We have been working on a project looking at the impacts of FairTrade certification on poverty in the coffee industry in Costa Rica. The FairTrade label is the most recognized ethical label globally. Ethical labeling of products aims to draw attention to the way in which goods are made such as labor and environmental practices. They aim to bring consumers closer to the production process and give them the opportunity to decide through their purchases on whether/how their dollars contribute to social and environmental impact. The volume of FairTrade sales has witnessed a dramatic increase in the last decade.
The FairTrade certification aims to offer better terms of trade to producers in developing countries and offers consumers in developed countries a way to contribute directly in lifting people out of poverty. The most important benefits to FairTrade is that it guarantees farmers a "minimum" living wage (for coffee this minimum price is around $1.35 per pound) as well as offers a price premium which is required to be put aside to "improve the quality of life for producers and their communities." In the case of coffee, only small-scale democratically organized producer cooperatives are eligible for certification. There is little actual evidence on whether the FairTrade certification is an effective tool of lifting producers and their communities out of poverty. Because FairTrade is intended for consumers in developed countries to use their purchasing power to affect the lives of people in developing countries, we thought it would be important to understand whether this mechanism works, and quantify the magnitude of the potential benefits. Relative to existing studies on the impact of FairTrade, our research attempts to study the effects of FairTrade certification more in-depth, and bring more broad-based evidence of its impacts.
Our research focus so far has been on the coffee industry in Costa Rica. Coffee is the largest cash crop in Costa Rica. Production happens to a largest extent on small-scale family farms which will hire day laborers, particularly during harvests (2-3 times per year). Berries are picked during harvest and transported to a local processing plant for wet and dry milling. Coffee is then sold on the domestic market or exported.
While coffee is probably the most well-known FairTrade certified product, other products like cocoa, tea, sugar, bananas, and rice have witnessed an increase in the volume of FairTrade sales. We plan to expand the analysis to more countries and products in the near future.
Findings & Implications
Our results so far suggest that FairTrade Certification is an effective tool in improving people's incomes. On average, people's incomes increase with the amount of FairTrade exports, irrespective of the industry where they are employed. But within the coffee industry, skilled farmers tend to gain disproportionately more from FairTrade relative to unskilled workers. These results suggest that FairTrade is potentially an effective tool of poverty reduction (at least for some producers in developing countries), but that it also has distributional consequences which we will be studying in more depth in the next phase of our research.
The Collaborative Process
Raluca: Nathan and I meet often to discuss the ongoing progress on the project and the next steps. For me, collaborating with Nathan on the FairTrade project has been an incredible learning opportunity which has also helped me make substantial progress on my individual research projects. It has been great to get an insight on how he thinks about research and the steps towards writing a successful paper and making a contribution to the literature.