Money Well Spent? Operations, Mainstreaming, and Fairness of Fair Trade

Forthcoming in Production and Operations Management

55 Pages Posted: 9 Nov 2017 Last revised: 28 Mar 2019

See all articles by Michael K. Lim

Michael K. Lim

Seoul National University, SNU Business School

Ho-Yin Mak

University of Oxford - Said Business School

Seung Jae Park

Yonsei University

Date Written: March 5, 2019

Abstract

We examine the operations, fairness, and social implications of fair trade certified products. We consider the market for fair trade certified products, which may serve as a substitute to a regular product. A fair trade organization chooses standards for the certification, namely, the (unit) premium and minimum fraction of fair trade raw materials, to maximize the total premium transferred to farmers. We analyze the operations of various stakeholders in the fair trade value chain, as well as the role and social welfare of fair trade organizations with different philosophies. We characterize the firms' entry decision in the fair trade market as well as the resulting market equilibrium. Furthermore, we examine the impact of mainstreaming, i.e., whether to allow large-scale plantations (often owned by large corporates) to be eligible for fair trade certification or not, which is one of the most discussed topics in the fair trade movement. We also identify the welfare allocation among various stakeholders in the value chain under different certification policies, and thereby address the fairness issue of the fair trade market as well as its resulting social welfare implications. Finally, we obtain a number of policy insights and suggestions to support this nascent marketplace.

Keywords: fair trade certification, sustainable operations, farmer premium, smallholders, value chain

JEL Classification: M00, M10

Suggested Citation

Lim, Michael K. and Mak, Ho-Yin and Park, Seung Jae, Money Well Spent? Operations, Mainstreaming, and Fairness of Fair Trade (March 5, 2019). Forthcoming in Production and Operations Management. Available at SSRN: https://ssrn.com/abstract=3066747 or http://dx.doi.org/10.2139/ssrn.3066747

Michael K. Lim

Seoul National University, SNU Business School ( email )

Seoul
Korea, Republic of (South Korea)

Ho-Yin Mak

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Seung Jae Park (Contact Author)

Yonsei University ( email )

50 Yonsei-ro
Seodaemun-gu
Seoul, 03722
Korea, Republic of (South Korea)

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