Valuing economic costs and benefits of the supply chain of soy, palm oil and cocoa

Given the ambition of the Dutch government to improve the sustainability of the production chains of various important agricultural commodities for the Netherlands economy, there is a need to get more insight in the relation between Dutch trade chains and ecosystem services.

The main aim of this desk-based study on the ecosystem services that support and affect supply chains of various international agricultural commodities is to determine the economic and environmental costs and benefits across the supply chain of soy, cocoa and palm oil, and how these are influenced by sustainable production methods. The alternatives for comparison that were addressed for each commodity are presented in Table S.1. All alternatives were evaluated for the specific technical, economic, environmental and social circumstances in their specific local context.

 Table S.1 Alternatives distinguished in this study for the three commodities

 Soy palm oil and cocoa Table S1

Besides a number of commodity-specific conclusions, several commodity-wide conclusions can be drawn from the study. First, the choice of location of primary production of the commodity is a crucial parameter affecting the presence and value of the main identified ecosystem services, even more important than the level of sustainability of the supply chain. Second, consistently across the three agricultural commodities, carbon storage is the most important environmental effect determining the total environmental costs throughout the supply chain. Third, the commercial feasibility of the cash crops varies across the alternatives of the three commodities, with certified cocoa and certified palm oil being the best performing crops. Fourth, the extended cost benefit analysis (CBA) which internalises the environmental impact of production in the cost side of the equation, reveals that several of the non-certified alternatives are not economically feasible (i.e. CB ratio is smaller than one). Most certified alternatives, however, score positive in terms of sustainability (i.e. CB ratio larger than one) which proves that certification meets the aim of greening the supply chain for these commodities.

 Soy palm oil and cocoa graph

While these conclusions seem to make sense and are in accordance with a fairly large body of literature on the subject, we have also highlighted the relatively small body of ‘hard’ evidence from which the conclusions are derived. In particular, due to the short history of many of the certification schemes there is a severe lack of reliable data on the impact of the scheme on economic, social and environmental performance of certified growers in comparison to non-certified growers. This will require more field-based research in the near future.

 Soy palm oil and cocoa photos

 This study was commissioned by the Netherlands Environmental Assessment Agency (PBL), Bilthoven, The Netherlands, www.pbl.nl

Contact person

Pieter van Beukering (IVM-VU University) and Mark van Oorschot (PBL)

Reports

van Beukering, P., Kuik, O. & van Drunen, M. (2014). Valuing economic costs and benefits of the supply chain of soy, palm oil and cocoa. IVM Report (R-14/04). Institute for Environmental Studies, VU University Amsterdam, 116 pp.

van Oorschot, M. et al. (2016). Wat kan duurzame handel bijdragen aan het behoud van natuurlijk kapitaal?: Effecten van het certificeren van tropische grondstofproductie op ecosysteemdiensten. Beleidsstudie (2407). Planbureau voor de Leefomgeving. Uitgeverij PBL.

van Oorschot, M. et al. (2016). The contribution of sustainable trade to the conservation of natural capital: The effects of certifying tropical resource production on public and private benefits of ecosystem services. Policy Report (1700). PBL Netherlands Environmental Assessment Agency. PBL Publishers.

van Oorschot, M. (2016). Market standards and impacts on ecosystem services: Insights from extended cost-benefit analysis. Presentation. PBL Netherlands Environmental Assessment Agency.