The Fairtrade value chain : the impact of ethical consumers in the North on producers and communities in the South

Abstract

In this thesis, the value chain for Fairtrade labeled goods is examined from ethical consumers in the north to producer organizations in the south. From there, the analysis studies how the income can be shared between producers, stakeholders and communities in different scenarios. Profit functions are used in a principal-agent setting to analyze participation constraints as well as incentive compatibility constraints when the producers bear private effort costs.

One scenario where individual effort is observable is examined, then one where only the average effort of all producers delivering to a cooperative is observable, first in a single period setting, then in a multi period setting.

What is found is different constraints for how big a fraction FLO can require producers to pass on to stakeholders or community projects and still wanting to be part of the Fairtrade cooperative and apply an efficient effort level. This fraction depends on how much more consumers in the north are willing to pay for Fairtrade labeled goods and, when only average effort is observable, the size of the cooperative. In the multi period setting the constraints are also dependent on the discount rate of producers.