New insights on the use of the Fairtrade social premium and its implications for child education

Abstract

Fairtrade differentiates itself from other sustainability standards such as Rainforest Alliance and UTZ by demanding that buyers pay farmers at least a minimum price and a Fairtrade social premium. The social premium is a sum paid to cooperatives in addition to the agreed price to be used for projects that strengthen the cooperative or benefit the community in the villages more broadly and it is often mentioned in the literature as one of the key mechanisms through which Fairtrade engenders changes in the small farm sector. However, previous studies have not explicitly analyzed what the social premium is used for, what factors influence how it is used, and whether farmers, workers, and the local communities benefit from these projects. In this article, we use data from several cocoa cooperatives in Côte d’Ivoire to do a descriptive analysis of how the premium is used and how its allocation into different projects is related to the organizational characteristics of the cooperatives. Then, using instrumental variable regressions, we explore potential benefits of the social premium for child education. We analyze whether (i) participating in a certified value chain and (ii) living in a village with a premium-financed education project have an effect on household education expenditure. We show that organizational characteristics of cooperatives are only weakly correlated with the use of the social premium and that most of it does not go into projects that promote broad community development. Furthermore, our findings suggest that living in a village with a premium-financed education project has a positive effect on education expenditure among farmers, but does not affect expenditure among cooperative and farm workers.