Where the money goes
This page exists to keep the project honest. The claim "retailers capture the premium, farmers do not" is the motivation for the whole design, and it is the claim we have the least Peruvian data for.
The mechanism, which does not need a number
The structural argument stands on its own:
- A certification premium exists because a shopper will pay more for a verified claim.
- The claim can only be made by a party the shopper can hold accountable.
- Today, that party is the retailer — the producer's certificate is invisible at the shelf.
- Therefore the retailer is the party that captures the premium the claim creates, whatever its size.
- The farmgate price is set separately, against a commodity reference, in a negotiation where the certification is at best a modest quality adjustment.
What the value-chain literature supports is step 5: farmgate prices are frequently de-linked from the physical realities of production cost, driven by trading mechanisms and reference pricing rather than by what was actually done on the farm.[1] That is the mechanism. The size of the gap is a separate question.
The evidence ledger
| Statement | Status | Basis / what is needed |
|---|---|---|
| Peru is the world's #2 organic coffee exporter, with roughly 90,000 ha of certified organic land | cited | Sector reporting.[2] |
| 93% of organic coffee farmers in the northern highlands hold under 5 ha | cited | Same.[2] Establishes that the relevant unit is the smallholder. |
| Third-party organic certification runs to roughly USD 2,500/yr per operation | soft | PGS literature comparison.[3] Not a Peruvian tariff. Group certification changes it substantially. |
| Farmgate prices are de-linked from production cost | cited | IDH.[1] Mechanism, not magnitude. |
| Shortening the chain and adding value locally improves smallholder margins and income stability | cited | Study of Peru's Agroferias Campesinas: artisanal processing, brand development, strategic storage, localised market access.[4] This is the closest empirical support the project has. |
| Peruvian retailers capture X% of the organic premium | not established | We do not have this figure and will not invent one. Requires paired farmgate/retail price data by crop and channel. |
| Producers under this protocol capture a larger share | hypothesis | The thing the pilot exists to test. See below. |
| Shoppers pay more when the split is disclosed | hypothesis | Plausible and contested. Transparency does not reliably change purchasing behaviour. |
What the pilot must measure
Three numbers decide whether the design does what it claims. All are measurable from contracts the protocol produces anyway — which is a real advantage: the instrument comes free with the mechanism.
split[role=producer] fraction, per crop and channel, over
time. Baseline: farmgate/retail spread for the same crop outside the
scheme.M3 is the one that determines whether this scales past a pilot. A scheme that moves five points of margin to producers but costs more to run than it moves is a research artefact.
That the premium does not grow and the split does not move — distributors simply reprice so their disclosed commission lands where their undisclosed margin used to, and the shopper pays the same for a better-verified potato while the producer's absolute income is unchanged. That would be a success for food integrity and a failure for the project's stated purpose. M1 in absolute soles, not just as a percentage, is what detects it.
"What's fair for their labour"
The project's motivation is that producers should earn what their labour is worth. It is worth being precise about what the protocol can and cannot do about that.
It cannot set a fair price. There is no floor, no formula, no arbiter. A producer can sign a contract taking 20% of the sale, and the protocol will verify it perfectly.
What it does is remove three specific asymmetries that currently make an unfair split easy to sustain:
- The producer can make the claim. The certification is attached to their key, so they are no longer dependent on an intermediary's willingness to vouch for them.
- The split is visible to the person paying. Not to a regulator, not in an annual report — to the shopper, at the moment of the transaction.
- The claim cannot be diluted. The token ceiling means a distributor cannot expand certified volume by mixing in uncertified produce, which is the usual way a premium gets arbitraged away.
That is bargaining position, not a price. Fairtrade takes the other route — it sets floors and premiums as a standard[5] — and the two are complementary: a Fairtrade price floor could be carried as an attestation and enforced as a contract invariant. Combining them is OQ-8.
Sources
- IDH, Sourcing decisions on price should be a function of value and risk. idh.org
- Peruvian organic coffee sector: export rank, certified area, and smallholder share in the northern highlands.
- Participatory Guarantee Systems literature; cost comparison with third-party certification.
- Springer, Sustainable circular strategies and short supply chains among smallholder producers: the case of Peru's Agroferias Campesinas, Agricultural and Food Economics (2025). link.springer.com
- Fairtrade International, small-scale producer standards. fairtrade.net
- Nature Sustainability, A scoping review of market links between value chain actors and small-scale producers in developing regions. nature.com