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‘Fair trade’ coffee and the mitigation of local oligopsony power

Suphanit Piyapromdee (), Russell Hillberry and Donald MacLaren ()

European Review of Agricultural Economics, 2014, vol. 41, issue 4, 537-559

Abstract: In recent years, there has been considerable growth in ‘fair trade’ markets for several commodities, most notably coffee. We argue that coffee is grown under conditions that might well subject growers to the market power of downstream intermediaries (processors). Using an approach designed to evaluate the effects of state trading enterprises on trade and welfare, we develop an oligopsony model of intermediaries. In this model, fair-trade processors optimise a welfare function that includes the producer surplus of coffee growers. This concern for growers' welfare among some processing firms helps to alleviate the market power distortion. We calibrate the model to price data reported by a fair-trade organisation and consider the counterfactual removal of fair-trade behaviour by processors. As expected, the income of coffee growers (in aggregate) is reduced, though the effects are quite small.

Date: 2014
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Working Paper: 'Fair Trade' Coffee and the Mitigation of Local Oligopsony Power (2008) Downloads
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