Where does the Fair Trade price premium go? Confronting consumers' request with reality

Abstract

Purpose– An important characteristic of Fair Trade products is that a fair price is paid to the producer. At the same time the Fair Trade system is accused of being inefficient with respect to the distribution of the price premium paid by consumers along the supply chain. This study aims to focus in particular on consumers' perceptions of fair pricing. Besides, the paper seeks to assess the extent to which consumers' expectations are somehow anchored in or in accordance with reality in Germany in 2007.Design/methodology/approach– To get insights into German consumers' perception of Fair Trade a consumer survey based on face-to-face interviews withn=484 participants was conducted in 2008. To approach the profit distribution along the Fair Trade coffee chain a web-based market investigation was performed.Findings– One important result is that most of the consumers actually narrow Fair Trade down to the issue of paying fair prices to farmers. The comparison of the efficiency of the Fair Trade system that is requested by the study participants (measured as the share of an additional euro paid for a Fair Trade product) and the point of sale calculations (revealing the percentage of the retail price going to the producer) indicates that for 60 percent of the respondents a calculated share of 50 percent reaching the producer would not be high enough. Results reveal that 10 percent of the respondents require a minimum share of 90 percent of the retail price to reach the producer. A total of 23 percent are satisfied with 80 percent; 60 percent of the respondents want that more than 50 percent of an additional euro spent reaches the producer. Only 4 percent of the participants are willing to accept an efficiency of less than 20 percent.Originality/value– This is the first paper not only investigating how much of the price premium paid by consumers reaches the Fair Trade producers but also delivering insights regarding how much of the price premium paid in the retail store for Fair Trade coffee consumers do request to reach the Fair Trade producer.