnen wel vertellen dat het oké is, maar dat moet onafhankelijk vastgesteld worden om het geloofwaardig te maken. Voor de geloofwaardigheid maar ook dat het echt iets voor die boeren zou betekenen. Vanaf wanneer kwamen er andere bedrijven bij? Want eerst was het alleen Ahold CC en Guatemalteekse boeren, vanaf wanneer werd het meer? Midden jaren 90 zijn we begonnen, op een gegeven moment hebben we de slechtste plantage, in Guatamala was dat El Volcán, dat was zeker in Guatemala niet de slechtste maar van al onze leveranciers zaten daar de meeste problemen. Daar zaten plukploegen die in barakken sliepen waarvan ik dacht, nou die hadden we in de oorlog. Kinderarbeid, geen scholing, van de wereld afgesloten plantage. Wel bereid om te verbeteren, daar moest het dus maar gebeuren. Wat was de vraag? Ria Stout74 hebben we erheen gestuurd, met de vraag of we die boeren, het waren 1300 mensen die op die plantage leefden en werkten, of zij over tien jaar de plantage wilden en zouden kunnen managen. En beiden hebben ze zelf nee op geantwoord. Zijn jullie in staat om je zo te ontwikkelen dat je uiteindelijk zelf, dat was het begin van anders denken. Van daaruit zijn we verder gegaan en Rainforest Alliance vonden we niet goed genoeg, groter premium en je moet dertig procenten doen. 74

Ria Stout is now working at Rainforest Alliance.

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Max Havelaar, minimum prijs, vonden we absoluut geen goed alternatief. Dus uiteindelijk hebben we gezegd, wat willen we? We willen een goed sociaal programma en een milieutechnisch een goed programma. Waarbij de impact de meter is waar we kunnen zien wat we kunnen en niet kunnen en dat wordt allemaal gemeten, wordt allemaal afgecheckt. Waarbij uiteindelijk ook een merk zegt van: “Ik vind kinderarbeid veel belangrijker dan mest of kunstmest, of troep in de rivieren..” Ja er gebeurt van alles natuurlijk. En dan kunnen we kijken hoe we dat gaan doen dan gaan we gewoon meten zonder dat we een oordeel geven van wat goed en slecht is maar gewoon kijken wat er gebeurt. En dat groeide en groeide en op een gegeven moment zeiden we wel van als je het goed wil doen moet het zo. En toen kwam AH in de problemen met gekke koeien ziekte en kippenziekte en allemaal problemen. En AH vraagt: “Kan dat product volledig traceerbaar worden?” Dat kan wel want ik ken al mijn leveranciers. En toen kwam het verzoek van, als we het op de verpakking zetten kan je dan ook vertellen wat erin komt, en toen zei ik van ja dat kan wel maar ik wil wel enige vrijheid houden. Maar je kan wel via het systeem op de houdbaarheidscode, ik denk dat dat nog steeds is, kan je precies zien waar het verdaan komt en werd je gelijk doorgelinkt naar de leveranciers. Dat vonden ze geweldig. Dus die combinaties van die dingen, sociaal, milieu, traceerbaar en dan is die P van profit dat blijft een onderhandelingskwestie, want we moeten het samen doen want als die boeren te veel macht krijgen dan kan je je koffie niet verkopen en als wij te weinig geven dan kunnen zij het niet maken. Was er een rapport over keurmerken met als conclusie, consumenten willen wel meer betalen en een bedrijf kan dat doorberekenen, dat was niet een van de motivaties achter dat oprichten? Nee. Nee. Nee helemaal niet. Het was gewoon goed die keten integreren en dat bewijzen en waarmaken. Wanneer kwam er nu de andere partner bij behalve Ahold CC en wie was dat, wanneer ongeveer? Nou, in september 2003 begon Albert Heijn het op de verpakking te zetten. En volgens mij waren de eerst volgende klanten onze eigen klanten, IKA in Scandinavië en in Engeland wat klanten, dus die kregen het bijna voor niks. C1000 was onze klant die ging ook over. Daar zat wel wat druk achter, en toen belde IKEA zelf met: “We zien wat je gedaan hebt, en we willen jouw koffie.” Dat was echt een mooie doorbraak. En wie was de eerste, ja… Léfelt? Misschien? De kleintjes? Ja het was ook een beetje ondoorzichtig want je zag niet waar het begon. Ineens was het in Japan en Brazilië heel groot, want dan kwam je in Sao Paulo en dan zag je ineens een groot bord met UTZ zonder dat daar verkoopactiviteiten waren gedaan. Daar waren die boeren zelf aan begonnen. Die maakten die koffie, dus die zetten het zelf gelijk erop. Het zocht ook zijn eigen weg. En Douwe [Egberts] is onder de druk van Albert Heijn en dat zij geen antwoord hadden, maar dat was – wat zal het zijn – 2006…. Dat heeft wel even geduurd.

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Het keurmerk stond er toen al. En dat was bepaald door Ahold Coffee Company, die standaarden en die mechanismen om het te handhaven, hoe hadden jullie die gekozen. Met het belang van Ahold CC in gedachten, of het algemene belang of… kijk je naar andere keurmerken? Op het moment dat tonnen geïnvesteerd worden door goede doelen organisaties, dan moet het onafhankelijk. Waren er andere organisaties handhavingsmechanismen?

die

mee

konden

bepalen

over

de

standaarden

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Nee, het liefste niet. Ik ben daar heel veel over gebeld en lastig gevallen en ook bedreigd maar op een gegeven moment kwam de hele koffiecoalitie achter me aan met: “Wat flik je ons nou?” Dus ik uitleggen, uitleggen, uitleggen, en op een gegeven moment zeiden ze: “Het is fantastisch neergezet maar waarom heb je ons niet mee laten doen?” “Nou, als ik jullie mee laat doen dan leggen jullie de lat op zolder, ik kan er dan niet over heen, en de boer kan het ook niet maken.” Dus ik wil, het moet vanuit een hart kloppen, vanuit de basis van het product en de business en dan kan je daarna altijd kijken of je die lat hoger gaat leggen en dat je meer dingen gaat toevoegen. Maar het moet wel realistisch blijven. We kunnen het in Europa al niet eens een worden. Weet je waar koffie allemaal vandaan komt? Dat is zo divers, er zijn zoveel landen, derde wereldlanden, waar de situatie allemaal anders is nou daar moet je allemaal rekening mee houden. Ga je dan in één keer een standaard neerleggen waarvan je weet dat de helft dat helemaal niet kan halen. Je kan veel beter transparant worden, wat gebeurt er, kan je wel en niet laten zien, dat was de keuze om het op deze manier te doen. Want er is wel een causaal verband tussen de hoogte van de standaarden en de grootte van het keurmerk? Ja. En op het moment dat zo een standaard er staat en ik wilde heel graag aids problematiek in het programma zetten bijvoorbeeld en je krijgt andere merken erbij zoals Douwe Egberts… Dat wilden ze niet want dat was een te negatief onderwerp voor het merk. Daar hoef je verder geen ruchtbaarheid aan te geven maar ik heb gewoon plantages waar de helft van de mensen doodgaat! Moet ik dat dan gewoon laten gebeuren en denken van nou ja, dat is mijn probleem niet? Ook CO2 neutraal weet je wel, dan kan je wel zeggen: “Dan moet je credits kopen bij een bos in Scandinavië…” Maar zo’n boer…. dat zit niet in het systeem… iedereen heeft zijn eigen belangetje en blijft daarin hangen en dat is heel lastig. Het succes van UTZ is dat ze daar heel ver weg van zijn gebleven. Gewoon het is vanuit de business vandaan, de boer moet het zien en wij moeten het zien en dan kan je het samen op de markt brengen. Anders blijft het een niche marktje en dat moet niet. Waren er ook subsidies voor keurmerken, en dat dat een reden was om het op te richten? Nee, geen issue. Je moet je voorstellen dat in dit soort grote multinationale bedrijven dat ze dat subsidiegeld het liefst zo ver mogelijk weg houden. Totdat je bijvoorbeeld in Uganda een groot project wil gaan draaien omdat de situatie met de boeren daar zo en zo is, dan kan je zeggen van dan is het handig om daar een instituut heen te brengen, een Solidaridad achtig ding. Want als er

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drieduizendboeren in dat hele programma opgenomen moet worden dan heb je subsidiegeld nodig. Maar zolang ze hen niet nodig hebben willen ze hen er niet bij. O oké, ik dacht omdat Max Havelaar en UTZ beiden in Nederland zijn opgezet, dat de Nederlandse overheid daar wat mee te maken had… Nederlanders hebben van zichzelf dat ze daar wat aan willen doen. Dat is een cultureel ding. Dat is dat opgeheven vingertje. En heeft het feit dat Max Havelaar AH onder druk zette ermee te maken ? Ja. Dat is al dat vingertje. Als je ernaar kijkt zijn degenen die ermee beginnen burgers, niet eens consumenten. Dat zei Nico Roos [Roozen] ook altijd zo mooi, eerst had hij Solidaridad en Max Havelaar opgezet, toen is hij bij UTZ een hele grote rol gaan spelen, maar toen hij bij zijn moeder kwam stond er altijd nog gewoon roodmerk in de kast. Nou… als je niet eens in staat bent om je eigen ouders te overtuigen… zo werkt dat. Er is een grotere politieke druk van burgers dan dat ze daadwerkelijk die macht uitspelen in de supermarkt en meer betalen? Ik heb altijd gezegd: wat er is aangekaart dat is een open deur, dat is waar. Maar de waarheid heeft tienduizend verschillende kanten en richtingen en oplossingsmodellen. Waarom wil een bedrijf dan, als consumenten er uiteindelijk in de winkel niks om geven, dan toch nog bij zo een keurmerk gaan? Nou…. Als je maar groot genoeg bent. Het is een heel spel hè, als je dat uiteindelijk met koffie dat hebt geregeld met Solidaridad, met UTZ of met Oxfam bananen geregeld, dan ben je elkaars partner en zijn er wederzijdse belangen. Dan heb je niet de kans dat zij onverwachts op de radio jou onderuit gaan halen. Het is een spel en dat is jammer. Je kan daarmee namelijk ook weer in de oude situatie verzanden. Dan heb je iedereen monddood gemaakt, terwijl het eigenlijk nog veel beter zou kunnen. Dat is ene beetje de filosofische kant ervan: we hebben ons paradijs gecreëerd, daar moet een bepaald salaris tegenover staan dat minimumloon moet omhoog want de hypotheek moet betaald en dan komen opeens die Oost Europeanen binnenvallen, dat is de hardheid van de markt. En die gunnen we ook alles, maar zij doen het voor vijf euro per uur en wij twintig euro per uur, omdat wij dat nodig hebben om onze standaard van leven op orde te houden. Dat is een hele moeilijke discussie. Als je dat principe begrijpt dan begrijp je ook waarom er uiteindelijk geen keurmerken kunnen zijn. Oké, daar wil ik wel even op inhaken, want mijn theorie gaat er ook vanuit dat er een optimaal aantal leden is van een “club” - en volgens mij heeft UTZ als strategie dat ze alles gecertificeerd willen hebben… Ja, klopt, dat is dom. Dat kan je wel willen, maar dan moet je dus uitkijken… ik heb in de oprichtingsnotulen heb ik laten zetten: we zijn er totdat we toegevoegde waarde hebben of dat er iets beters is. Dat ligt in elkaars verlengde. Weet je, ik hoop niet dat ze uiteindelijk de fout maken dat ze de hele wereld moeten certificeren. Dat zou echt een denkfout zijn. Kijk, aardappelen in Nederland worden niet gecertificeerd maar ze zijn wel op een heel hoog niveau geproduceerd. Ik heb er eens een hele lezing over gegeven. In Enkhuizen en omgeving, daar zitten de beste verrijkers van zaden. 73

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Dus als je een tomatenzaad van die gasten neemt, dan haal je zoveel meer van je kassen af dan als je standaardproducten neemt. Daar zijn we meesters in, in de wereld, absoluut de beste. Als je kijkt naar een vierkante meter, dan weten we hoeveel eraf gaat komen, we weten wanneer we moeten spuiten, in het regenseizoen, als er te weinig is dan moeten we bij spuiten en daardoor ligt de oogst altijd om en nabij de 100 procent. Dat is een manier van produceren dat is top in de wereld, daar hebben we alle kennis van. Hele systemen, we weten alles. Dan hebben we dat wijzende vingertje. We weten veel over systemen. Dan hebben we de retailers en de merken die heel goed zijn in het uitdragen van we hebben een goed product ontwikkeld en toch zijn we niet in staat om te zeggen: maak dat dan maar standaard. Dan weet je waar we…. Je moet die bonen nemen want dat levert jou de meeste koffie op. Want die boeren die leren natuurlijk ook over systemen. Benchmarken van je kostprijzen dat is buitengewoon belangrijk. Veel belangrijker dan een goed keurmerk en nog veel belangrijker dan een minimumprijs ofzo. Gewoon weten wat er is want uiteindelijk moet die boer zelf de keuze maken of koffie wel het beste product is op zijn grond. Want hij komt erachter. De wijsheid van de boer gaat vele malen sneller. Kijk, de wakkere burgers hebben dat in beweging gezet in de context van Max Havelaar, dan pakt de industrie het op en de merken, en dan zegt iedereen: de consument heeft dan het laatste woord. De consument interesseert het geen reet! Nee, want die moeten de maand door zien te komen met een beperkt budget. Daarom blijven plofkippen ook gegeten worden. Want die zijn de helft van de prijs. En dan is het nog maar de vraag of die plofkippen echt zo slecht is. Het is afgrijselijk om te zien hoe ze leven maar die andere is misschien niet zoveel beter… Oké, die consument scheelt het dus niets, het zijn wakkere burgers die het in gang zetten. Ja, dat is het verhaal met Nico Rozen hè; je kan van alles roepen maar het is de vraag wat je in de winkel koopt als je uiteindelijk zelf je geld uit gaat geven. Ik zelf ook, ik weet hoe het allemaal zit en dat het ene product beter is dan het andere product. Maar dat wil nog niet zeggen dat ik die in de winkel steevast koop. Als ik het een samenvat, dan wilden bedrijven meedoen aan UTZ omdat het niet heel veel kosten had en voordelen zoals een betere reputatie en supply base…. Ja, geen negatieve publiciteit. Want C1000 ging van de ene op de andere dag over. Wat was er gebeurd? De koffiecoalitie had een overzicht gemaakt van wie wat deed en AH kwam daar verreweg het beste uit als retailer maar ook, Lidl geloof ik, kwam daar niet helemaal slecht uit want die deed toch iets meer dan de rest. Die stond dus ineens op de tweede plek, dus C1000 hing meteen aan de lijn. Ik zei van: “Joh, het zit er wel in, maar je hebt steeds gezegd van dat je het niet wou dus het staat niet op de verpakking. Ik kan er vanmiddag nog een sticker op gaan plakken.” “Doe dat maar”, zeiden ze. Vanaf nu willen we overal een sticker opplakken. Zo gaat dat, beetje druk erop en het is klaar. Is het daarom ook zo groot, omdat er niet heel veel veranderd hoefde te worden? Ja. Het is ombuigen, in de economie heb ik één ding geleerd: je kan niets drastisch veranderen, het is altijd ombuigen. Je moet in de bestaande flow moet je kijken of er iets kan veranderen. Dus, hoge standaarden zijn het niet maar het zijn standaarden: je weet iets. Kijk, als je het tot op achter de komma uitvoert is het gewoon heel goed. Laatste fase is, en dat is weer een andere discussie is, is biologische teelt beter dan normale teelt. En bij ons mag je het wel 74

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gebruiken als je oogst dreigt te mislukken, maar als jij 6000 hectare koffie hebt staan en je oogst dreigt te mislukken door een of ander beestje, kan je twee dingen doen: kan je zeggen, nou… vreet mijn plantage maar op, niemand die dat voor jou dekt, geen klant, geen handelaar, geen consument die zegt: “Hé, dat is zielig. Maar je hebt wel principes!” Nou.. die gaat spuiten, maar is dat heel erg? Dat is de vraag. Als je wereldwijd biologisch gaat telen dan zijn de risico’s zo groot dat we waarschijnlijk binnen tien jaar allemaal honger hebben. Misschien eerder. Ik ben van mening, ik heb geen oordeel over wat beter is maar als je het goed meet weet je het vanzelf. UTZ heeft dus een grote informatie functie: voor boeren, consumenten en retailers. Ja, korte lijnen dat is het verhaal. Oké, nog even over de werkzaamheid van het keurmerk. Waardoor werkt UTZ? Er is namelijk een theorie die zegt dat dat aan de hoogte van de standaarden ligt en de handhavingsmechanismen om collectieve actie problemen op te lossen. Nee. UTZ in de simpele basis werkt, omdat het heel dicht bij de business staat. Het is geen verstorende factor in de business. Dat is buitengewoon belangrijk. Want als het verstorend werkt dan krijg je niets van de grond. Wat is dan verstorend werken? Hoge standaarden? Weet je wat verstorend is? Nieuwe projecten: het moet op een andere manier. Hoezo? Die boer die verbouwt toch al koffie, waarom moet dat nou anders? Laten we nou kijken wat hij goed doet, en wat niet zo goed doet dat kunnen we bijsturen. Toen ik mijn rapport maakte: 75% van de boeren kunnen de test wel doorstaan. 25% hebben hulp nodig om het beter te gaan doen. Dan kan je twee dingen doen: ik heb van het begin tegen Ahold gezegd ik wil niet dat we die 25% buiten de deur zetten. Want dan werk je alleen met de goede, geef je wat meer en dat boeltje ongeregeld gooi je eraf. Nee. Je moet ze opnieuw opvoeden om wel aan dingen te voldoen. Dat is de insteek geweest. Daarom zit het dichtbij de business. Ik kan niet zeggen doe het even anders. Dat gaat niet. Minimum prijs van Max Havelaar is een forse ingreep in de manier van zakendoen. Dat is een zeer verstorende factor. Zeer verstorend. Maar…. Je zou ook kunnen zeggen, die boeren die ‘nog een beetje hulp nodig hebben’ die mogen dat keurmerk niet dragen. Wat voor mij het ideale model was op een gegeven moment…. Sommige boeren zitten al dertig jaar in dat Max Havelaar programma. Die hebben geen enkele reden om naar de professionele markt te komen want ze hebben een goede prijs. En dat is natuurlijk niet goed. Ik zeg: “Waarom doe je niet Max Havelaar, drie maximaal vijf jaar, en dan moeten ze naar UTZ systeem of een Rainforest [Alliance] systeem en dan moet je ze eruit gooien want dan heb je je bijdrage gehad.” Dan is het goed ze naar een ander niveau te brengen. Het is ook goed om ze wat meer te betalen omdat er investeringen aan vast zitten. Kijk dat is een interessant model. Maar ja iedereen heeft natuurlijk zijn eigen eilandje en belangetje.

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UTZ is nu heel groot geworden en kan daarom veel bewegen. En je zei aan het begin: de impact, dat is het belangrijkste. Maar wat is dan de impact als 75% er al aan voldeed en die 25% een beetje geholpen wordt? De impact is dat het product discussie loos wordt. Koffie is goed georganiseerd. Dus gaat de NGO wereld zich richten op kippen en op varkens en op cashewnoten en ze laten koffie met rust. Dat is de grote winst voor het product. Maar voor duurzaamheid, voor het belang van … ja… de wereld? Nou ja…. Weet je er is iets in gang gezet waardoor de ketens korter worden. Dat is de grote winst dat wordt versneld door dit soort systemen. Die boeren worden uit de anonimiteit gehaald. Die boeren wisten nooit waar hun koffie bleef. Nu, leuk voor de consument want die kan nou zien welke boer erin zit. Wie dat nou ook interessant vindt. Maar wat nog veel leuker was, was dat je met je pak koffie naar die boeren kon gaan en zei: “Kijk als je dit op onze website doet, dat wordt je zo gelinkt…”. Nou dat vonden ze geweldig hadden ze nog nooit meegemaakt. Hele andere vorm van samenwerken. Weet je in mijn begintijd dat ik inkoper was toen was ik altijd aan het onderhandelen. Een week lang aan het onderhandelen. Over centen. En centen is geld hoor. Maar op een gegeven moment ben je in dit soort projecten terecht gekomen ga je over scholing praten, over medische zorg, allerlei dingen. En dan was ik een week in Guatemala geweest, hele week op pad met die eigenaar van de plantage, en dan zat ik aan het eind in de auto naar het vliegveld dat ik wegging en dan hadden we nog geen contract gemaakt. Een prijs! En wat was het fenomeen? Hij wilde niet overvragen en ik wilde niet onderbetalen. Dus kom je op de prijs uit waar je anders ook uit was gekomen. Je weet alle twee waar je staat en wat wel en niet kan. Het is een sociaal effect ? Doordat je elkaar kent… kom je op een eerlijkere manier van zakendoen. Je voelt dat je elkaar nodig kan hebben en als je dat maar heel kort bij elkaar brengt dan zitten er heel veel voordelen in. Het voordeel voor ons was normaal gesproken hadden wij veel meer voorraad. Altijd in opslag altijd in Europa. Op een gegeven moment wist ik precies wat er aan de hand was in de tropen, wanneer de boten onderweg waren, mijn voorraad ging terug naar twee weken. Aanlevertijden van acht weken. Absurd als je erover nadenkt. Mijn geïnvesteerd vermogen kelderde. Ik hoefde niets te verbulken, want die boeren stopten alles vol tot aan het dak. Zonder baaltjes. Dat had een enorm kostenvoordeel, er hoefde geen juten balen van 2 dollar per stuk weer omheen. Ik kon die containers ook weer zo in een keer leeg kieperen. Er ging vierduizend kilo meer in en ik kon hem zo bij de fabriek op de kant zetten. Dus ik had een logistiek enorm voordeel, dat leverde me toen 1,7 miljoen gulden per jaar op alleen omdat we het anders vervoerden. Dan kwam het fenomeen dat zij vanaf de plantage ook geen opslag en dingen meer hadden, het ging gelijk die container in, de koffie werd verser. Want eerder, voordat ze het exporteerden, gingen ze het even snel millen, dan haalden ze het vliesje van die koffie af, dat hoefde ook niet meer. Dus ik kreeg ook, voor hetzelfde contract, betere koffies. Ik kreeg mijn koffie eerder en verser. Toen kon ik ook in mijn melanges veel meer grappen uithalen met hetzelfde eindresultaat. Eigenlijk had ik aan alle kanten winst, winst ,winst, winst. En die boer had hetzelfde gevoel dus het klopte aan alle kanten. Dus het is niet alleen die… die… het gaat om het hele concept. En daarom ben ik ervan overtuigd dat die boeren, die hebben aan

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het eind ook vaak tegen mij gezegd van: “Joh, ik lever aan jou en ik lever aan Max Havelaar, maar ik heb liever dat alles naar jou toe gaat.” Waarom? Zij krijgen meer bij Max Havelaar. Ja, maar ze moesten er ook veel en veel meer voor doen. Zwaar gecontroleerd, tot het vervelende af. En dan niet mogelijk om die order in een keer te doen, dat kwam later pas. De ene week kwam er iemand van Max Havelaar en de volgende week iemand van ons. Waarom kan dat niet in een keer? Want tachtig procent dat ze bekijken is toch hetzelfde. Dat vonden ze lastig. En, over het algemeen het grootste bezwaar van de boeren van Max Havelaar is, is dat ze niet eens vijf procent van hun totale omzet komen, dat echt onder het keurmerk weggaat. Dan is het heel veel inspanning voor een heel klein beetje extra geld. En voor ons is het veel minder inspanning voor veel hogere volumes. En dan niet inspanning in de zin van de mate waarin je aan een certificeringsprogramma moet voldoen, maar gewoon hoe check je dat, hoe volg je dat. Zet het in een systeem! De productiegegevens in een systeem, link dat aan die certificeringsprogramma’s. Daar staat alles in. En dat is wat er gaat gebeuren. En dan is het afvinken van “Hou je je aan de regels?” Net als hier. Dat wordt door een accountant gedaan. Dat kan je gewoon afvinken. Je ziet wat er is ingekocht en verkocht en gebruikt en er is betaald aan minimumsalarissen. Dat staat gewoon in de boekhouding, hoor. Uiteindelijk is er dus geen keurmerk meer nodig omdat tachtig procent van de goederen die hier in Europa gemaakt worden, niet worden gecertificeerd. Dus gaat het overbodig worden. En er blijft wel iets van biologisch of niet, maar ook die blijven van elkaar leren en gaan samenvoegen. Want sommige dingen kan je niet maken zonder bestrijdingsmiddelen. We zijn er nooit mee begonnen omdat we het zo leuk vonden, maar omdat het een reden had. Even kijken naar mijn vragen…. Ja, de laatste vraag. Waarom deed Ahold het alleen? Nou, sterker nog. Albert Heijn wilde het eerst helemaal niet en toen Albert Heijn eenmaal wilde, wilde de raad van bestuur het niet. De raad van bestuur vond me een padvindersclubje. Waarom niet? Omdat ze het zagen als een belemmering. Een handelsbelemmering. Ze wilden vrijheid blijheid. Maar jij wilde dat wel, omdat…? Ik was het ook zat om in de pers aangevallen te worden van, je maakt gebruik van kinderarbeid en je betaalt te weinig. Ik vond, je kan zeggen: “Max Havelaar is de oplossing niet en het is mijn probleem niet.” Het is wel mijn probleem want ik ben verantwoordelijk voor wat ik koop. Dat vond ik de hoofdreden om het te doen en omdat ik wist dat de meeste boeren prima die toets konden doorstaan. Niet omdat die toets niet zwaar genoeg was, nee, omdat die boeren…. Door Max Havelaar een stempel op hadden gekregen dat het allemaal zielige mensen waren. Onzin. Hoe vaak ik niet begin jaren 90 opgehaald werd door mensen in een fantastisch grote auto en dan fourwheeldrive de bergen in en dan bij die mensen thuis, die hebben een gezin die zijn aan het leren. Waar hebben we het allemaal eigenlijk over hier? En dan kom je op andere plekken en dan denk je ja ja, dit is het niet helemaal… Maar ja, dan zit je in een ander land, andere sferen, andere… Afrika is het moeilijkste continent. Vanwege corruptie. Overal.

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Goed. Ik heb een beter beeld gekregen van vanuit welke gedachte UTZ is ontstaan. Bedankt! End of Interview.

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Appendix B: Communication with Henk Gilhuis Interview Henk Gilhuis, department Monitoring and Evaluation woensdag 18 december 2013 Wat is jullie definitie van wanneer UTZ werkt en hoe meet je dat? Poeh… dat is een grote vraag. Wat wij willen is dat boeren duurzaam produceren en de keten daaraan bijdraagt. Het gedachte goed is: Better farming, Better future. Het gaat erom dat boeren denken aan hun mensen, aan het milieu en ook meer winst kunnen maken. Dat gaat samen, bijvoorbeeld in de cacao sector, in Ghana, Ivoorkust, Kameroen, hebben ze heel weinig geïnvesteerd in de sector, in educatie, gezondheidszorg maar ook in markt instituties. Dat betekent dat de gemiddelde leeftijd enorm gestegen is: naar 55. Dat is de gemiddelde leeftijd, hè? Daar zit je dus met een enorm vergrijzingsprobleem. Bij koffie is dat iets minder eenduidig, maar ook daar kamp je met dezelfde problemen, want die kinderen gaan gewoon wat anders doen. Die keuze hebben ze wel, dat ze iets anders kunnen doen? Ja, ze kunnen een handeltje gaan opzetten of ze trekken naar de stad om daar iets te gaan ondernemen. Het gaat dus ook om de duurzaamheid van de keten, want het is een grote zorg voor de hele industrie. En daarbij is certificering niet het grote antwoord hoor, wij willen niet op den duur de hele boel gaan certificeren. De rol van certificering is dat die kan aantonen dat de productie op een aantal cruciale punten duurzaam is. Wat een lastig punt is dat die moeite van de boeren ook wel beloond moet worden en dat de hele industrie dus een betere prijs moet gaan betalen. Want volgens ons zijn dit de benefits voor de boeren: een beter inkomen is een prikkel om goed te zorgen voor het milieu. Er is een premium, maar in onze Theory of Change is een benefit: meer efficiënt, minder kosten en meer opbrengsten. Er zitten namelijk nogal wat inefficiencies in de productie, en dan praten voornamelijk over onze producten van koffie, cacao en thee. Niet teveel bestrijdingsmiddelen, met goede mensen die ervoor doorgeleerd hebben en niet jan en alleman met dat spul aan de gang laten gaan betekent een betere dosering, betekent minder arbeidsziekte, minder arbeidsongevallen. Voornamelijk in de koffieproductie in Vietnam was dit een probleem. Daar denken ze, ik doe er gewoon nog een zak kunstmest op dan groeit het nog harder. Dat was de COSA studie die aantoonde dat UTZ boeren in Vietnam daar verantwoordelijker mee omgaan, toch? Ja, we hebben ze getraind in good agricultural practices, wat niet een blauwdruk is hoor, maar echt maatwerk per land. Het is heel belangrijk dat boeren weten wat de goede hoeveelheid is en dat ze dat opschrijven. Dat is nog een belangrijk ding voor ons: record-keeping. Daarnaast verstevigen we de markt door de traceerbaarheid. Het is een belangrijk onderdeel van het certificeringspakket: de gang van het product door de keten is te volgen. Het is natuurlijk wel wat minder zichtbaar dan het certificaat, dat is de proef op de som: een externe partij die de boer of groep controleert. Een eindafnemer, dat is een Mars of een Sara Lee, kan dan aan zijn inkopers vragen: koop zoveel UTZ koffie/cacao/thee voor mij. Al met al is certificering een heel complex product. 79

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Hoe betrouwbaar is het track and trace systeem? Het is state of the art met allerlei voorzorgsmaatregelen. Niet iedereen kan er zomaar in, alleen een certificate holder. Dus niet alleen boeren certificeren we, maar ook de tussenpersonen door de chain of custody. Dat is een handelaar die fysiek het product verplaatst, zoals een warenhuis. Gebeurt het wel eens dat gewone koffie als UTZ koffie wordt verkocht? Het omgekeerde gebeurd veel vaker: gecertificeerde koffie als gewone koffie. En dat is heel jammer voor de boeren. Kijk, branders betalen voor UTZ koffie een premium en moeten ook een administratieve fee betalen. Dat is waar UTZ van draait. Maar er wordt meer gecertificeerde koffie geproduceerd dan verkocht, er is soms niet genoeg vraag. Je drinkt vaker gecertificeerde koffie dan je denkt. De boeren hebben dan wel de kosten maar niet de baten van de premium, dat is jammer. Ik kan natuurlijk niet zeggen dat het nooit voorkomt dat er gewone koffie is die als UTZ wordt verkocht, want er kan altijd wat gebeuren. Bijvoorbeeld, kijk voor een kleine boer is het niet rendabel om gecertificeerd te raken. Een externe audit kost duizend of meer euro en dat moeten de boeren wel zelf betalen. Dus wat gebeurt er, er is een groep van pakweg duizend boeren in een coöperatie en die coöperatie betaalt de audit. De audit controleert het interne controle systeem van de coöperatie. Of ze precies in kaart hebben gebracht hoeveel iedereen levert en of dat klopt het totale aantal wat de coöperatie verkoopt, verkoopbewijzen, aankoopbewijzen, et cetera. En dan gaan ze een steekproef doen. Het kan voorkomen dat een lid van zo’n groep zegt: “Ik produceer op mijn farm honderd zakken koffie”, en hij levert vervolgens honderd zakken aan de coöperatie. Maar stel nou dat hij in de praktijk maar vijftig zakken koffie produceert, en vijftig zakken van zijn buurman koopt die niet gecertificeerd is. Als zo’n audit nu precies die boer controleert dan zullen ze daar wel een vinger achter kunnen krijgen. Dan krijgt de coöperatie geen certificaat totdat ze het in orde hebben gemaakt. Die audits worden aan ons doorgegeven en wij hebben een beeld van wat voor dingen er vaker misgaan en hoe lang het normaal gesproken duurt om dat weer te repareren. Je kunt het een beetje vergelijken met de Nederlandse voedselwarenautoriteit. Die gaat ook niet langs iedere snackbar om de kwaliteit van de kroketten te controleren. Het viel me op dat jullie op het gebied van monitoring en evaluatie samenwerken met NGO’s, waarom? Ja, als wij roepen “UTZ werkt!” dan maakt dat minder indruk dan als wij zeggen: “Beste KPMG, beste COSA, beste LEI, wij hebben de volgende vraag: werkt UTZ?” Voor de geloofwaardigheid besteden we dat soort onderzoek uit. Anders is het ‘Wij van WC eend adviseren WC eend.” Wat we wél doen, is gegevens verzamelen om een vinger aan de pols te houden en te weten wat werkt en wat niet. De rapporten zijn ook niet onverdeeld positief. Met de verbeterpunten gaan we dan aan de slag. Zijn er publiek gegevens beschikbaar over boeren of roosters die uit het programma worden gezet omdat ze niet aan de standaarden voldoen? Nee, wij zeggen niet jantje pietje heeft niet voldaan. Als iemand niet gecertificeerd is geraakt, krijg je geen certificaat. Wij controleren wel ten onrechte geplaatste zegels. Zit daar niet een partij bij die niet gecertificeerd is. Certificering is vrijwillig maar niet vrijblijvend. Als je UTZ op de markt wil brengen, moet je daar moeite voor doen. 80

M.C. van Rooy


Master thesis IRIO

Stel, een bedrijf plaatst ten onrechte een zegel? Ja, dan roepen we die natuurlijk op het matje en zorgen we dat het niet meer gebeurt. Zijn er nu dingen die ik niet heb gevraagd maar waar uw afdeling wel veel mee bezig is? De werkzaamheid is jouw insteek, ik kan je wel een documentje sturen met onze theory of change. Daar staat precies in hoe wij denken dat dingen in gang worden gezet. Belangrijk is dat we de hele keten mee proberen te krijgen en dat wij willen dat de lusten en de lasten goed verdeeld zijn. En als het gaat om de outcome, willen wij onze claims staven met goed onderzoek. Dat gaat dan om claims als, dankzij UTZ brengen zoveel boeren GAP in de praktijk. De link daarna richting de impact op sociale waarden en milieu, dat is onduidelijker, dat is contributie maar niet attributie om maar met impact onderzoek jargon te spreken. Het gaat om de vraag welke resultaten je kan toeschrijven aan jouw interventie. Certificatie draagt bij maar is niet de oorzaak. Wij hebben bijvoorbeeld weinig invloed op de prijs. Wij kunnen beter helpen de kosten in de klauwen te houden dat dat wij de prijs kunnen regelen. Het is maar een deel. Waar we invloed op hebben is de handelsrelaties in de keten de transparantie van die keten. Maar niet op de prijs, daar hebben wij niets mee te maken. Daar moet je ander soort onderzoek voor doen. Voor koffie is de prijs nu bijvoorbeeld historisch laag, en of dat nu ligt aan corruptie of aan minder vraag…. Ik weet het niet. Er zijn natuurlijk wel dingen die in gang worden gezet. Bijvoorbeeld, omdat het niet mogelijk is voor één boer om zich te laten certificeren moet je je wel aansluiten bij een groep. En dan wordt het ook veel aantrekkelijker voor groothandelaren in die gebieden om te kijken hoe de productie verbeterd kan worden: je hoeft niet met duizenden kleine boertjes te onderhandelen, maar met één coöperatie. Je zet een proces in gang. Verder heb ik nog één vraag die volgens mij niet bij uw afdeling hoort, maar misschien kunt u me er verder mee helpen. In eerdere jaarrapporten van 2009 stond dat UTZ ook traceability services aanbood in suikerriet met name voor ethanol productie. Ook stond er dat er werd georiënteerd op uitbreiding richting Biofuels. Daarna worden deze activiteiten niet meer genoemd. Ik vroeg me af wat ermee gebeurd is. Biofuels doen we niet. We onderzoeken rijst en we starten hazelnoten en fruit en sap. En we zijn bezig met een nieuwe code die een gemeenschappelijke standaard is. Dan komt de standaard er anders uit te zien. Een core code met basisprincipes en een product specifieke code met uitbreidingen. Dat moet de kosten van het ontwikkelen van een code inkorten. Zodat je sneller kunt uitbreiden naar andere producten. Einde interview

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M.C. van Rooy


Master thesis IRIO

E-mail 8th of January in response to a question about the costs of the supply chain actors “De bedrijven in de chain of custody (handelaren, exporteurs, importeurs) berekenen de extra kosten geheel of gedeeltelijk door aan hun klanten, maar UTZ schrijft dat niet voor en volgt dat niet. Dat hangt in de praktijk af van de vraag/aanbod verhouding en andere aspecten van de relatie tussen handelaren en hun afnemers.”

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M.C. van Rooy


Appendix C: Consumer to farmer model

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Master thesis IRIO

M.C. van Rooy


Master thesis IRIO

Appendix D: Timeline of UTZ developments

2002 2003 2004 2005 2006 2007 84

• HQ: Amsterdam • Establishment & public launch • Official registration date is July 1st, 2001

• First 100% UTZ products on the shelves of Albert Heijn

• Sara Lee, ICA & Casino join • Code of Conduct benchmarked with EUREPGAP • New offices in Brazil, Japan & Kenya

• Coffee Support Network launched • Sara Lee triples volume • Offices in Vietnam and Colombia

• UTZ Coffee tracer • McDonals Europe and CocaCola Japan join • New Code of Conduct

• UTZ Kapeh becomes UTZ CERTIFIED Good Inside • Office in North America • Good Inside Cocoa Program • Sara Lee doubles purchases

2008 2009 2010 2011 2012 2020

• Associate ISEAL member • IKEA joins

• First certified cocoa and tea • Traceability services for the RSPO and sugar cane • Three new CoCs

• Full ISEAL membership • Traceability in cotton • Online trainingcenter • Changes in governance

• Good Inside Portal • Field Development department • Joint statement with FLO and RA • Full 4C member • Mars bars, smarties, KitKat, Droste, HEMA, Bijenkorf, Lidl all commit to UTZ Cocoa

• Mission and evaluation department • Start revision process to make 3 CoCs into 1 • Establishment of UTZ Certified BV, owned by foundation

• Mission: 50% of global coffee, tea and cocoa production UTZ Certified

(compiled from annual reports)

M.C. van Rooy SCIs: a club theory approach case study Master thesis IRIO

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