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Money Well Spent? Operations, Mainstreaming, and Fairness of Fair Trade

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  • Michael K. Lim
  • Ho‐Yin Mak
  • Seung Jae Park

Abstract

We examine the operations, fairness, and social implications of fair trade certified products. We consider the market for fair trade certified products, which may serve as a substitute to a regular product. A fair trade organization chooses standards for the certification, namely, the (unit) premium and minimum fraction of fair trade raw materials, to maximize the total premium transferred to farmers. We analyze the operations of various stakeholders in the fair trade value chain, as well as the role and social welfare of fair trade organizations with different philosophies. We characterize the firms’ entry decision in the fair trade market as well as the resulting market equilibrium. Furthermore, we examine the impact of mainstreaming, i.e., whether to allow large‐scale plantations (often owned by large corporates) to be eligible for fair trade certification or not, which is one of the most discussed topics in the fair trade movement. We also identify the welfare allocation among various stakeholders in the value chain under different certification policies, and thereby address the fairness issue of the fair trade market as well as its resulting social welfare implications. Finally, we obtain a number of policy insights and suggestions to support this nascent marketplace.

Suggested Citation

  • Michael K. Lim & Ho‐Yin Mak & Seung Jae Park, 2019. "Money Well Spent? Operations, Mainstreaming, and Fairness of Fair Trade," Production and Operations Management, Production and Operations Management Society, vol. 28(12), pages 3023-3041, December.
    • Handle: RePEc:bla:popmgt:v:28:y:2019:i:12:p:3023-3041
    DOI: 10.1111/poms.13011
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    Cited by:

    1. Siemieniako, Dariusz & Kubacki, Krzysztof & Mitręga, Maciej, 2021. "Inter-organisational relationships for social impact: A systematic literature review," Journal of Business Research, Elsevier, vol. 132(C), pages 453-469.
    2. Aleda Roth & Yanchong Zheng, 2021. "A Tale of Two Food Chains: The Duality of Practices on Well‐being," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 783-801, March.
    3. David Rea & Craig Froehle & Suzanne Masterson & Brian Stettler & Gregory Fermann & Arthur Pancioli, 2021. "Unequal but Fair: Incorporating Distributive Justice in Operational Allocation Models," Production and Operations Management, Production and Operations Management Society, vol. 30(7), pages 2304-2320, July.
    4. Lingxiu Dong, 2021. "Toward Resilient Agriculture Value Chains: Challenges and Opportunities," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 666-675, March.
    5. Wei Zhang & Long Gao & Mohammad Zolghadr & Dawei Jian & Mohsen ElHafsi, 2023. "Dynamic incentives for sustainable contract farming," Production and Operations Management, Production and Operations Management Society, vol. 32(7), pages 2049-2067, July.

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