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Fair Pricing and Structural Excess Supply

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  • Hamilton, Stephen
  • Ouvrard, Benjamin

Abstract

Growing global concern on the link between international trade of agricultural products and deforestation in developing countries is underscored by EU deforestation regulations in 2024 that prominently include agricultural products such as cocoa, coffee, and oilseed products that are commonly sold as fair trade . We consider the potential for a fair pricing standard to cause structural excess farm supply conditions that can lead to food waste and unnecessary land development. We demonstrate that fair pricing decouples farm supply from the retailer’s optimization problem, resulting in revenue maximizing behavior in the consumer market. This decoupling of cost from profit can cause the agricultural product market to be structurally oversupplied even for small increments in pricing fairness. We confirm these results in a laboratory experiment that endogenizes the fair pricing standard as an equilibrium outcome of private politics between a retailer and eco-certifier. Our experiment generates excess supply that is an order of magnitude larger, in equilibrium, when retailers accept the fair pricing demands of eco-certifiers than when they reject them prior to setting prices.

Suggested Citation

  • Hamilton, Stephen & Ouvrard, Benjamin, 2025. "Fair Pricing and Structural Excess Supply," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 360647, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea25:360647
    DOI: 10.22004/ag.econ.360647
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