Consumer Demand for the Fair Trade Label: Evidence from a Field Experiment

Abstract:     
A majority of surveyed consumers claim to prefer ethically certified products over non-certified alternatives, and to be willing to pay a price premium for such products. There is no clear evidence, however, that people actually seek out such ethically certified goods and pay a premium for them when shopping. We provide new evidence on consumer behavior from experiments conducted in a major U.S. grocery store chain. We find that the Fair Trade label has a substantial positive effect on sales. Sales of the two most popular bulk coffees sold in the stores rose by almost 10% when the coffees were labeled as Fair Trade. Demand for the higher priced coffee was inelastic: sales of the labeled coffee remained steady when its price was raised by 8%. Demand for the lower priced coffee was more elastic: a 9% increase in its price led to a 30% decline in sales, as buyers switched to low-priced unlabeled alternatives. Overall the findings suggest that there is substantial consumer support for Fair Trade, although a segment of price-sensitive shoppers will not pay a large premium for the Fair Trade label.

Number of Pages in PDF File: 44

Keywords: consumer behaviour, field experiments

JEL Classification: D12, C93

working papers series