BS in Agricultural Business
Jennifer S. James
Noting the rising sales of eco-friendly and fairly traded goods in the United States, this study examines the effects of implementing a policy that would limit the supply of non-fair-trade coffee in San Francisco. The goal of this policy would be to increase the sales of the fair-trade coffee market in the United States, and benefit fair-trade coffee growers by mandating the sale of fair-trade coffee in San Francisco. This study focuses on the economic effects of the policy on consumers and producers of fair-trade coffee, regular coffee, tea, and soda.
“Fair trade” began at the end of World War II and was linked to religious organizations that wanted to provide relief for refugees and other impoverished groups. This relief was provided by selling handicrafts and other goods in northern markets at prices that afford high rates of return for the impoverished producers in the developing world. Over time, seventeen different fair-trade labeling organizations have been created that monitor and certify fair-trade products and requirements. Requirements for coffee growers to attain a fair-trade certification state that growers must follow the principles of democratic organization, not utilize child labor, recognize trade unions for laborers, and support environmental sustainability. The fair-trade movement is gaining momentum in recent years, with sales growing more than twenty percent annually since 2000 and over forty percent between 2002 and 2003. Product demand and supply were specified as functions of various price elasticities for related markets: fair-trade coffee, regular coffee, tea and soda. This model was used to estimate the percentage changes in quantity and price for each market caused by a policy that restricts the supply of non-fair-trade coffee to 10 percent of its initial quantity. This policy would result in an increase in the price of fair-trade coffee from $1.26 per pound to $3.31 per pound in the city of San Francisco as well as an increase in supply from 512,922 pounds per year to 2,190,179 pounds per year. This policy would increase the national consumption of fair-trade coffee by 1.9 percent but it would leave consumers with high prices for tea, soda and non-fair-trade coffee. Overall this study provides a roadmap for similar analyses of market equilibriums as well as rough predictions for changes in prices and quantities for these commodities as a result of such a policy.