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

Piyapromdee, S; Hillberry, R; MacLaren, D; (2014) ‘Fair trade’ coffee and the mitigation of local oligopsony power. European Review of Agricultural Economics , 41 (4) pp. 537-559. 10.1093/erae/jbt028. Green open access

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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.

Type: Article
Title: ‘Fair trade’ coffee and the mitigation of local oligopsony power
Open access status: An open access version is available from UCL Discovery
DOI: 10.1093/erae/jbt028
Publisher version: https://doi.org/10.1093/erae/jbt028
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: F12 - Models of Trade with Imperfect Competition and Scale Economies; FragmentationF13 - Trade Policy; International Trade OrganizationsF14 - Empirical Studies of TradeL21 - Business Objectives of the Firm
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10138829
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