Carrots rather than sticks: Governance of voluntary sustainability standards and farmer welfare in Peru

Abstract

Aligned with the 2030 Sustainable Development Agenda, voluntary sustainability standards (VSS) have gained prominence as market-based tools for sustainability governance. However, whether VSS improve economic sustainability remains subject to vigorous debate. A major limitation of the evidence base is that it does not systematically examine which VSS design attributes affect their impact. In this study, we develop a conceptual framework disentangling three main governance mechanisms through which VSS may affect farmer welfare, which we operationalize using secondary data from a nationally representative farm household survey in Peru. Our results underscore the dominant role of market-based incentives, followed by capacity-building, while rule enforcement with good agricultural practices has no effect on farm revenue. Additionally, organizational membership is found to amplify the revenue effects of VSS through market-based incentives. Our findings advocate VSS organizations to strengthen market-based incentives and capacity-building, while improving standard setting and enforcement to effectively improve economic sustainability.