This cost-benefit driven approach includes the assessment of external variables. In order to create a comprehensive understanding of the relationship between the costs and benefits of climate-smart agriculture (CSA) for coffee production, Solidaridad and True Price collaborated on an in-depth case study in Mexico.
True pricing is a way of quantifying and monetizing sustainability. The true price is the market price of a product plus the social and environmental costs. CSA coffee in Mexico brings lower environmental external costs than conventional coffee largely due to the fact that climate-smart coffee uses much less fertilizer, and the fertilizer used is primarily organic-based. This considerably reduces soil and water pollution compared to conventional coffee. From a societal perspective, CSA coffee farming provides more income to the farmers, eliminating the problem of underearning (i.e. the inability to provide for one’s needs now and in the future).
The true ROI extends the conventional ROI by including external costs and benefits. The true ROI is highest for investments in climate-smart agriculture. Evidence suggests three main reasons:
- Increased farmer income due to higher yields from climate-smart production.
- Increased production of coffee with lower external costs that effectively replaces conventional coffee with higher external costs. This leads to a net gain in natural capital.
- Increased carbon sequestration because climate-smart coffee plots contain more shade trees.
The general conclusion of the case study indicates significant investments are required up front and in the early years to speed up the transition to climate-smart agriculture in Latin America.
Using the results of this analysis, we aim to contribute to a better understanding of the external costs of agricultural production for the relevant actors. – Joel Brounen, Solidaridad Country Manager and Research Coordinator
- Procurement professionals – The case study provides a way to compare the costs and benefits of different production systems and thereby source products with lower external costs.
- Investment officers – It provides valuable data to better control and reduce the risks associated with investments in coffee at the farm level.
- Producers and their farms – The true pricing and true ROI allow for the optimization of resource efficiency and the reduction of production costs.
- Providers – It helps to adapt existing practices and develop new inputs and services that reduce the costs for farmers, society and nature.
- Roasters, retailers and traders – This framework helps to improve measuring and communicating the social and environmental performance of their coffee origins.