Fairtrade and Market Efficiency: Fairtrade-Labeled Coffee in the Swedish Coffee Market

Abstract

Fairtrade labeling has the potential to increase market efficiency by connecting farmers to altruistic consumers who are willing to pay a premium for sustainability-certified products. A requirement for increased efficiency, though, is that the farmers' benefits are larger than the Fairtrade processing costs and the excess payment by consumers that does not accrue to farmers; otherwise direct transfers to farmers would be more efficient. This paper analyzes how excess payment for Fairtrade-labeled coffee is distributed in the Swedish market, using information on production costs and scanner data on almost all roasted and ground coffee products sold by retailers. A key finding is that roasters and retailers get 61-70%, while producer countries, in this paper comprising coffee farmers, cooperatives, middlemen, exporters, and Fairtrade International, get 24-31%; Fairtrade Sweden gets 6-8%. These values are the upper and lower bounds that reflect assumptions made about the additional costs of producing roasted and ground Fairtrade coffee, given the cost of beans and the Fairtrade license. The Fairtrade label thus seems to create a coffee product that roasters and retailers can use to exploit their market power.

Seeing coffee tourism through the lens of coffee consumption: A critical review

“…The producer concept mostly co-occurred with trade, countries, and fair. The trade and fair concepts represent Fair Trade, a brand that resembles ethical production (Basu & Hicks, 2008;Durevall, 2020). Coffee producers use the brand to symbolise their commitment to ethical coffee production practices, such as using organic materials in coffee agriculture, protecting the environment, and promoting the local community.…”

“…The studies on ethical coffee consumption demonstrate the importance of consumption as integration (Chen, 2020;De Pelsmacker et al, 2005;Durevall, 2020). Some studies used the Theory of Planned Behaviour that analysed the individual subjective norms to the intention for purchasing ethical coffee products (Chen, 2020;Lee et al, 2015).…”

Fairtrade products in retail chains: Case study in the Czech Republic

“…The growth of fair trade and its visibility and recognition can be directly connected to Fairtrade organization, its label and its marketing activities (Wright and Heaton, 2006). Nowadays, Fairtrade is a well-known organization with a well-established label (Durevall, 2020). Fairtrade uses several specific mechanisms to improve the livelihoods of producers in developing countries, such as price floor, Fairtrade premium, access to credits and their stability, institutional structure, but also safe working conditions and environmental protection (Dragusanu et al, 2014).…”

Integrity in Agricultural Supply Chains through Fair Trade and Ethical Sourcing

“…Other critiques dispute the "fairness of fair trade" since the value chain is too long to link producers and consumers directly. Thus, developing countries and farmers receive less money (Andorfer & Liebe, 2012;Bissinger, 2019;Durevall, 2020). Bassett (2010) found no pricing difference between fairtrade and non-fairtrade farmers.…”

“…The fairtrade movement fails to achieve trade fairness since supporting fair trade cooperatives increases production, which can flood the market and lower prices. Trade policy measures (Durevall, 2020) that target disadvantaged farmers (Bacon, 2005) are needed to benefit from global fairtrade programmes. Is fair trade fair?…”