The economic costs of cadmium non‐tariff measures for smallholder cocoa farmers in Ecuador

Abstract

AbstractWhile there is a growing number of studies on the export‐ and firm‐level implications of non‐tariff measures for developing countries, there is little evidence on the trickle‐down effects on the farm level. In this paper, we analyse the recent regulations of the European Union regarding the maximum allowed cadmium (Cd) contents for cocoa‐derived products. We assess the potential economic costs associated with these Cd regulations for smallholder cocoa farmers in Ecuador. We rely on data from a nationwide survey among 1392 cocoa producers and a contingent valuation method to estimate producers' willingness to convert cocoa orchards to other land uses in case cocoa bean Cd levels exceed the limit. We estimate that farmers' economic cost of abandoning cocoa production is, on average, about 4400 US$ per hectare. Combining this value with a Cd distribution map and cocoa production statistics, we estimate that abandoning cocoa cultivation in areas with bean Cd concentrations above the 0.6 mg/kg target comes at a total economic cost of about 750 million US$. We conclude that the potential total economic cost of the EU Cd standard at the producer level in Ecuador could be very large if compliance strategies are not implemented to minimise welfare loss.