Consumer Behavior Analysis of Fair Trade Coffee: Evidence from Field Research

Article excerpt

Coffee is one of the most heavily traded commodities in the world market, often second to oil. According to the International Coffee Organization (ICO), the production, trading, and marketing functions for coffee provide employment opportunities worldwide, especially to developing countries with favorable growing conditions for coffee. The coffee industry is largely engaged with social and environmental initiatives, with growing interest in the biodiversity of coffee production and subsequent quality of wildlife habitat. Shade-grown coffee production is often supported by market-based conservation programming (Kareiva & Marvier, 2011). Coffee is often produced by small farms, and due to the influx of cost of production and supply, farmers and producers may experience volatility of the market in a direct, negative manner. As such, movements such as Fair Trade have emerged to protect both coffee commodity pricing and quality of coffee production, by ensuring fair working conditions and payment to workers (Locke, Reavis, & Cameron, 2010). Coffee production is a data-rich commodity industry for studying the impact of Fair Trade certification and consumer response.

Social Product Labels and Fair Trade

Social product labels (SPLs) are applied to goods to inform consumers of the fair production methods employed to yield the good. The most popular, Fair Trade, is often considered for a variety of agricultural goods, including cotton, bananas, chocolate, and coffee. As an independent third-party Fair Trade certifier, the 501(c)3 nonprofit organization Fair Trade USA, previously known as TransFair USA, purposes to enable sustainable development by ensuring equitable global trade transactions. Similar to eco-labels, which signify environmental benefits obtained through purchase, SPLs promote benefits to society. Rather than sending direct aid, Fair Trade products allow producers in developing countries to earn a better living by ensuring that those producers are paid in a fair manner and that they work in safe conditions that prohibit child labor and discrimination (for discussion, see Hainmueller, Hiscox, & Sequeira, 2011; Hiscox & Smyth, 2006; Locke et al., 2010). Fair Trade claims numerous extended benefits as a result of this effort, such as access to medical care, education, and work toward female empowerment. Consumers' trust in claims and their subsequent choice to purchase goods with social product labels such as Fair Trade offer a rich area of interdisciplinary investigation for applications of behavioral economics and consumer behavior analysis.

Several key empirical articles have addressed concerns of consumer response to social product--labeled goods. Prasad, Kimeldorf, Meyer, and Robinson (2004) examined the effects of using a self-created social label for socks called "Good Working Conditions," professing that the labeled socks were not made in sweatshops. While most consumers paid less for non-labeled socks, about 25% of consumers were willing to pay up to 40% more for socks labeled as not being made in sweatshops. The choice of socks, a product not often purchased, limited the generalizability of findings to more frequently purchased goods. In a related study, Hiscox and Smyth (2006) examined the effects of a self-created social label, called "Fair and Square," for towels and candles in a department store. Demand for labeled goods was evidenced in sales, but rose 10-20% above prelabel conditions when price increases were applied. The store provided demand characteristics that may have influenced the overall consumer response more than the experimental conditions. To address these limitations, Hainmueller et al. (2011) did not create a fictitious label but examined the effects of Fair Trade--labeled bulk coffee sales in grocery stores under label and price conditions. Results suggest a near 10% increase in sales for popular coffees when labeled as Fair Trade. Further, demand for higher priced coffee appeared inelastic, where sales remained steady given an 8% increase in price. …