Or rather what to certify is the question, because trying to trade wine these days without some sort of certification is like going to war without a gun.
Agriculture significant contributions to greenhouse gas emissions has made it the target of many sustainability certifications and restrictions. The United Nations' Sustainable Development Goals (SDGs) in 2015 expedited the integration of greenhouse gas emission measurements into certifications and many producers are now subject to the reporting of these if they want certifications. Voluntary sustainability standards (VSS) have become prevalent in consumer product markets and are increasingly being viewed by regulators as tools to achieve SDGs by just coopting legislation onto these already existing certifications.
Voluntary sustainability standards emerged in response to consumer demand for stricter regulatory measures, particularly among younger demographics. These standards primarily target products produced in less affluent countries, where robust local institutions to enforce such regulations may not always exist. This is a key reason why the proliferation of these standards began in industries such as chocolate and coffee, which are predominantly produced in Africa and South America.
In the wine industry, VSS are facilitated by private third-party certifications and play a significant role in the certification and standardization space.
Certification theoretically:
- Provides consumers with credible information about the certified product's quality, safety, or attributes.
- Signals quality to consumers.
- Addresses market failures, such as externalities and imperfect competition, encouraging producers to meet environmental criteria.
- Builds trust within markets, signalling producers' commitment to quality, safety, or sustainability.
- Facilitates cooperation between buyers and sellers using certification standards and enforcement mechanisms within a game theory framework.
While these may represent the theoretical goals, current perspectives on VSS certifications are divided. Some view them as mechanisms to promote sustainable practices, while others perceive them as obstacles to accessing major consumer markets, an outlook keenly felt by many in our highly export-oriented industry.
There remain questions about the direct environmental benefits, potential indirect impacts, and pathways for large-scale adoption sustainably certifications.
A fundamental question concerns who sets and implements the standards and who is governed by them, influencing their legitimacy. According to Market Coverage and State of Sustainability Initiatives, over 400 VSS exist for food products worldwide.
Many of these standards are driven by the retail sector, which develops its own sustainability frameworks. This approach allows for customization to align with the specific needs of the company and its target consumers, facilitates product differentiation, and has also led to reduced collective bargaining costs for retailers, as the process of vetting potential suppliers becomes significantly more efficient.
One negative consequence of this is the confusion consumers face due to the multitude of certifications, which diminishes their willingness to pay premium prices for certified products. This creates a feedback loop that discourages producers from participating, as uncertainties surrounding consumer demand and their willingness to pay a persist. Research highlights significant variations in sustainability perceptions across different certifications and regions, further amplifying the ambiguity and undermining the assumption that certifications reduce information asymmetry and foster trust.
Conformance to multiple certifications can also result in diminishing returns for producers as there are a lot of overlap between different certifications that might focus on different markets or parts of the value chain, adding cost without proportional benefits.
Powerful international lead firms may also exploit sustainability for profit, extracting value from suppliers, especially in poorer regions, without compensating for increased risks and costs. Thus, VSS's core function, to promote sustainability, can be overshadowed by market control and profit motives.
Despite rigorous analysis, the true benefit of sustainability certification remains debatable, with mixed effects on outcomes depending on where the in the world the certification is applied and to which industry.
In South Africa's wine industry, we have seen large producers leverage economies of scale to offset certification costs, outcompeting smaller producers. Although slight economic advantages in pricing exist, for many smaller producers there is no direct financial benefit.
Globalisation has led to trans-market certification efforts to standardize processes across countries. VSS certifications act as trans-border governance. However, scaling up presents institutional challenges. As more producers convert to the standard, price premiums erode, diminishing positive effects until adherence becomes economically unfeasible. It has also hade the effect that a lot of the requirements for certain certifications that are necessary for international trade are dictated to us in South Africa by the countries being exported to.
The main positive outcome for producers are linked to value chain integration. Inclusive business strategies alongside sustainability certifications can overcome trade barriers set by some markets. As the strengthening of our institutions through the integration of these highly proliferated certifications will lessen the ability of bad actors to use these certifications as barriers to trade.
The success of certifications is influenced by national context and institutional conditions, with credibility being driven by adherence to best practices. This is exemplified in the wine industry by the two most prominent certifications, IPW and WIETA, which have been adopted by over 80% of producers within the sector.
In cases of such high proliferation, best practice would entail transitioning the certification into the legislative framework, integrating it into the standard regulatory functions carried out by SAWIS. This approach would alleviate the financial and administrative burden on producers.
For a sustainability certification to achieve true success, it must genuinely support growers in improving their practices within their specific local context, rather than serving solely as a prerequisite for market access.