Paper Title

“Who Benefits from Fair Trade?”

Start Date

13-7-2012 1:30 PM

End Date

13-7-2012 2:30 PM

Description

Fair trade (FT) is an exchange relationship based on equity and sustainability. It aims to improve the welfare of marginalized producers, primary in less-developed countries, by providing them with enhanced access to international markets and better prices for their goods than available through conventional channels. This is a relatively small but fast-growing market: according to Fairtrade International (FLO), the global FT certification organization, U.S. sales of its certified products increased 5% in 2010 to about $1.2 billion dollars, over 20% of global sales.2

Some consumers are willing to pay a premium for FT goods because they want to support sustainable labor and environmental practices; however, their higher willingness to pay also means higher profits for retailers (Booth and Whetstone, 2007). To what extent does FT improve the well-being of marginalized producers compared with the profits of distributors and retailers in advanced economies? I propose to investigate how the gains from FT are distributed across the value chain – a crucial step in considering its viability as a development strategy.

I begin by consolidating the results of studies on the impact of FT on developing-world producers. I then describe the supply chain of two types of organizations – Alternative Trading Organizations (ATO’s) and Other Distributors (e.g. importers, processors) – and consider how value is distributed among these intermediaries. Finally, I offer some preliminary observations regarding the effectiveness of fair trade as a mechanism for sustainable development.

The impact of FT on producers is unclear. Preliminary evidence, primarily for coffee, suggests that better pricing improves the welfare of farmers and provides economic security, management capability, and other positive externalities. The bulk of the gains from FT accrue to developing-world importers and distributors, however, particularly recent for-profit market entrants. The ethical behavior of consumers may not be sufficient to overcome the failures of free trade, leading me to hold some reservations about its potential as a long-run development strategy.

Most research has considered consumer preferences for fair trade and its impact on producers, yet few studies have considered the role of intermediaries (Becchetti and Huybrechts, 2008). The degree to which ethical shopping by consumers translates into improved producer welfare depends on the structure of the market; the “mainstreaming” of FT will likely have opposing effects on the welfare of producers. This study will provide a broad perspective of ‘who benefits from FT’ by analyzing a sample of intermediaries from different FT product supply chains.

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Jul 13th, 1:30 PM Jul 13th, 2:30 PM

“Who Benefits from Fair Trade?”

Fair trade (FT) is an exchange relationship based on equity and sustainability. It aims to improve the welfare of marginalized producers, primary in less-developed countries, by providing them with enhanced access to international markets and better prices for their goods than available through conventional channels. This is a relatively small but fast-growing market: according to Fairtrade International (FLO), the global FT certification organization, U.S. sales of its certified products increased 5% in 2010 to about $1.2 billion dollars, over 20% of global sales.2

Some consumers are willing to pay a premium for FT goods because they want to support sustainable labor and environmental practices; however, their higher willingness to pay also means higher profits for retailers (Booth and Whetstone, 2007). To what extent does FT improve the well-being of marginalized producers compared with the profits of distributors and retailers in advanced economies? I propose to investigate how the gains from FT are distributed across the value chain – a crucial step in considering its viability as a development strategy.

I begin by consolidating the results of studies on the impact of FT on developing-world producers. I then describe the supply chain of two types of organizations – Alternative Trading Organizations (ATO’s) and Other Distributors (e.g. importers, processors) – and consider how value is distributed among these intermediaries. Finally, I offer some preliminary observations regarding the effectiveness of fair trade as a mechanism for sustainable development.

The impact of FT on producers is unclear. Preliminary evidence, primarily for coffee, suggests that better pricing improves the welfare of farmers and provides economic security, management capability, and other positive externalities. The bulk of the gains from FT accrue to developing-world importers and distributors, however, particularly recent for-profit market entrants. The ethical behavior of consumers may not be sufficient to overcome the failures of free trade, leading me to hold some reservations about its potential as a long-run development strategy.

Most research has considered consumer preferences for fair trade and its impact on producers, yet few studies have considered the role of intermediaries (Becchetti and Huybrechts, 2008). The degree to which ethical shopping by consumers translates into improved producer welfare depends on the structure of the market; the “mainstreaming” of FT will likely have opposing effects on the welfare of producers. This study will provide a broad perspective of ‘who benefits from FT’ by analyzing a sample of intermediaries from different FT product supply chains.