4
.
3
. Farm with technified shade at medium altitude
The farm has a surface of 35 ha and is located at medium altitude 1000 m above sea level. The
entire farm is devoted to coffee plantation with a density of 3500 plantsha, producing an average
yield of 32.6 qqha. There are 70 treesha of Inga spp., which provide 15 shade cover. To fulfil the
certification criteria on the density and composi- tion of the shade cover, 104 trees of at least ten
native species are planted per hectare. The costs of planting and maintaining these additional
shade trees are summarized in Table 2. The simu- lation results are summarized in Table 3 and Fig.
2.
4
.
4
. Farm with technified shade at high altitude The farm has a size of 70 ha and is located at
high altitude 1400 m above sea level. The coffee plantation contains a density of 4600 plantsha
producing an average yield of 42 qqha. The coffee plantation possesses a 10 shade cover
provided by 47 treesha of Inga spp. To provide a 40 shade cover of the coffee plantation, 124
shade trees of at least ten native species are planted per hectare. The costs of incorporating
and maintaining the additional shade trees are described in Table 2. The simulation results are
summarized in Table 3 and Fig. 2.
4
.
5
. Farm with unshaded monoculture The farm comprises a surface of 70 ha and is
located at high altitude 1400 m above sea level. The coffee plantation contains a density of 5500
plantsha producing an average yield of 50.4 qq ha. To fulfil the certification criteria about shade
cover, 160 trees of at least ten native species are planted per hectare. The costs of planting and
maintaining the required extra shade trees are reported in Table 2. The results of the simulations
for a SUN coffee plantation adopting the BF certification criteria are presented in Table 3 and
Fig. 2.
4
.
6
. Sensiti6ity analysis The sensitivity of the investment to declines in
coffee production due to shade effects and to declines in premium levels was assessed. Except
for the farm with CP, the net present value of the BF coffee plantations is more sensitive to declines
in coffee yields than to decreases in the forecasted premium levels Table 4. This is mainly due to
the direct relation between coffee yields and net income.
5. Discussion
The models indicate that investing in the certifi- cation criteria for BF coffee is financially feasible
for farms under different production systems in El Salvador. For the five farms, the simulation re-
sults show positive expected net present values in more than 50 of the trials Table 3. Large
differences in the results, however, are evident among the different production systems Table 3
and Fig. 2. The results also indicate that financial feasibility increases directly in relation to yields,
as net income in the certified farm is a function of coffee production Table 4.
Investing in the TP farm presents the most promising case, in which 100 of the expected net
present values are positive Table 3 and Fig. 2. By definition, TP farms fulfil the requirements of
composition and density of shade trees. The only additional certification costs incurred are capaci-
tation of workers in the use of agrochemicals and the costs of the certifying team Table 2. As
result, the TP farm shows the lowest costs associ- ated with the certification criteria. Nevertheless,
as TP farms tend to be of small size, those costs are high per hectare Table 2. In El Salvador,
they represent an increase of about 20 of the production costs per hectare of a similar non-cer-
tified farm. Yet, revenues easily compensate for those costs, as coffee is paid a premium starting at
year 2 of the project and production yields remain unaffected by the adoption of the certification
criteria.
Investing in the CP farm had the potential of being profitable but showed the highest risk
Table 3 and Fig. 2. The capital requirements for the initial investments on shade trees in the first
3-year period were low Table 2. Similarly, incre- mental
production costs
for managing
the farm once certified were not considerable Table
2, representing about 6 of the production costs for a similar non-certified CP farm. In spite
of these low capital requirements, net present values were positive only 55 of the time
Table 3. Farms with CP are characterized by modest coffee yields since the land is devoted to
different
economic enterprises.
Coffee yields
were even poorer when the farm was certified in the model, as production may decline in
response to adding shade trees. Those poorer yields mean discrete incremental revenues for BF
that are just enough to compensate the required investments and the opportunity cost of lower
yields. Finally, investing in the TS farms at medium
and high altitude and in the SUN farm was financially viable with acceptable levels of risk
Table 3 and Fig. 2. The initial investment in planting shade trees jumped up significantly for
these farms with respect to that from the CP farm Table 2. Not surprisingly, the SUN farm exhib-
ited the largest initial investment, followed by the farm with TS at more than 1200m, and the farm
with TS at less than 1200 m, respectively. Yet, these capital requirements were not considerable,
representing less than 10 of the production costs in all farms. Contrary to the CP farm, production
yields in the three farms were substantially higher. Thus, the incremental revenues from being cer-
tified as BF offset the larger initial investments and the opportunity cost of abatements in coffee
yields. Indeed, the SUN farm was the most remu- nerative investment with the lowest associated
risk.
Table 4 The sensitivity of NPV in BF coffee plantations with different production systems in western El Salvador to changes in coffee yields
and premiums Decline in coffee yields
a
Coffee planta- Decline in premiums
b
Net present value tions
Percentage over 0 Mean expected value USha
No −
5 TP
100.0 317
No −
10 99.9
254 382
No CP
− 5
99.9 316
No −
10 99.7
− 611
0.0 −
5 Yes
Yes −
10 0.0
− 672
No TSB1200 m
− 5
100.0 1758
1628 100.0
− 10
No 39.3
− 5
− 66
Yes Yes
− 10
22.4 −
185 2207
No TS\1200 m
− 5
100.0 No
− 10
100.0 2051
Yes −
5 37.1
− 123
Yes −
10 23.5
− 265
− 5
SUN\1200 m 2655
100.0 No
− 10
No 100.0
2469 Yes
− 5
38.6 −
140 Yes
− 312
− 10
24.4
a
Declines in coffee yields are due to increases in shade cover: no = no drops in yields; yes = maximum declines are: year 4 −5, year 5 −10; years 6–20 −15.
b
Percentage decline in the value of the forecasted premiums for biodiversity-friendly.
Since the process to ‘modernization’ of coffee plantations started in the 1970s, coffee farms with
dense shade cover have usually been perceived as inefficient and unproductive Perfecto et al.,
1996. Based on this premise, agronomic research and technical advice directed to increasing coffee
yields in northern Latin America has focused on the reduction or elimination of the shade cover.
As a result, there is a lack of knowledge about how to increase production in a coffee plantation
with high levels of shade cover. Although TP farms represent the safest case for adopting the
BF certification criteria, the mentioned lack of know-how constitutes a limitation for increasing
revenues. If yields were raised, farmers may see the value of their properties increased, and conse-
quently, their borrowing capacity enlarged. Fur- thermore, BF coffee in TP farms would be a more
competitive option compared to other land-use alternatives.
The modernization has also led to concern that increasing the shade cover in farms may result in
yield declines. Studies underway in Costa Rica indicate that increases in shade cover up to 40
do not affect coffee production Eduardo Somar- riba, 1997, personal communication. Further-
more, coffee varieties cultivated in El Salvador are shade tolerant Galloway and Beer, 1997, which
makes the chance of dramatic abatements in yield because of increase in shade cover unlikely. If the
fulfilment of the 40 shade cover requirement does not have negative incidence on coffee pro-
duction, the investment becomes riskless Table 4. For the four farms that require investments in
additional shade trees such an eventuality would pull net present values up, reducing accordingly
the risk of the investment. It would also represent a strong incentive for farmers, particularly those
with CP farms, to invest in a BF production system.
Although not contemplated in the models for simplicity, farmers may consider choosing timber
species when adding the required shade trees. Since timber species are common components of
the shade strata of perennial crops like coffee Fuentes Flores, 1979, they are a reasonable op-
tion. Farmers, however, are concerned with dam- age to coffee plants due to tree felling and log
skidding when timber species are harvested Mus- sak and Laarman, 1989. There are indications
that such concern should not be a limitation for adding timber shade trees in coffee plantations
Somarriba, 1997. A study in Costa Rica shows that damage to coffee plants can be minimized
following basic rules for planting and pruning the shade trees, and that income from timber sales
easily pays for the planting and management of shade trees and for the limited damages inflicted
to coffee plants Somarriba, 1992. Those findings suggest that adding timber species is likely to
produce larger net present values than the ones generated by the models in this study.
Adopting the certification criteria requires some initial capital, which varies according to the pro-
duction system in the farm. This requirement can be burdensome for small farmers if they have no
access to credit, as has been the case in El Sal- vador Pelupessy, 1993. Particularly demanding
is the estimated 700 cost of the certification team that small farmers could not cover without some
assistance. For example, most of the owners of TP farms, the most significant production system for
conserving biodiversity, are cash-poor farmers who do not have the monetary resources to pay
that cost. In this regard, international NGOs and aid agencies from developed countries could assist
with start up funds to subsidize the cost of the certification team in small farms, at least during
the initial years of the project. In this manner, the local certifying agency, which is a non-profit foun-
dation, could bestow those costs allowing small farmers to became enrolled in the project and
receive financial compensation for the environ- mental services that their farms provide to the
global society.
Having the models demonstrate the financial viability of the investment in BF coffee under
different production systems, a key question is: will a market for a certified BF coffee develop,
and if so, how large will the premium be? To date no certified BF coffee has been marketed as such,
although environmentally sound speciality cof- fees, like organic, ‘shade-grown’, and ‘bird-
friendly’ coffees are found in the market Rice and Ward, 1996. Environmentally sound special-
ity coffees have developed as consumers favor
green-conscious purchases UNCTAD, 1996. Speciality coffees have exhibited the fastest
growth rate among the different coffee categories Thrupp, 1995. Whereas factors related to green
consumerism are diverse UNCTAD, 1996, an increasing number of coffee drinkers are con-
cerned with conserving bird habitats and forests and prevention of water pollution Rice and
Ward, 1996. In the US alone, about 10 000 pack- ages of ‘bird-friendly’ coffee are sold each month
David Griswold, 1997, personal communication, bearing retail prices of up to 10.50 per a 14-oz
package. Under the favorable conditions of an expanding market for speciality coffees with con-
sumers preoccupied with environmental quality, it is likely that BF coffee has a good chance of
establishing a niche in the market. Predicting the level of the premium for BF is at this time an
educated guesswork. The closest antecedent is the premium paid for certified organic coffees. Or-
ganic coffees may command premiums up to 100 of the conventional product price, although
on average they bear premiums in the order of 10 – 30 above the price of similar non-certified
coffees UNCTAD, 1996. Obviously, the models in this paper are confined to one of a myriad of
possible premium combinations. Other combina- tions based on different assumptions are likely to
produce different results.
5
.
1
. A comment on the ecosystem ser6ices and social benefits deri6ed from biodi6ersity-friendly
coffee plantations BF coffee plantations provide coffee and other
goods through well-established markets, but also provide numerous ecosystem services and social
benefits, all of which contribute to human welfare but are not captured by the market. Among the
ecosystem services provided by BF coffee planta- tion we can mention, at least: 1 providing refu-
gia and habitats for biodiversity Perfecto et al., 1996; Rice and Ward, 1996; Moguel and Toledo,
1999; 2 maintaining and enhancing the nutrient and organic content of soils Wilken, 1987; Bocco,
1991; Babbar and Zak, 1993; 3 sequestering carbon Herrera, 1995; 4 pollinating crops and
other plants Perfecto et al., 1997; 5 controlling pest outbreaks Ibarra-Nunez, 1990; and 6 act-
ing as sources of clean air and water MAG, 1995. The social benefits, at least, include: 1
improved health conditions for farmers and coffee workers through reduced andor controlled use of
agrochemicals; 2 improved living conditions for local workers through an environmental educa-
tion campaign to provide information on how to live in a cleaner and healthier environment; 3
increased opportunities for recreation and eco- tourism; and 4 increased opportunities for ex-
pressing and developing the ethical, aesthetic, and cultural values of many farmers and citizens who
appreciate ‘the beauty of nature’.
Since the ecosystem services and social benefits mentioned above are not captured by the market,
the benefits of adopting the BF certification crite- ria do not end up in the financial gains shown in
this cash-flow analysis. This distinction becomes important when assessing the overall importance
to the local and global society of adopting a BF coffee production system. Policy-makers should
not ignore or undervalue the additional benefits derived from BF coffee plantations, and should
avoid the adoption of alternatives whose social costs far outweigh their benefits — as has been
the case up to now in the promotion of the ‘modernization’ of coffee plantations in spite of
their known environmental and social costs Boyce et al., 1994. Although the analysis pre-
sented here purposefully focuses on the financial feasibility of BF coffee plantations if the invest-
ment is not financially sound, investorsfarmers will not be interested, it seems clear that if the
ecosystem and environmental benefits were added to the financial ones, we would have a stronger
case in favor of adopting the BF certification criteria. This situation demonstrates the need for
additional research in that area and highlights the importance of considering ecosystem and social
benefits in the decision-making process. The esti- mation of the value of the ecosystem services and
social benefits of BF coffee plantations would help clarify the value of this farming system to
society and to the farmer’s own productive capac- ity and sustainability.
6. Conclusions
