Trade effects of voluntary sustainability standards in tropical commodity sectors

Abstract

This article investigates the trade implications of voluntary sustainability standards (VSS) in tropical commodity sectors. VSS are increasingly important, not only in corporate sustainability strategies, but also in trade policy, thereby shifting the responsibility for the governance of sustainability in the food system from the public to the private sector. There is no regulatory framework assuring that VSS do not distort trade while effectively delivering environmental and social sustainability benefits, and conclusive evidence on the trade effects of VSS is lacking. We compile an innovative database of country-level VSS coverage for five tropical commodities, seven VSS observed for seven years, and use a multi-country, -sector and -standard augmented gravity analysis to estimate the trade effects of VSS adoption. Our results confirm a general trade-enhancing effect of VSS, with on average a one pp increase in VSS coverage resulting in a 1.8 to 3.3% increase in export value. Effects are largest for banana, followed by coffee and tea – and are insignificant for cocoa and palm oil. The trade-enhancing effect of VSS certification does not vary with the income level of the exporter but increases with the income level of the importer and with the income gap between trading partners. Our results imply that VSS can be an effective tool to overcome the trade-inhibiting effect of governance distance between countries. Yet, for VSS to effectively reconcile international food trade with sustainability goals, policy attention is needed to VSS adoption and impact in the poorest countries.