THE IMPACT OF FAIR TRADEFOR POOR FARMERS
Ruerd Ruben
Centre for International Development Issues
(CIDIN) – Radboud University Nijmegen
The Development Impact of Fair Trade
Key Issues
• Un-biased impact assessment
• Control for self-selection & unobserved heterogeneity
• Micro-level + Regional analysis
• Conventional, Organic & Fair Trade production
• Life cycle effects
• Cross-country comparison
• Smallholders & plantation production
The Development Impact of Fair Trade
Fair Trade
• 1988: Introduction Max Havelaar label in coffee- Minimum price guarantee (set by FLO)
- Fairtrade Premium
- Environmental + Labour conditions
- Market shares: 3-8 %; annual growth 15-20%
• 1996 : Fair trade fruit; first bananas,followed by mango, pineapple & citrus. - Turnover Euro
62 mln (2006)
- Annual growth 40%, Net profit 1.5%
- Market share: 5-15 %
• 2006 : €1.6 billion, 570 organizations 900.000 families
The Development Impact of Fair Trade
Impact Assessment
• Impact assessment at producers’ level
- Direct Income & welfare effects
- Expenditure effects
- Organizational impact
- Gender & Environment
• Externalities & Spillovers:
- Other household activities
- Regional level (prices, wages, FT premium)
- Risk attitudes
The Development Impact of Fair Trade
Difference – in – Difference
Pre - treatment
A: treatment state
B: No - treatment state
C: treatment state
E: Situation bef ore program
F: situation before program
Post - treatment
D: No - treatment state
Treatment Group
Comparison Group
The Development Impact of Fair Trade
Research Approach
1. Focus on bananas
2. Field samples in 4 countries
3. FT (treatment) & non-FT farmers (control)
4. Organic & Conventional production
1. Questionnaire & indicators
2. Propensity Score Matching (common support)
3. Difference analysis
The Development Impact of Fair Trade
Sample
• Bananas in Northern Peru (N = 200)
- Organic FT
- Organic non-FT
- Conventional non-FT
The Development Impact of Fair Trade
Field Sites in Peru
Bananas in Piura
(Valle de Chira)
The Development Impact of Fair Trade
Data
• Farm-household characteristics
• banana production (yield, prices)
• Other (non)agricultural activities
• Expenditure system (consumption)
• Wealth (assets), savings & investments
• Farmers’ Organisation
• Sustainable practices
The Development Impact of Fair Trade
Attitudes & Perceptions
• Past & Future life perspectives
• Organizational identification
• Organizational strength
• Organizational satisfaction
• Gender decision domains (male / female / joint)
• Willingness to invest
• Risk perceptions
The Development Impact of Fair Trade
Key Relationships
Household Characteristics(family size, age, gender, education, dependency rate, housing, (fe)male decision domains, etc)
Wealth & Assets(income, income composition, expenditures, durable capital, loans & savings, cattle, house improvements)
Production & Trade(yield, sales and prices by season; land & labour productivity, profits, etc)
Perceptions: fair trade welfare risk attitudes
Membership of organisationsIdentificationSatisfactionForce index
Farm characteristics(farm size, tenancy, plot quality, land-attached investments, sustainable practices, etc)
The Development Impact of Fair Trade
Matching
0.5
11.
52
2.5
Den
sity
0 .2 .4 .6 .8 1Propensity Score
ControlTreated
Before Matching
0.5
11.
52
Den
sity
0 .2 .4 .6 .8Propensity Score
ControlTreated
After Matching
ON-CS • OFF-CS• TotalFT 42 6 48Organic 97 6 103FT 39 9 48Conventional 30 6 36
Number of observations on Common Support
The Development Impact of Fair Trade
Results bananas (I): Fair Trade vs. Organic
n.s00Other crops/non-farm income
n.s00Past/future perceptions
*-+Organizational Satisfaction
n.s00Housing investmentsn.s00Land investments
*-+Risk Acceptancen.s00Female-based decisions
**-+Organizational Force
**-++Credit Access**-+Durable Assets
n.s+-Expenditures
n.s00Crop price**-++Crop yield**-+Net Household Income
sign non-FT FT Indicator
The Development Impact of Fair Trade
Results bananas (II): Fair Trade vs. Conventional
(*)+-Other crops/non-farm income
n.s00Past/future perceptions
*-+Organizational Satisfaction
n.s00Housing investmentsn.s00Land investments
**-++Risk Acceptance*-+Male-based decisions
*- +Organizational Force
**-++Credit Access*-+Durable Assets
*-+Expenditures
***-+Crop pricen.s+-Crop yield*0+Net Household Income
sign non-FT FT Indicator
The Development Impact of Fair Trade
FT Premium
• Community Investments
• Social Services: Education, Health, Child Care
• Infrastructure: Roads, Electricity, Water
• Upgrading: Banana renovation, microcredit
The Development Impact of Fair Trade
Summary findings
- higher income due to:
- household durables + credit access effect
- stronger organisation
- more risk acceptance
higer yield (compared to organic)
higher price (compared to conventional)
The Development Impact of Fair Trade
Externalities
0
10
20
30
40
50
60
7019
97
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
FT market share
Regional prices
The Development Impact of Fair Trade
Policy Implications
• Modest direct FT income effects
• Strong assets & credit-access effect (wealth)
• Clear behavioral changes (risk, gender, organization)
• Large externalities (through prices, wages)
• Limited spillovers
• FT ownership feelings
• Strong regional multipliers
Banana market (13,000,000 tonnes)
• 85,000; 11 years (0,6%)
• 270,000; 8 years (2,1%)
• 600,000; 3-5 years (4,6%)
• 12,130,000 (92,7%)
OKÉ
Roundtable for Responsible Bananas
Fairtrade/organic
CSR
Without sustainability program
The Development Impact of Fair Trade
The Development Impact of Fair Trade
Outlook & Challenges
• Mainstreaming FT
FT emphasis not only on prices, more on volume
• Broadstreaming FT
FT premium generates substantial externalities
• Deepening FT
Co-ownership & Empowerment
• Multiplying FT
Local linkages with finance & community organizations
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