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Where Does the Fairtrade Money Go? How Much Consumers Pay Extra for Fairtrade Coffee and How This Value Is Split along the Value Chain

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  • Helene Naegele

Abstract

Fairtrade certification aims at transferring wealth from the consumer to the farmer; however, coffee passes through many hands before reaching final consumers. Bringing together retail, wholesale, and stock market data, this study estimates how much more consumers are paying for Fairtrade-certified coffee in US supermarkets and finds estimates around $1 per lb. I then assess how this price premium is split between the different stages of the value chain: most of the premium goes to the roaster's profit margin, while the retailer surprisingly makes smaller absolute profits on Fairtrade-certified coffee, compared to conventional coffee. The coffee farmer receives about a fifth of the price premium paid by the consumer, but it is unclear how much of this (quantity-dependent) benefit goes toward the payment of (quantity-independent) license fees.

Suggested Citation

  • Helene Naegele, 2019. "Where Does the Fairtrade Money Go? How Much Consumers Pay Extra for Fairtrade Coffee and How This Value Is Split along the Value Chain," Discussion Papers of DIW Berlin 1783, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1783
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    More about this item

    Keywords

    Coffee; Fairtrade; Price premium; Value chain; Voluntary sustainability standards;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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