Friends or Foes? The Impact of Voluntary Sustainability Standards on Agricultural Exports of Developing Countries

ABSTRACT In recent decades, Voluntary Sustainability Standards (VSS) have increasingly been used to certify products and their production processes, aiming to reduce negative externalities. Understanding the impact of VSS on agricultural trade flows is crucial, especially for developing countries where agriculture holds greater relative significance within the economy. Using a gravity model, we examine how VSS certification affects exports of eight highly traded agricultural commodities under 12 VSS schemes between 2013 and 2021. The findings show that a 1% increase in VSS coverage leads to a 1.88% rise in exports, although higher certification levels result in diminishing trade effects. Commodities such as bananas, palm oil, tea, and cotton benefit most from VSS certification. Trade gains are also more significant for lower‐income countries exporting to high‐income markets, as VSS help reduce information asymmetries. However, export gains for developing countries often come at the expense of domestic consumption, as VSS adoption tends to reallocate sales toward foreign markets. This substitution effect is stronger in poorer countries and weakens as exporters become richer, with the highest‐income developing countries managing to expand both domestic and foreign sales. We also observe empirical evidence that VSS proliferation and increased foreign competition diminish these benefits for major agricultural producers.