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Fair Trade Contracts for Some, an Insurance for Others

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Author Info

  • Claire Chambolle

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, ALISS - Alimentation et sciences sociales - INRA : UR1303)

  • Sylvaine Poret

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, ALISS - Alimentation et sciences sociales - INRA : UR1303)

Abstract

This article analyzes the impact of Fair Trade contracts between sub-groups of farmers and a Fair Trade organization on the spot market price. We analyze a three level vertical chain gathering perfectly competitive farmers upstream who offer their raw product on a spot market to manufacturers who then sell finished products to a downstream retailer. Absent Fair Trade, the entire raw product is sold on the spot market. When a Fair Trade organization offers a Fair Trade contract to a sub-group of farmers, it gathers a Guaranteed Minimum Price clause and a straight relationship between the sub-group of farmers and the retailer. This article highlights several conditions such that a snowball effect exists, i.e farmers outside of the Fair Trade contract also benefit from a higher spot market price.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00367500.

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Date of creation: 11 Mar 2009
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Handle: RePEc:hal:wpaper:hal-00367500

Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00367500/en/
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Related research

Keywords: Guaranteed Minimum Price Contracts; Disintermediation; Fair Trade; Vertical Chain; Two-part Tariff Contracts;

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  1. Fraser, Rob W., 1988. "A Method For Evaluating Supply Response To Price Underwriting," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 32(01), April.
  2. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, April.
  3. Love, H. Alan & Burton, Diana M., 1999. "A Strategic Rationale For Captive Supplies," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(01), July.
  4. Bontems, Philippe & Bouamra-Mechemache, Zohra, 2003. "Predatory Accommodation In Vertical Contracting With Externalities," 2003 Annual meeting, July 27-30, Montreal, Canada 22044, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
  6. Poret Sylvaine & Chambolle Claire, 2007. "Fair Trade Labeling: Inside or Outside Supermarkets?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 5(1), pages 1-24, November.
  7. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
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