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Fair Trade Coffee: How Much of the Premium Price Gets to the Growers?

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mwkruse
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Victor Claar's Economics Blog: Fair Trade Coffee: How Much of the Premium Price Gets to the Growers?

I'm currently reading Tim Harford's excellent The Undercover Economist. I particularly enjoyed the second chapter–the one dealing with price discrimination as well as product differentiation.

He begins the chapter with a wonderful anecdote–one that makes you wonder how much of the premium price you might be paying for a cup of Fair Trade coffee is actually getting to the poor coffee grower you hope you are helping. In one case, Mr. Harford estimates that over 90 percent of the Fair Trade premium was mysteriously being "lost" between the retailer and the grower.

Since Mr. Harford writes regularly for the Financial Times, they printed this excerpt: …

Comments

4 responses to “Fair Trade Coffee: How Much of the Premium Price Gets to the Growers?”

  1. Marcello Avatar
    Marcello

    I worry less about the sale price and more about the fact that fair trade coffee promises these farmers the ability to unload their crops and never be forced to sell below value. That to me is the real benefit we see from fair trade.

    Reply
  2. victorclaar.blogspot.com Avatar
    victorclaar.blogspot.com

    I’ve been doing a lot of research on this topic for a monograph that will soon be released by the Acton Institute. I was stunned to learn that the farmers participating in Fair Trade agreements can only sell about 20 percent of their Fair Trade crops to for-profit Fair Trade companies like Equal Exchange because the Fair Trade demand is no greater than that.
    With no other option, poor “Fair Trade” coffee growers must sell the remaining 80 percent in the conventional coffee market. So the Fair-Trade market is not necessarily as reliable as we might think it is.

    Reply
  3. Michael W. Kruse Avatar
    Michael W. Kruse

    I look forward to reading the monograph.

    Reply
  4. MikeFrizzi Avatar
    MikeFrizzi

    I believe that fair trade coffee sells at a set base price. The buyers are then free to markup as they choose. The relationship between the price they pay for the beans, and the price they choose to sell it at are fairly unrelated.

    Reply

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