Periodic Reporting for period 4 - SharingGains (Sharing Gains from Trade: Global Markets and Farmers Welfare in Developing Countries)
Berichtszeitraum: 2024-03-01 bis 2025-08-31
Approximately 75% of the world’s poor live in rural areas and earn their livelihood in agriculture. Linking smallholder farmers in developing countries to markets—particularly export markets—has the potential to increase incomes and improve livelihoods. Yet globalisation has not translated into substantial or uniform gains for smallholders. A central reason lies in the pervasive market imperfections that plague agricultural value chains. Smallholder farmers face poorly functioning markets for land, labour, inputs, credit, savings, and insurance. They are often restricted to selling to one or a few intermediaries or processors, themselves capital constrained and poorly managed, and supplying downstream buyers with significant market power. Export markets typically require higher quality standards, making these challenges even harder to address.
These imperfections raise the possibility that regulations, standards, and organisational innovations might improve market functioning. Governments have long intervened in agricultural markets, and stakeholders have developed voluntary sustainability standards and, more recently, buyer-driven programs. Which policies and programs, if any, can help farmers realise and share the gains from globalisation? We develop partnerships, conceptual tools, and new data to answer this question.
These imperfections raise the possibility that regulations, standards, and organisational innovations might improve market functioning. Governments have long intervened in agricultural markets, and stakeholders have developed voluntary sustainability standards and, more recently, buyer-driven programs. Which policies and programs, if any, can help farmers realise and share the gains from globalisation? We develop partnerships, conceptual tools, and new data to answer this question.
Project 1 studies whether firms can cost-effectively build relational contracts—informal agreements sustained by the value of future interactions—with smallholder farmers. We partnered with the largest coffee exporter in East Africa to design, implement, and evaluate a “relationship-building” module embedded in standard agronomic training. Using a randomized controlled trial, we show that the intervention increased traceability, participation in firm activities, and farmers’ perceptions of the relationship. Crucially, it increased adoption of coffee tree stumping, a costly climate-adaptation investment with large short-run income losses.
Over one year after the intervention, farmers were offered either a standard upfront subsidy for verified stumping or an innovative relational contract that paid at harvest, conditional on stumping and deliveries. The relational contract is better targeted and potentially more efficient, but it relies on trust. Relationship-building fully closed the adoption gap between the two schemes, substantially increasing cost-effectiveness. The project provides, to our knowledge, the first experimental evidence on organisational strategies to build long-term buyer–supplier relationships in a smallholder context. It speaks directly to current policy debates on how firms can implement traceability, environmental compliance, and sustainability initiatives at scale, especially in settings where formal contracts and monitoring are prohibitively costly.
Project 2 examines how regulations affect the efficiency of agricultural value chains and farmers’ welfare. We develop and estimate a multi-tier structural model of the Costa Rican coffee sector, in which farmers supply differentiated mills that strategically choose sourcing locations and bargain with exporters. Counterfactuals show that commonly used pro-competitive regulations have nuanced and sometimes counter-productive effects. Tightening revenue-sharing rules raises average farm-gate prices but induces less competitive market structures in remote areas, leaving many farmers worse off. Banning vertical integration fosters entry and raises prices but reduces valuable services provided by integrated mills, harming most farmers. The project highlights the importance of accounting for multiple interacting imperfections along the chain when designing regulatory interventions.
A widely held view among policy-makers that quality upgrading in agriculture is an effective way to reduce poverty. This view presumes both that there are rents from high-quality production --- in the sense that the additional revenues exceed the additional production costs --- and that these rents are shared with farmers.
Project 3 evaluates whether quality upgrading can sustainably raise farmer incomes. In Colombian coffee, producing high-quality beans requires long-term investments by farmers, but quality contracts are largely unenforceable, creating a hold-up problem: exporters may fail to pass through quality premia once farmers’ investments are sunk. We develop a model in which this problem can be resolved if an international buyer imposes a self-enforcing vertical restraint that commits exporters to pay farmers a quality premium.
Using detailed data from two large exporters, we show that exporters’ margins are higher for higher-quality coffee, but that these premia are not normally passed through to farmers. We then study a buyer-driven Sustainable Quality Program that combined training, inputs, certification requirements, and guaranteed quality premia. The program increased high-quality production, long-term investments, and total surplus along the coffee chain in the producing country by 8–18%, with farmers capturing 36–62% of these gains. The results show that quality upgrading can raise farmer welfare, but is unlikely to be viable under standard market conditions in the absence of a large buyer willing and able to enforce pass-through. More broadly, the project provides a framework to interpret buyer-driven sustainability initiatives as vertical restraints and to assess when such programs can deliver inclusive gains from globalisation.
Over one year after the intervention, farmers were offered either a standard upfront subsidy for verified stumping or an innovative relational contract that paid at harvest, conditional on stumping and deliveries. The relational contract is better targeted and potentially more efficient, but it relies on trust. Relationship-building fully closed the adoption gap between the two schemes, substantially increasing cost-effectiveness. The project provides, to our knowledge, the first experimental evidence on organisational strategies to build long-term buyer–supplier relationships in a smallholder context. It speaks directly to current policy debates on how firms can implement traceability, environmental compliance, and sustainability initiatives at scale, especially in settings where formal contracts and monitoring are prohibitively costly.
Project 2 examines how regulations affect the efficiency of agricultural value chains and farmers’ welfare. We develop and estimate a multi-tier structural model of the Costa Rican coffee sector, in which farmers supply differentiated mills that strategically choose sourcing locations and bargain with exporters. Counterfactuals show that commonly used pro-competitive regulations have nuanced and sometimes counter-productive effects. Tightening revenue-sharing rules raises average farm-gate prices but induces less competitive market structures in remote areas, leaving many farmers worse off. Banning vertical integration fosters entry and raises prices but reduces valuable services provided by integrated mills, harming most farmers. The project highlights the importance of accounting for multiple interacting imperfections along the chain when designing regulatory interventions.
A widely held view among policy-makers that quality upgrading in agriculture is an effective way to reduce poverty. This view presumes both that there are rents from high-quality production --- in the sense that the additional revenues exceed the additional production costs --- and that these rents are shared with farmers.
Project 3 evaluates whether quality upgrading can sustainably raise farmer incomes. In Colombian coffee, producing high-quality beans requires long-term investments by farmers, but quality contracts are largely unenforceable, creating a hold-up problem: exporters may fail to pass through quality premia once farmers’ investments are sunk. We develop a model in which this problem can be resolved if an international buyer imposes a self-enforcing vertical restraint that commits exporters to pay farmers a quality premium.
Using detailed data from two large exporters, we show that exporters’ margins are higher for higher-quality coffee, but that these premia are not normally passed through to farmers. We then study a buyer-driven Sustainable Quality Program that combined training, inputs, certification requirements, and guaranteed quality premia. The program increased high-quality production, long-term investments, and total surplus along the coffee chain in the producing country by 8–18%, with farmers capturing 36–62% of these gains. The results show that quality upgrading can raise farmer welfare, but is unlikely to be viable under standard market conditions in the absence of a large buyer willing and able to enforce pass-through. More broadly, the project provides a framework to interpret buyer-driven sustainability initiatives as vertical restraints and to assess when such programs can deliver inclusive gains from globalisation.
We focused this report on the main completed projects. A full description of all the activities undertaken with the support of the grant (including extensions to non-agricultural chains, review articles and dissemination, and follow-up work spurred by the grant) can be found on the project's public website https://www.sharinggains.com/(öffnet in neuem Fenster) livelihoods of small-holder farmers.