Chapter 3: Premium
Introduction to Premium
To make sectors truly sustainable, we believe that both the value and the risks must be shared across the supply chain. In our Standard, we aim to distribute the benefits and costs of certification more evenly between farmers and companies.
With version 1.4 of the Standard, our approach to Shared Responsibility is changing. In this section, we will discuss the changes for Farm Certificate Holders.
Our new approach to Shared Responsibility
With the 2020 Sustainable Agriculture Standard, we introduced the Sustainability Differential (SD) and Sustainable Investment (SI).
This was a bold and courageous step, with the aim to:
- Improve Shared Responsibility across supply chains
- Promote fair supply chains
- Create a race to the top in terms of sustainability
The idea was that, through a transparency tool, certificate holders would be able to improve their bargaining position while unlocking investments from their buyers. While the approach to SD and SI was ambitious, we recognize that there were challenges in its uptake by market actors, and transparency around prices has not influenced market dynamics as expected. However, this experience has provided valuable insights.
We took on a difficult challenge, and while it didn’t yield the results we expected, we are learning, adapting, and evolving. We listened to feedback that stakeholders found the terms “SD” and “SI” unnecessarily complicated. This is why we are using the term “premium” moving forward. We have merged investments previously made through both the SD and SI (cash and in-kind) into a single, simplified premium by volume.
For companies and brands who want to go above and beyond premium payments and make specific investments in farms or farm groups that are not related to volume, we are developing mechanisms to make such investments outside of our Sustainable Agriculture Standard.
Key Changes:
-
Simplification of Premium Payment Terms: 3.1.2 (previously 3.2.4) merges with 3.2.3 and 3.2.5, reducing redundancy and making it easier for supply chain actors to understand and manage Premium payments. The requirement ensures that contracts specify the amounts and terms of Premium payments, and that these payments are made in full, not in kind.
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Accuracy in Premium Reporting: 3.1.1 (previously 3.2.7) ensures that Premium payments meet the prescribed minimum amounts where applicable and are accurately reported in the system. This is important for maintaining transparency and ensuring that farmers receive their fair share.
Premium – Step-by-Step
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Contracts: Farm CH and SCA set up a contract stating the amount and terms and conditions of payment (paid in monetary funds, not in kind).
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Reporting Premium in traceability platform: Supply Chain Actors must pay the agreed amount, or minimum recommended amount where applicable.
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CH reports on Premium received in the traceability platform (regardless of the amount).
Why is Reporting on Premium Important?
Reporting on Premium, even when amounts vary, is crucial for maintaining transparency in payments. It allows us to monitor the program's impact on producers and ensures buyers remain accountable.
Chapter 3: Premium Requirements Change Overview
|
Requirement Number |
Subject |
Changes from V1.3 |
Implication |
Explanation |
|
3.1.1 |
Premium |
This was previously Sustainability Differential (SD) (requirement 3.2.7) in version 1.3. The requirement specifies that the payment of the Premium must be reported in the traceability platform. For crops like cocoa, the premium must meet the prescribed minimum. |
Ensures transparency and accurate reporting of Premium payments made for certified products, particularly in crops like cocoa, where the premium must meet minimum requirements. |
Maintaining this requirement ensures that all Premium payments (which have replaced Sustainability Differential (SD)) are properly tracked and reported, especially for cocoa, where it guarantees that payments meet or exceed the prescribed minimum. This provides financial accountability and supports fair trade. |
|
3.1.2 |
Premium |
This was previously Sustainability Differential (SD) (requirement 3.2.4) in version 1.3. Requirements 3.2.3and 3.2.5 combined provides simplification, ensuring responsible certificate holders have contracts in place specifying Premium payment terms. Premiums must be paid in full and cannot be paid in kind. |
Provides clarity on Premium payment agreements and ensures that Premiums are paid in full, fostering better compliance and fairness in the supply chain. |
These requirements simplify the process, ensuring that responsible certificate holders have clear contractual obligations to pay Premiums, and that all payments, especially for cocoa, meet minimum standards and are made in full, without the use of in-kind payments. |