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Tracking the Quality Premium of Certified Coffee: Evidence from Ethiopia

Author

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  • Minten, Bart
  • Dereje, Mekdim
  • Engida, Ermias
  • Tamru, Seneshaw

Abstract

Certification of Voluntary Sustainability Standards (VSS) is rapidly increasing in global value chains. While consumers, mostly in developed countries, are willing to pay significant premiums for the certification of such standards, it is not well understood how effectively these incentives are transmitted to producing countries. We study VSS—more in particular Fair Trade and Organic certification—in Ethiopia’s coffee sector, the country’s most important export commodity, using a unique census of transaction data at the export level and large-scale data at the production level. We find that transmission of export quality premiums to coffee producers is limited, with only less than one-third of this premium being passed on, and we find limited evidence of effects due to communal investments. Moreover, as quality premiums are small and average production levels in these settings are low, we estimate that these premiums would only lead to an increased income for coffee farmers of 22 USD per year even with a perfect transmission scenario, and therefore would have little impact on the welfare of the average coffee farmer. Given that the VSS studied are characterized by the highest premiums among VSS schemes, it can be assumed that even lower benefits from other VSS certification schemes trickle down to producers.

Suggested Citation

  • Minten, Bart & Dereje, Mekdim & Engida, Ermias & Tamru, Seneshaw, 2018. "Tracking the Quality Premium of Certified Coffee: Evidence from Ethiopia," World Development, Elsevier, vol. 101(C), pages 119-132.
    • Handle: RePEc:eee:wdevel:v:101:y:2018:i:c:p:119-132
    DOI: 10.1016/j.worlddev.2017.08.010
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    Citations

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    Cited by:

    1. Naegele, Helene, 2020. "Where does the Fair Trade money go? How much consumers pay extra for Fair Trade coffee and how this value is split along the value chain," World Development, Elsevier, vol. 133(C).
    2. Joseph Rajabu Kangile & Reuben M. J. Kadigi & Charles Peter Mgeni & Bernadetha Pantaleo Munishi & Japhet Kashaigili & Pantaleo K. T. Munishi, 2021. "Dynamics of Coffee Certifications in Producer Countries: Re-Examining the Tanzanian Status, Challenges and Impacts on Livelihoods and Environmental Conservation," Agriculture, MDPI, vol. 11(10), pages 1-18, September.
    3. Tamru, Seneshaw & Minten, Bart, 2018. "Investing in wet mills and washed coffee in Ethiopia: Benefits and constraints," ESSP working papers 121, International Food Policy Research Institute (IFPRI).
    4. Ragasa, Catherine & Lambrecht, Isabel & Kufoalor, Doreen S., 2018. "Limitations of Contract Farming as a Pro-poor Strategy: The Case of Maize Outgrower Schemes in Upper West Ghana," World Development, Elsevier, vol. 102(C), pages 30-56.
    5. Rocco Macchiavello & Ameet Morjaria, 2021. "Competition and Relational Contracts in the Rwanda Coffee Chain," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(2), pages 1089-1143.
    6. Seneshaw Tamru & Bart Minten & Johan Swinnen, 2021. "Trade, value chains, and rent distribution with foreign exchange controls: Coffee exports in Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 52(1), pages 81-95, January.
    7. Richey, Lisa Ann & Ponte, Stefano, 2021. "Brand Aid and coffee value chain development interventions: Is Starbucks working aid out of business?," World Development, Elsevier, vol. 143(C).
    8. Naegele, Helene, 2020. "Where does the Fair Trade money go? How much consumers pay extra for Fair Trade coffee and how this value is split along the value chain," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 133, pages 1-1.
    9. Simon L. Bager & Eric F. Lambin, 2020. "Sustainability strategies by companies in the global coffee sector," Business Strategy and the Environment, Wiley Blackwell, vol. 29(8), pages 3555-3570, December.
    10. Tamagn Woyesa & Satinder Kumar, 2021. "Potential of coffee tourism for rural development in Ethiopia: a sustainable livelihood approach," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(1), pages 815-832, January.
    11. Karla Rubio‐Jovel, 2023. "The voluntary sustainability standards and their contribution towards the achievement of the Sustainable Development Goals: A systematic review on the coffee sector," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(6), pages 1013-1052, August.
    12. Knößlsdorfer, Isabel & Sellare, Jorge & Qaim, Matin, 2021. "Effects of Fairtrade on Farm Household Food Security and Living Standards," 2021 Conference, August 17-31, 2021, Virtual 315073, International Association of Agricultural Economists.
    13. Alexis H. Villacis & Jeffrey R. Alwang & Victor Barrera & Juan Dominguez, 2022. "Prices, specialty varieties, and postharvest practices: Insights from cacao value chains in Ecuador," Agribusiness, John Wiley & Sons, Ltd., vol. 38(2), pages 426-458, April.
    14. Klimczuk, Andrzej & Klimczuk-Kochańska, Magdalena, 2020. "Organic Agriculture," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-7.
    15. Macchiavello, Rocco & Miquel-Florensa, Josepa, 2019. "Buyer-Driven Upgrading in GVCs: The Sustainable Quality Program in Colombia," CEPR Discussion Papers 13935, C.E.P.R. Discussion Papers.
    16. Helene Naegele, 2019. "Where Does the Fairtrade Money Go? How Much Consumers Pay Extra for Fairtrade Coffee and How This Value Is Split along the Value Chain," Discussion Papers of DIW Berlin 1783, DIW Berlin, German Institute for Economic Research.

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