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Quality Upgrading in Global Supply Chains: Evidence from Colombian Coffee

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Listed:
  • Macchiavello, Rocco

    (University of Warwick)

  • Miquel-Florensa, Josepa

    (Toulouse School of Economics)

  • de Roux, Nicolás

    (Universidad de los Andes)

  • Verhoogen, Eric

    (Columbia University)

  • Bernasconi, Mario

    (University of Basel)

  • Farrell, Patrick

    (Columbia University)

Abstract

Do the returns to quality upgrading pass through supply chains to primary producers? We explore this question in the context of Colombia’s coffee sector, in which market outcomes depend on interactions between farmers, exporters (which operate mills), and international buyers, and contracts are for the most part not legally enforceable. We formalize the hypothesis that quality upgrading is subject to a key hold-up problem: producing high-quality beans requires long-term investments by farmers, but there is no guarantee that an exporter will pay a quality premium when the beans arrive at its mills. An international buyer with sufficient demand for high-quality coffee can solve this problem by imposing a vertical restraint on the exporter, requiring the exporter to pay a quality premium to farmers. Combining internal records from two exporters, comprehensive administrative data, and the staggered rollout of a buyer-driven quality-upgrading program, we find empirical support for the key theoretical predictions. The results are consistent with the hypotheses that quality upgrading can provide a path to higher incomes for farmers, but also that it is unlikely to be viable under standard market conditions in the sector.

Suggested Citation

  • Macchiavello, Rocco & Miquel-Florensa, Josepa & de Roux, Nicolás & Verhoogen, Eric & Bernasconi, Mario & Farrell, Patrick, 2025. "Quality Upgrading in Global Supply Chains: Evidence from Colombian Coffee," IZA Discussion Papers 18335, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18335
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    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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