"Fairtrade” and Market Failures in Agricultural Commodity Markets

This paper concerns an NGO intervention in agricultural commodity markets known as Fairtrade. Fairtrade pays producers a minimum unit price and provides capacity building support to member cooperative organizations. Fairtrade's organizational capacity support targets those factors believed to reduce the commodity producer's share of returns. Specifically, Fairtrade justifies its intervention in markets like coffee by claiming that market power and a lack of capacity in producer organizations 'marks down' the prices producers receive. As the market share of Fairtrade coffee grows in importance, its intervention in commodity markets is of increasing interest. Using an original data set collected from fieldwork in Costa Rica, this paper assesses the role of Fairtrade in overcoming the market factors it claims limits producer returns. Features of the Costa Rican input market for coffee permit a generalization of the results. The empirical results find that market power is a limiting factor in the Costa Rican market and that Fairtrade does improve the efficiency of cooperatives, thereby increasing the returns to producers. These results do not depend on the minimum price policy of Fairtrade and therefore can inform on its organizational support activities. Finally, the results also suggest that producers selling to vertically integrated, multinational coffee mills face lower producer price 'mark-downs' compared with domestically owned non-cooperative mills. This result contradicts the popular view that the increasing concentration of vertically integrated multinational firms accounts for a decline in producers' share of coffee returns.

Bibliographic Details

Main Author:	Ronchi, Loraine
Language:	English en_US
Published:	World Bank, Washington, DC 2006-09
Subjects:	AGRICULTURAL COMMODITIES, AGRICULTURAL COMMODITY, AGRICULTURAL MARKETS, AGRICULTURAL PRODUCTION, AGRICULTURAL PRODUCTS, AGRICULTURE, AVERAGE PRICE, BRAND, BUFFER STOCK, CAPACITY BUILDING, CENTRAL AMERICA, CENTRAL AMERICAN, CHOCOLATE, COCOA, COFFEE, COFFEE BUYERS, COFFEE CRISIS, COFFEE FARMERS, COFFEE MARKET, COFFEE MARKETS, COFFEE ORIGINS, COFFEE PRICES, COFFEE PRODUCERS, COFFEE PRODUCTION, COMMODITY, COMMODITY MARKETS, COMMODITY PRICE, COMMODITY PRICES, COMMODITY PRODUCER, COMMODITY PRODUCERS, COMMODITY PRODUCTION, COMMODITY TRADE, COMPETITIVENESS, CONSUMERS, CONVENTIONAL COFFEE, COOPERATIVES, CROPS, DEMAND CURVES, DEMAND FUNCTION, DEPRESSED PRICES, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, ECONOMETRIC ANALYSIS, EXOGENOUS VARIABLES, EXPORT MARKETS, EXTERNALITIES, FAIR, FAIR TRADE, FARMER, FARMER INCOMES, FARMER ORGANIZATIONS, FARMERS, FOOD INDUSTRY, FREE MARKET, FRESH FRUIT, FUTURE RESEARCH, FUTURES, FUTURES MARKETS, GROWTH RATE, HECTARES OF LAND, ICO, IMPERFECT COMPETITION, INCOME, INCREASING RETURNS, INCREASING RETURNS TO SCALE, INEFFICIENCY, INFLATION, INPUT PRICES, INTERNATIONAL COMMODITY AGREEMENTS, LDCS, LESS DEVELOPED COUNTRIES, MARGINAL COST, MARGINAL COST PRICING, MARGINAL REVENUE, MARKET ACCESS, MARKET FAILURE, MARKET FAILURES, MARKET LIBERALIZATION, MARKET POWER, MARKET PRICE, MARKET REFORMS, MARKET RESEARCH, MARKET SHARE, MARKET STRUCTURE, MARKETING, MARKETING BOARD, MARKETING BOARDS, MIDDLEMEN, MONOPOLY, NEW COMMODITY, NICHE MARKETS, ORGANIC MARKETS, PLANTATIONS, PRICE CONTROLS, PRICE DISTORTIONS, PRICE INDEX, PRICE MECHANISM, PRICE POLICY, PRICE PREMIUM, PRICE RISK, PRICE SCHEDULE, PRICE STABILITY, PRICE SUPPORT, PRICE TREND, PRICE UNCERTAINTY, PRICE VOLATILITY, PRIMARY COMMODITIES, PRIMARY COMMODITY, PRODUCE, PRODUCER GROUPS, PRODUCER ORGANIZATION, PRODUCER ORGANIZATIONS, PRODUCER PRICE, PRODUCER PRICES, RETAIL, RURAL PRODUCER, SAFETY NETS, SALES, SMALL PRODUCERS, STOCKS, SUGAR, SUPPLY CURVE, SUPPLY CURVES, SUPPLY MANAGEMENT, SURPLUS, TEA, TECHNICAL ASSISTANCE, TOTAL REVENUE, TRADED COMMODITY, TRADEMARK, TRADEMARKS, VOLATILITY, WORLD MARKETS,
Online Access:	http://documents.worldbank.org/curated/en/2006/09/7064411/fairtrade-market-failures-agricultural-commodity-markets https://hdl.handle.net/10986/9265
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