When fairtrade contracts for some are profitable for others

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Claire Chambolle, Sylvaine Poret
European Review of Agricultural Economics, Volume 40, Issue 5, Pages 835-871
Publication year: 2013

 

We analyse a vertical chain with perfectly competitive farmers who offer raw products on a spot market to manufacturers who resell the finished goods to a distributor. Absent Fairtrade, the entire raw product is sold on the spot market. A Fairtrade organisation can offer to part of farmers a contract consisting of a guaranteed minimum price and a direct relationship with a distributor. A snowball effect arises when farmers who are not involved in Fairtrade benefit from a higher spot price. This article highlights several mechanisms, either linked to the demand or the market structure, that may explain this snowball effect.
KeyWords: fair trade, guaranteed minimum price, vertical chain, contracts, disintermediation
Jel Codes: D21, L11, O12
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