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

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.