How to maximize the benefits associated with certification and standard compliance

Just a few years ago, standard certifications used to be seen as barriers to markets, even though they strengthen the relationships of producers with buyers, stimulate further development, have a positive social impact and contribute to the sustainable development of the planet.

Whether or not the benefits of standard certification outweigh its costs depends on the producer’s goals, context and current capabilities of businesses. All of these variables reveal the readiness of a company to grow and thus proceed with standard certification.

Here are the major implications and benefits associated with compliance with standard certifications for a business.

FINANCIAL IMPACT

  • Products and/or services that are certified may be sold for higher prices and thus generate higher profits and net income for certified producers. Such products are often more expensive due to the higher effort which has gone into producing and processing them in a sustainable way.
  • Higher profitability is also directly connected with the increased yields and higher quality of certified produce.
  • As compliance to voluntary standards requires good organizational and management skills, businesses whose products or services are certified increase their credibility vis-à-vis investors, thus enjoying better access to credit.
  • In addition, depending on the standard, some producers may receive technical and financial support from the standard organization to assist them in implementing the standard requirements and ensure full compliance.

MANAGEMENT BENEFITS

  • Access to new and growing markets, moving beyond niche categories. In the past several years, several sectors of certified markets have displayed double-digit growth rates, often surpassing the growth rates of conventional markets.
  • Certified products are moving from being niche products to being the mainstream. Growing portions of various global commodity markets are now produced as certified, creating potential disadvantages for those companies that do not yet have any certification.
  • New clients or improved relationships with existing clients. More and more buyers follow the path of “sustainable sourcing”, including high-value/high-volume buyers in both the public and the private sector:
  • Repositioning in global value chains. Compliance with standards can translate into gaining the status of preferred supplier, thus giving companies access to a greater market and income security.

QUALITY MANAGEMENT BENEFITS

  • Better quality and greater yields: The business process improvements usually required as part of complying with standards often result in higher quality products and higher production yields.
  • Better management and production skills: Certified producers often gain comparably better management and production skills as a result of the upgrading process involved in adopting a standard, including through taking part in training, implementing continuous improvement requirements, etc.
  • Improved efficiency and productivity: Adopting better practices and investing in new equipment often contributes to greater efficiency and productivity, especially for farmers or producers who face resource constraints. This potentially results in higher yields/production with the same amount of inputs. As a result, competitiveness improves.

SUSTAINABILITY BENEFITS

  • Better working environment: Improved employee welfare and motivation (lower absenteeism, lower number of work-related accidents).
  • Improvement of basic working conditions for employees, including job security, medical and hospital treatment. Increase in the use of labor contracts, safety equipment, the availability of first-aid kits.
Higher satisfaction of workers due to higher technical assistance and lower trade risk.
  • Some standards aim to extend their impact beyond individual producers, generating positive change at the local community level.
  • Higher incomes associated with producer certification may also improve the overall living conditions of producers.
  • Standards can fill a gap in addressing issues, which are not, or cannot, be tackled by public regulation, or where such regulation is insufficient, e.g. environmental protection (conservation of forests).
  • Standards often include specific requirements, often associated with production processes or methods, which aim to substantially improve environmental management practices.

Here are the major disadvantages and costs associated with compliance with standard certifications for a business.

FINANCIAL IMPACT

  • Investment of time and labor.
  • Impact on yield due to reconversion.
  • Quality premiums can override price differentials.

MANAGEMENT COSTS

Despite the possible benefits, one of the biggest pitfalls of certification is linked to the potentially uncertain returns that stem from it.

  • Obtaining certification does not guarantee that a market will be found for the product. If a company cannot find a buyer for its certified products, it will have to sell them on the conventional market, without benefiting from the price premium normally associated with certification.
  • The oversupply of some certified products is also a persistent phenomenon in certified markets (in which sales represent a smaller portion of global markets than production).
  • As a result, it is often only part of standard-compliant production, which is sold as such.
  • Most voluntary standards offer only modest premium for certified products. The premiums or (minimum prices) for certified products are not always guaranteed, can potentially be quite small, and vary across different standards.

QUALITY MANAGEMENT COSTS

  • Large number of standards: As the number of available standards increases, increasing numbers of buyers may require compliance with various standards. This results in both confusion, as well as in greater transaction costs for producers. In addition, some standards may lack transparency with regards to their certification criteria and procedures.
  • Additional time: Becoming certified entails additional time required for producers and managers to effectively implement new mechanisms and concepts. While some standards may impose maximum working hours for employees, buyers do not necessarily relax their delivery requirements. Coping with such conflicting priorities requires managers to develop additional skills.
  • Additional organizational units: In order to implement better business practices, companies often need to set up management and monitoring systems as well as record keeping mechanisms, including (basic) traceability systems, which might require whole new organizational units.
  • Potentially difficult software and hardware improvements: Some businesses, especially smallholder farmers located in remote areas, may find it difficult to obtain the infrastructure necessary to upgrade their production facilities. This infrastructure can be divided into two types: (1) “hardware”: production equipment, information technology and communication systems, warehouses, sanitation infrastructure, etc.
(2)“software”: implementing rigorous health and safety measures, deliver staff training, etc.

SUSTAINABILITY COSTS

  • The scope of the impact: While the overarching goal of standard certification is to address wider sustainability issues, the benefits associated with compliance do not always necessarily translate into a wide positive impact.
  • The additional resources: The increased net income of standard-compliant producers is not necessarily used to improve the livelihood of the whole community, thus questioning the scalability of positive results stemming from standard adoption.
  • While voluntary standards have been identified as having a positive impact on the environment and communities at large, it has been also shown that standards can only be part of the solution in systemic efforts to protect the environment.
  • Despite positive overall results, research shows that voluntary standards can only be part of the solution in systemic challenges related to environmental and social issues.

Available research also provides important insights into the assessments of standards performance: Any standard is only one tool in the broad set of regulatory options to achieve sustainable outcomes.