Engel Curves for Fair Trade Consumption and Development Perspectives for Producers: Evidence from Data on Real Fairtrade Purchases

Abstract

While Fairtrade sales have exhibited two-digit growth rates over recent decades, their capacity to become large enough to generate substantial gains for producers is still uncertain. Estimating Fairtrade Engel curves based on real purchases, this article describes how Fairtrade consumption varies with consumer characteristics and total income. Results show high expenditure elasticities for Fairtrade demand, and suggest that market expansion lies in the growth of income per capita in import countries and in an increase in the diversity, availability, and quality of products. Implications for producers are drawn from the results.

Acknowledgements

I gratefully acknowledge Isabelle Kaiffer-Sivan (then TNS-Worldpanel) who made this work possible, as well as the invaluable advice of Sébastien Lecocq. I wish to thank David Roodman and Mikkel Barslund who shared advice on Stata commands, and for very helpful discussions on estimation methods. I thank FERDI for financial support, and Catherine Araujo-Bonjean, Emmanuelle Auriol, Sylvain Chabé-Ferret, Philippe Dulbecco, Jaime de Melo, Catherine Simonet, Fousseini Traoré, and the AFD research team for helpful discussions on earlier versions of this article. I thank Felipe Starosta de Waldemar and other participants at the 3^rd DIAL Development Conference ‘Barriers to Development’ for very helpful comments on latest versions. Lastly, I thank the two anonymous reviewers for their constructive comments and suggestions to improve the quality of the paper, particularly as regards its relevance for development studies. More details on how I got access to data are available upon request.

Disclosure statement

No potential conflict of interest was reported by the author.

Supplementary Materials

Supplementary Materials are available for this article which can be accessed via the online version of this journal available at https://doi.org/10.1080/00220388.2018.1499894

Notes

1. Sources: Fairtrade International annual reports http://www.fairtrade.net/about-fairtrade/annual-reports.html and French Platform for Fair Trade http://www.commercequitable.org/lecommerceequitable/quelques-chiffres.html (last visit 7 November 2016).

2. Whether Fair Trade is a form of product-differentiation based on higher quality and higher production costs or introduces market distortion via higher prices for non-differentiated products remains one of the most controversial issues. See Dammert and Mohan (2015) for a review.

3. For a detailed description of the fair trade system, see Raynolds (2009) and Dragusanu, Giovannucci, and Nunn (2014) for recent changes.

4. Hiscox, Broukhim, and Litwin (2011) also provide interesting estimates from auctions on eBay.

5. Eight per cent of the Fairtrade budget is spent on juices and soft drinks, 7 per cent on rice and other grains, 5 per cent on sugar, 4 per cent on jams and stewed fruits, and less than 1 per cent on each of the other Fairtrade products (see Table 3 column [4] in Section 4.3).

6. Data source: INSEE (Institut National de la Statistique et des Etudes Economiques – the French National Institute of Statistics and Economic Studies).

7. To estimate the effect of socio-demographics and attitudes on demand for Fairtrade products, we use the ‘translating approach’ developed by Pollak and Wales (1978). For other methods and discussion of their respective drawbacks and advantages, see Pollak and Wales (1981), or Sadoulet and De Janvry (1995).

8. Results of the separate estimation of some of the 14 two-equation systems that result from the ‘traditional separability hypothesis’ are given as robustness checks in Supplementary Materials (Table A4).

9. Categories constructed are the same as the INSEE’s age categories. Age was first introduced in years (results not shown, available on demand). It has a significant positive but slight impact on Fairtrade consumption. The square of age is not significant.

10. Source: Max Havelaar France: http://www.maxhavelaarfrance.org/actualites/actualites/nos-actions/437-bio-equitable-approches-complementaires.html (last visit November 07, 2016).

11. Source: French Platform for Fair Trade, see note 1.