Barrons Online
By Bill Alpert

ETHICAL CONSUMERISM IS IN. Sales have reached tens of billions of dollars for coffee, milk, lumber and other products grown organically. Or in an environmentally sustainable way. Or by farmers who got a fair piece of the action. The movement has spurred sales for Whole Foods Markets, Green Mountain Coffee Roasters and food producer Hain Celestial, and wooed socially responsible investors to old-line firms like Procter & Gamble, Kraft and Home Depot. It owes its credibility to organizations like TransFair and the Rainforest Alliance, which license their logos in exchange for social commitments by manufacturers, distributors and retailers.

“We don’t say that you can shop your way to heaven,” says Chris Wille of Rainforest Alliance, by phone from the organization’s Costa Rican base. “But buying the right cup of coffee or chocolate bar really makes a difference down here in the farming areas.”

But, which is the right coffee or chocolate? Ethics certifiers now find themselves competing for the cooperation of Starbucks, Wal-Mart and other companies, so they have begun to question each other’s ethics and accuse each other of lowering standards to help big business “greenwash” its products and business practices. The Rainforest Alliance draws criticism, for example, for failing to demand higher prices for the coffee it certifies, and for allowing pesticides that could kill the tree frog shown in its logo. A fast-growing sustainability certifier named Utz is called a front for industry backers like the Dutch grocer Ahold. Leading organic certifier Quality Assurance International, or QAI, has been called a flag of convenience for large-scale agribusiness.

“The range of certifications is really quite tremendous and growing all the time,” says Steven Lydenberg, chief investment officer at the firm Domini Social Investments. “We tend to treat certain ones more seriously.” TransFair is one of those groups.

LEGITIMATE LABELS CERTAINLY have funded good works and brought well-earned profits to companies like Whole Foods and Green Mountain. But some certifiers could do better at doing good. Michael Conroy, chairman of TransFair USA, a Fair Trade certifier, hopes the credible certifiers ultimately will win in the ethical-branding market. “Some of the industry-backed systems,” he says, “are, in fact, marketing rackets.”

Even the most established of these movements, organic-food certification, fights internally about who is authentically organic. Many consumers think organic food has been tested for pesticides. But organic certifiers spend most of their time shuffling papers and auditing the files of farmers for records indicating that forbidden chemicals weren’t used. Inspectors are typically free-lancers who receive a couple of hundred bucks for visiting a farm.

Mischa Popoff of British Columbia, Canada, was one of those inspectors. He visited hundreds of farms on behalf of organic certifiers and believes most of the farmers were credibly organic. But Popoff was frustrated when he’d see farms whose “organic” fields were as green and pest free as their conventional fields. One farmer’s garage hid gallons of the herbicide Roundup. When Popoff made a fuss about these suspicious findings, he says he was blacklisted by some certification outfits.

Conscientious farmers go to a lot of trouble to be organic, so they worry about competing with cheaters who just want the price premiums that an organic label can command. Popoff argues that routine pesticide tests could catch cheaters, the way that drug tests snare doped athletes. But in the 1990s when the organic industry was helping to draft the federal law on organic labeling, the industry considered and rejected a requirement that organic food be residue-tested.

“Organic is an alternative method of agriculture,” says Joe Smillie, who founded the San Diego-based organic certifier QAI. “It isn’t a food-safety claim and it is not a free-from-pesticides claim.”

When the U.S. Department of Agriculture rolled out its organic rules in 2002, it allowed but did not require a suspicious inspector to send samples to a lab that tests for pesticide residue. But the cost of such lab tests comes out of a certification firm’s pocket. Popoff says that inspectors who demand a lot of tests don’t get rehired. “The law’s set up so that you don’t want to test,” confirms an executive at one certification outfit.

As packaged-food giants like Kraft and Kellogg joined organic pioneers like Hain Celestial, sales of organic products in the U.S. exceeded $10 billion last year, and they are growing at a 20% annual rate. The most prominent organic agribusinesses are the dairy producers Horizon Organic, which Dean Food acquired in 2004 for about $270 million, and Aurora Organic Dairy, which was started with seed money from the Harvard University endowment. As the private-label supplier to the likes of Wal-Mart and Safeway, Aurora’s 2007 revenues could surpass $100 million.

Large-scale operations like Aurora have been the subject of complaints by organic-watchdog groups such as the Cornucopia Institute and the Organic Consumers Association. In August the USDA obtained a consent agreement from Aurora in which the dairy promised to increase dramatically the pastureland available to its cows (without admitting to any violations of organic food laws). Aurora’s facilities had been certified organic by the Colorado Department of Agriculture and by QAI, which certifies about two-thirds of all organic products sold at retail.

Rival certifiers grumble that QAI really stands for “Quick And Immediate.” Since 2004, it’s been owned by a testing organization called NSF International, which started out as a spin off of the University of Michigan’s public-health school and is now a not-for-profit giant whose executives can earn more than half a million dollars a year.

QAI has staunchly defended Aurora Dairy, saying it is in full compliance with organic food law. “We take our job of ensuring the integrity of the organic industry very seriously,” says QAI President Kristen Holt. With so many organic products being certified by QAI, she notes, the odds are that its name will appear in some complaints. But QAI says that it decertified 30 clients for non-compliance in the nine months through September, and refused certification to 19 new applicants.

If organic certification merits skepticism here in the U.S., what about organic stuff imported from places like China?

Credibility is precious for groups like Conroy’s TransFair USA, which sets an above-market floor price for coffee sold by co-ops of small growers, and then licenses the “Fair Trade Certified” label to roasters like Green Mountain and retailers like Starbucks and Whole Foods. Those U.S. businesses sold an estimated $730 million in Fair Trade Certified coffee in 2006, up 31% from the prior year. TransFair USA and its affiliates in other countries monitor the co-ops they help, to ensure Fair Trade money reaches deserving farmers.

Industry-backed programs are a danger to the ethical-branding movement, warns TransFair’s Conroy, author of a new book on the ethical-certification movement. The timber-industry-originated Sustainable Forestry Initiative, or SFI, oversees more acres of forest in North America than the independent Forestry Stewardship Council, or FSC. And in coffee, shipments certified by TransFair are growing fast, but not as fast as those covered by Utz Certified — the organization started by Ahold. TransFair complains that Utz sets lower social and environmental standards, to allow a certified product that’s cheaper for businesses like Ahold, Heineken or Cargill.

Utz’s North American manager Graham Mitchell defends the labeling program as a more realistic standard for the mass-market consumers who don’t want to pay the Fair Trade premium. He says Utz helps farmers by teaching them sustainable-farming techniques that allow them to earn better margins.

The New York-based Rainforest Alliance also competes with TransFair. Last year the Alliance put its frog logo on more than $1 billion worth of coffee, bananas and cocoa from farms in 18 countries. In exchange, the growers work with the Alliance to preserve forests and improve conditions for farm workers. The Alliance also helped promote the standards of the forestry-focused FSC in the face of industry-pushback programs like SFI. Now, the Rainforest Alliance is also working out a global standard for environmentally sustainable tourism.

BUT THE GROUP NEVERTHELESS DRAWS the criticism of organic farmers, because it hasn’t barred growers like Chiquita Brands from using pesticides. Nor does the Alliance guarantee a floor price for commodities — which Fair Trade groups say can allow companies like Procter & Gamble or Kraft to get an ethical-coffee certification on the cheap. The Alliance is also dependent, to some extent, on donations from the companies it certifies: the Alliance’s 2005 tax return (the most recent available) showed its biggest contributors were affiliates of companies such as Kraft, H.J. Heinz and Canadian forest-products producer Domtar.

Rainforest Alliance sustainability director Wille says that banana growers need fungicides to produce in commercial quantity, though his group requires companies like Chiquita to use pesticides safely.

He adds that Rainforest does as much for workers as the Fair Trade programs, ensuring they get safety gear, clean water and schools. “I’d be happy to go out into the field and compare farms,” says Wille.

Although certification movements may seem to be competing for patrons, Wille says the organizations collaborate well in the field. “We’re not really competing,” he says. “All of us certifiers only have about 5% of the coffee market.” That’s all the more reason to ensure that they are really doing good.

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