Hostname: page-component-76fb5796d-x4r87 Total loading time: 0 Render date: 2024-04-28T12:25:26.229Z Has data issue: false hasContentIssue false
  • English
  • Français

Margins of Fair Trade Wine along the Supply Chain: Evidence from South African Wine in the U.S. Market

Published online by Cambridge University Press:  19 December 2019

Robin M. Back ,
Xinyang Liu ,
Britta Niklas ,
Karl Storchmann  and
Nick Vink
Robin M. Back
Affiliation:
Rosen College of Hospitality Management, University of Central Florida, 9907 Universal Boulevard, Orlando, FL32819-8701; e-mail: Robin.Back@ucf.edu.
Xinyang Liu
Affiliation:
Goldman Sachs Securities Division, 200 West Street, New York, NY10282; e-mail: xinyang.liu@gs.com.
Britta Niklas
Affiliation:
Economics Department, Institute of Development Research and Development Policy, Ruhr-University Bochum, Universitätsstr. 105, 44789Bochum, Germany; e-mail: britta.niklas@ruhr-uni-bochum.de.
Karl Storchmann*
Affiliation:
Economics Department, New York University, 19 West 4th Street, New York, NY10012.
Nick Vink
Affiliation:
Department of Agricultural Economics, Stellenbosch University, Private Bag X1, 7602Matieland, South Africa; e-mail: nv@sun.ac.za.
*
e-mail: karl.storchmann@nyu.edu (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

In this paper, we analyze profit margins and markups of Fair Trade (FT) wines sold in the United States. We are particularly interested in whether and to what extent the FT cost impulse in production is passed along to the supply chain. We draw on a limited sample of about 470 South African wines sold in Connecticut and New Jersey in the fall of 2016; about 90 of them are certified FT. For these wines we have free on board export prices, wholesale prices, and retail prices, which allows us to compute wholesale and retail margins and analyze the FT treatment effect. We run OLS, 2SLS, and propensity score matching models and find evidence of asymmetrical pricing behavior. While wholesalers seem to fully pass-through the FT cost effect, retailers appear to amplify the cost effect. As a result, at the retail level, FT wines yield significantly higher margins than their non-FT counterparts. (JEL Classifications: L11, L31, L43, L81, Q17)

Keywords

Fair Tradepropensity score matchingpass-throughsupply chainwine
Type
Articles
Information
Journal of Wine Economics , Volume 14 , Issue 3 , August 2019 , pp. 274 - 297
Copyright
Copyright © American Association of Wine Economists 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank an anonymous reviewer, participants at seminars at INSEEC Paris, Washington State University, Rutgers University, the University of Bordeaux, and the Annual Conference of the American Association of Wine Economists in Padova for numerous helpful comments.

References

Beverage Media Group (2016a). The Beverage Journal Connecticut. Various issues.Google Scholar
Beverage Media Group (2016b). The Beverage Journal New Jersey. Various issues.Google Scholar
Bird, K., and Hughes, D. R. (1997). Ethical consumerism: The case of “fairly-traded” coffee. Business Ethics: A European Review, 6(3), 159–167.CrossRefGoogle Scholar
Bresnahan, T. F., and Reiss, P. C. (1985). Dealer and manufacturer margins. Rand Journal of Economics, 16(2), 253–268.CrossRefGoogle Scholar
Corsi, A., and Strøm, S. (2013). The price premium for organic wines: Estimating a hedonic farm-gate price equation. Journal of Wine Economics, 8(1), 29–48.CrossRefGoogle Scholar
Dehejia, R. H., and Wahba, S. (1999). Causal effects in nonexperimental studies: Reevaluating the evaluation of training programs. Journal of the American Statistical Association, 94(448), 1053–1062.CrossRefGoogle Scholar
Dehejia, R. H., and Wahba, S. (2002). Propensity score-matching methods for non-experimental causal studies. Review of Economics and Statistics, 84(1), 151–161.CrossRefGoogle Scholar
Delmas, M. A., and Grant, L. E. (2014). Eco-labeling strategies and price-premium: The wine industry puzzle. Business & Society, 53(1), 6–44.CrossRefGoogle Scholar
Delmas, M. A., and Lessem, N. (2017). Eco-premium or eco-penalty? Eco-labels and quality in the organic wine market. Business & Society, 56(2), 318–356.CrossRefGoogle Scholar
De Pelsmacker, P., Janssens, W., Sterckx, E., and Mielants, C. (2006). Fair-trade beliefs, attitudes and buying behaviour of Belgian consumers. International Journal of Nonprofit and Voluntary Sector Marketing, 11(2), 125–138.CrossRefGoogle Scholar
Dragusanu, R. E., Giovannucci, D., and Nunn, N. (2014). The economics of fair trade. Journal of Economic Perspectives, 28(3), 217–236.CrossRefGoogle Scholar
Dragusanu, R., and Nunn, N. (2018). The impacts of fair trade certification: Evidence from coffee producers in Costa Rica. Working Paper, February. Available at https://scholar.harvard.edu/files/nunn/files/fair_trade_draft_february_2018.pdf (accessed April 14, 2019).Google Scholar
Fairtrade Foundation (2019). Wine farmers and workers. Available at https://www.fairtrade.org.uk/Farmers-and-Workers/WineGoogle Scholar
Fairtrade International (2016). Monitoring the Scopes and Benefits of Fairtrade, 7th edition 2015. Available at http://fairtradeamerica.org/~/media/Fairtrade%20America/Files/Reports/2015-Fairtrade-Monitoring-Scope-Benefits_web.pdf (accessed September 23, 2019).Google Scholar
Fairtrade International (2019a). The Fairtrade system. Available at https://www.fairtrade.net/about/fairtrade-system (accessed September 13, 2019).Google Scholar
Fairtrade International (2019b). Fairtrade price and premium information. Available at https://www.fairtrade.net/standard/minimum-price-info (accessed September 13, 2019).Google Scholar
Fair Trade USA (2016). Fair Trade USA, 2016 Almanac. Available at https://www.fairtradecertified.org/sites/default/files/filemanager/documents/FTUSA_MAN_Almanac2016_EN.pdf (accessed September 23, 2019).Google Scholar
Fort, R., and Ruben, R. (2009). The impact of fair trade certification on coffee producers in Peru. In Ruben, R. (ed.), The Impact of Fair Trade, 75–98. Wageningen: Wageningen Academic Publishers.Google Scholar
Gergaud, O., Storchmann, K., and Verardi, V. (2014). Expert opinion and quality perception of consumers: Evidence from New York City restaurants. Economic Inquiry, 53(2), 812–835.CrossRefGoogle Scholar
GmbH, Flo-Cert (2010). Conversion rates for processed FT products: Explanatory document. Bonn, Germany: Flo-Cert GmbH.Google Scholar
Hainmueller, J., Hiscox, M. J., and Sequeira, S. (2015). Consumer demand for fair trade: Evidence from a multistore field experiment. Review of Economics and Statistics, 97(2), 242–256.CrossRefGoogle Scholar
Hiscox, M. J., Broukhim, M., and Litwin, C. (2011). Consumer demand for fair trade: New evidence from a field experiment using eBay auctions of fresh roasted coffee. Available at https://ssrn.com/abstract=1811783 and http://dx.doi.org/10.2139/ssrn.1811783.CrossRefGoogle Scholar
Hong, G. H., and Li, N. (2017). Market structure and cost pass-through in retail. Review of Economics and Statistics, 99(1), 151–166.CrossRefGoogle Scholar
Jaffee, D., and Howard, P. H., (2016). Who's the fairest of them all? The fractured landscape of U.S. fair trade certification. Agriculture and Human Values, 33(4), 813–826.CrossRefGoogle Scholar
Linton, A. (2012). Growing fair trade in South Africa. Globalizations, 9(5), 725–740.CrossRefGoogle Scholar
Loconto, A. M., Silva-Castaneda, L., Arnold, N., and Jimenez, A. (2019). Participatory Analysis of the Use and Impact of the Fairtrade Premium. Research Report, hal-02048855. Available at https://hal.archives-ouvertes.fr/hal-02048855/document (accessed September 23, 2019).Google Scholar
Niklas, B., Storchmann, K., and Vink, N. (2017). Fairtrade wine price dispersion in the United Kingdom. Journal of Wine Economics, 12(4), 446–456.CrossRefGoogle Scholar
RBB Economics (2014). Cost Pass-Through: Theory, Measurement, and Potential Policy Implications. A Report prepared for the Office of Fair Trading. OFT Discussion Paper, February. London: Office of Fair Trading.Google Scholar
Rosenbaum, P., and Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41–55.CrossRefGoogle Scholar
Ruben, R., and Fort, R. (2012). The impact of fair trade certification for coffee farmers in Peru. World Development, 40(3), 570–582.CrossRefGoogle Scholar
Sáenz-Segura, F., and Zúñiga-Arias, G. (2009). Assessment of the effect of fair trade on smallholder producers in Costa Rica: A comparative study in the coffee sector. In Ruben R, R.. (ed.), The Impact of Fair Trade, 117–135. Wageningen: Wageningen Academic Publishers.Google Scholar
SAWIS (2019). Statistics: Grape prices. Avaliable at http://www.sawis.co.za/info/grapeprices.php.Google Scholar
Schäufele, I., and Hamm, U. (2017). Consumers’ perceptions, preferences and willingness-to-pay for wine with sustainability characteristics: A review. Journal of Cleaner Production, 147, 379–394.CrossRefGoogle Scholar
Schäufele, I., and Hamm, U. (2018). Organic wine purchase behaviour in Germany: Exploring the attitude-behaviour-gap with data from a household panel. Food Quality and Preference, 63, 1–11.CrossRefGoogle Scholar
Spengler, J. (1950). Vertical integration and antitrust policy. Journal of Political Economy, 58(4), 347–352.CrossRefGoogle Scholar
Wine Searcher (2016). Wine retail price database. Available at wine-searcher.com.Google Scholar
WOSA Wines of South Africa (2019). The industry. Overview. Available at https://www.wosa.co.za/The-Industry/Overview/ (accessed September 11, 2019).Google Scholar