Version April 2012 Page 1

The Participation Agreement

A Supply Chain Support Mechanism for the

Sustainable Agriculture Network and Rainforest Alliance CertifiedTM

Frequently Asked Questions

In 2011, the Rainforest Alliance and Sustainable Agriculture Network (SAN) began

charging some of the costs of managing the certification program to those who buy

crops from certified farms. The charge is levied on one actor in the value chain and

based on volumes of certified goods traded. It began with coffee, was extended to

tea and cocoa, and will eventually cover all certified crops. This has naturally raised

a number of questions, and our teams have been meeting with producers and

companies, as well as other stakeholders, to explain the new financial model and

gather feedback on the process. This document summarizes the most frequently

asked questions.

1. Why a Charge, and Why Now?

Since 1991, the development of the pioneering SAN standard for sustainable

agriculture and the related Rainforest Alliance Certified systems have been primarily

supported by funds from public sector donors and philanthropic foundations. Most

funds have gone toward field research, developing better farm-management

practices, training and organizing farmers and developing an effective standard.

While our standard, training programs and auditing methodologies are recognized for

excellence, the market support systems which link certification to on-pack product

claims have not kept pace.

Until recently, farmers, who paid for auditing services and an annual fee based on

farm size, were the only actors in the value chain regularly contributing to the

development of the system. Some food companies and suppliers contracted services

from us for technical assistance and a variety of projects. The NGOs, donors and

companies involved in buying and marketing crops from certified farms all wanted

better distribution of the costs of the program. The Rainforest Alliance, which owns

the certification mark, and the other members of the SAN researched options with

the support of participating traders and food companies.

After extensive review, the Rainforest Alliance and the SAN agreed to implement a

single, simple charge to those companies directly benefiting from the program, in

essence, the price of entry. This system was designed as a minimally intrusive,

efficient, transparent and equitable way to better distribute the costs of developing

and managing the program and providing value-chain actors the systems and

services they deserve. We call it the Participation Agreement.

2. What’s in a Name?

The Participation Agreement is an agreement among the Rainforest Alliance, the SAN

and the companies that buy and sell goods from certified farms. It outlines the

system and the costs of engagement. For tax and contract purposes, the charge is

Version April 2012 Page 2

structured as a royalty payable to the Rainforest Alliance for the use of the

Rainforest Alliance and SAN intellectual property, including the certification seal.

3. What’s the Cost?

The Participation Agreement charge is levied on volumes of traded crops sourced

from Rainforest Alliance Certified farms and registered in our traceability system. The

amount varies by commodity. For example, the contribution is $.015 per pound of

green coffee (charged to the importer/first buyer); $.0125 per kilogram of blended

tea (charged to the blender or party breaking up the original traceability unit); and

$.015 per kilogram of cocoa (charged to the exporter/first buyer). See appendix for

details. The rate for other crops will be determined in due course and in continued

adherence to the principles of transparency and equity.

4. How is the Charge Levied?

The royalty is levied on volumes of goods from Rainforest Alliance Certified farms

that are registered in our traceability system. Invoices are issued quarterly.

5. Why a Flat Rate Regardless of Volumes?

Through research and discussions with companies and stakeholders, we concluded

that a flat rate per commodity was the fairest and most transparent formula – and

the most practical to implement. The rates were initially set to represent about

0.5% of the traded price of the certified product. In order to keep the system from

intruding into the terms of trade and to avoid companies disclosing confidential

information on their sales/purchase price, most stakeholders preferred a flat rate.

In addition, it would be impractical to levy a tiered price structure in the already

complex supply chains. Of course we want seal-using businesses to continue to

scale up volumes to 100% and drive sustainability through certification. The system

will be reviewed after three years and the charges will remain fixed until January 1,

2015. As we all gain more experience with the Participation Agreement, we welcome

suggestions for improvements.

6. How Will the Participation Agreement Funds be Used?

The Rainforest Alliance and the other NGOs in the SAN are all non-profit, mission-

driven conservation and rural development organizations accustomed to stretching

funding to cover ambitious and effective programs. The SAN standard is the only

international set of sustainability guidelines to be developed in the South and owned

and managed by a coalition that includes Southern NGOs; it is not supported by a

single major donor. Rainforest Alliance Certified has been the only charge-free

system to date, and we wish we could keep it that way. But there are significant

costs to managing the systems and services that farmers, businesses and consumers

expect from a global certification mark. This initiative will manage and support:

The use and protection of our intellectual property (name and seal); signing

and distribution of license agreements; guidance and approval of marketing

materials and press releases using our name and seal via the online

traceability system; maintenance and support of our online database.

Improvements in the traceability, chain-of-custody and data-management

systems linking certified products from farm to factories.

Version April 2012 Page 3

Standard development, including field research, adapting the global standard

to specific crops and local conditions, stakeholder consultations, and the work

of the International Standards Committee in Latin America, Asia and Africa.

The SAN secretariat, with a small staff in Costa Rica, SAN operations,

meetings, and the recruitment of new NGO members.

The Sustainable Value Chains program of the Rainforest Alliance, which works

with companies to stimulate demand and increase their purchases of goods

from certified farms.

Communications support to ensure producers and buyers of products bearing

the certification seal describe their relationship with the Rainforest Alliance,

the SAN and the Rainforest Alliance certification program accurately and

effectively.

Legal and administrative services.

Other mission-related activities.

7. Can those Paying the Royalty See How the Funds are Used?

The Rainforest Alliance maintains a four-star rating from Charity Navigator and is

committed to transparency. Our books are independently audited and a financial

summary is published in our annual report. The Rainforest Alliance and the SAN will

provide updates about improvements in the standards and systems, advances that

we would hope will be readily visible to participating companies.

8. Will Rainforest Alliance and SAN Continue to Seek Donor Support?

Yes, and now that the challenges of doubling food production by 2050 in the face of

climate change, limited freshwater, deteriorating farmlands and declining biodiversity

are increasingly understood, there is growing demand for the sustainable agriculture

knowledge, practices and programs that the SAN NGOs have accumulated over the

past 25 years. Development agencies and foundations appreciate that we provide a

rare combination of hands-on support to farmers, boots on the ground, and linkages

between global food companies and millions of smallholders scattered around the

tropics. Donor support helps expand the program; the Participation Agreement

keeps the machinery running; both are needed.

9. Will the New Royalty Require a New Contract?

Yes. Companies that are end-users of products bearing the Rainforest Alliance

Certified seal will continue to sign our standard seal license agreement. Those

companies that are also involved in trading from certified farms and thus paying the

royalty will sign the new Participation Agreement.

Version April 2012 Page 4

APPENDIX : ROYALTY

Certified

Farm

Product

Description Basis of

Calculation

Royalty

Calculation

Event

Organization

Paying

Royalty

Royalty

Rate

Coffee Green

Coffee

Beans for

Export

Net Shipped

Weight on Bill

of Lading

Issuance of

Traceability

Reference to

First Buyer1

First Buyer US$0.015

per pound

of Green

Coffee

Beans

Green

Coffee

Beans for

Local

Processing

Net Weight

on Purchase

Invoice

Issuance of

Traceability

Reference to

First Buyer2

First Buyer

Cocoa Cocoa Beans

for Export

Net Shipped

Weight on Bill

of Lading

Issuance of

Traceability

Reference to

Exporter3

Exporter US$0.015

per

kilogram of

Cocoa

Beans

Cocoa Beans

for Local

Processing

Net Weight

on Purchase

Invoice

Issuance of

Traceability

Reference to

First Buyer4

First Buyer

Tea Made Leaf

Tea

Gross Weight

on Garden

Invoice/Chop

Number

Issuance of

Traceability

Reference to

Blender5

Blender US$0.0125

per

kilogram of

Made Leaf

Tea

1 First Buyer is organization outside country of origin that first buys Green Coffee Beans for onward sale or processing. 2 First Buyer is organization inside country of origin that first buys Green Coffee Beans for local processing. 3 Exporter is organization inside country of origin that exports Cocoa Beans for onward sale or processing. Note: In the case of export by a government body (e.g. in Ghana, Cocoa Marketing Company Ltd.), Exporter is the organization that buys Cocoa Beans from farmers and arranges sale through the government body (e.g. in Ghana, Licensed Buying Company). 4 First Buyer is organization inside country of origin that first buys Cocoa Beans for local processing. 5 Blender is organization that buys Made Leaf Tea from tea factory inside country of origin for blending.