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Fair Trade Contracts for Some, an Insurance for Others

Author

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  • Claire Chambolle

    (Department of Economics, Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique, ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique)

  • Sylvaine Poret

    (Department of Economics, Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique, ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique)

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.

Suggested Citation

  • Claire Chambolle & Sylvaine Poret, 2009. "Fair Trade Contracts for Some, an Insurance for Others," Working Papers hal-00367500, HAL.
  • Handle: RePEc:hal:wpaper:hal-00367500
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00367500
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    References listed on IDEAS

    as
    1. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
    2. 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).
    3. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, April.
    4. 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.
    5. 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.
    6. 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.
    7. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, January.
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    More about this item

    Keywords

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

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