A Value Chain Analysis of Fairtrade Coffee

University essay from Lunds universitet/Department of Economics

Abstract: Fairtrade represents a small but rapidly growing share of the world market. This paper discusses Fairtrade impact on the coffee value chain. Both Fairtrade and the coffee value chain link together the producer and the consumer. This is of importance as the geographical distance between where most coffee is produced and consumed can be great and level development often varies widely. In Northern consuming countries coffee has become a fashionable drink and coffee chains expand rapidly. Coffee is becoming an increasingly differentiated product and most value to the product is added in the North where rents are largest. At the same time, coffee prices received by producers in the South are rather low, around the turn of the century even below production costs. The spread between coffee producer prices and retail prices tends to increase. This paper shows that Fairtrade increases producer income and market power. However, Fairtrade does not necessarily increase producer share of final retail price as gains from Fairtrade in producing countries tend to be outset by inefficiencies further down the chain. Costa Rica has been producing coffee for 200 years and Fairtrade coffee since 1989. Costa Rica has a long history of coffee production and provides an example of coffee producing countries in this paper.