Abstract
This paper addresses the issue of unfair trade practices, investigating the drivers of the differences between farm-gate and free-on-board (FOB) prices in the most important Arabica coffee producing countries worldwide: Brazil, Guatemala, Colombia, Honduras, Peru, and Ethiopia. Our study looks at those differences taking into account the literature on governance in agri-food chains, with a focus on each country’s domestic market. We performed panel-corrected standard error (PCSE) estimates in ICO and World Bank data, covering the period from 2007 to 2016. In the paper we analyze (i) property rights as a proxy of transaction costs, once it brings more transparency and support to negotiations; (ii) access to electricity as a proxy of supporting infrastructure in communication and information activities, and (iii) quality of roads and quality of ports as proxies of transportation infrastructure. Our results show that heterogeneity in institutions and infrastructure are key in explaining the differences between farm-gate and FOB prices. The transaction costs derived from institutional failures and infrastructure gaps, lead to the use of intermediaries in the coffee supply chain, and this reduces the margin for coffee farmers. Actions that aim to reduce these inefficiencies bring more transparency and lower transaction costs, thereby directly contributing to the United Nations (UN) Sustainable Development Goals (SDGs).
Highlights
Coffee is one of the most cherished beverages in the world, with an estimated consumption of about 400 billion cups per year [1]
(i) characteristics that indicate an efficient institutional environment are correlated to a decline in the difference between farm-gate and export prices in the coffee supply chain; (ii) aspects that illustrate proper infrastructure are correlated to a reduction in the difference between farm-gate and export prices in the coffee supply chain
Shows that property rights are correlated to a higher ratio between farm-gate prices and FOB prices, i.e., the better the institutional environment, the fairer the prices paid to coffee farmers
Summary
Coffee is one of the most cherished beverages in the world, with an estimated consumption of about 400 billion cups per year [1]. There are many studies on price transmission generally addressing the relation between prices paid to coffee bean producers, and those paid to processing and/or retail firms [12,13,14,15,16]. They show asymmetrical transmission of price changes along the chain, indicating that retail and processor margins grow when there is an excess supply and a decrease in green coffee prices.
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