Periodic Reporting for period 3 - SharingGains (Sharing Gains from Trade: Global Markets and Farmers Welfare in Developing Countries)
Periodo di rendicontazione: 2022-09-01 al 2024-02-29
Approximately 75% of the world’s poor live in rural areas and earn their livelihood in agriculture. Linking these smallholder farmers in developing countries to markets -- and, particularly so, to foreign markets -- has the potential to increase their incomes and improve livelihoods for millions. At the same time, many observers have casted doubts on the idea that globalization and unfettered trade translate into substantial or uniform gains for smallholder farmers and their communities in the developing world.
The answer to this conundrum is likely to be found by exploring the pervasive market imperfections that plague agricultural value chains in developing countries. For example, a typical small-holder farmer faces poorly functioning markets for inputs, including land, labour but also seeds and fertilizers. She will be constrained in her ability to borrow to invest in her farm, to save for rainy days, and to purchase insurance against the vagaries of weather or agricultural prices. After having overcome those challenges, she might be restricted to sell to one or few intermediaries or processors. These intermediaries and processors might themselves be subject to poor access to credit, poor management practices or limited competitive pressures. They might be supplying intermediaries and exporters further downstream that have significant market power or that find it challenging to organize sourcing from fragmented, dysfunctional, supply chains. As export markets typically require higher quality standards, these challenges are even harder to address. These market imperfections imply that producers are unlikely to be remunerated according to the value of their produce: for example, significant export gate price premia associated with higher quality produce and standards might not be shared with, and guide the choices of, producers.
Market imperfections raise the possibility that regulatory interventions and standards might improve the functioning of agricultural markets. Not surprisingly, historically as well as today, governments have pervasively intervened in agricultural chains, e.g. through marketing boards, zoning regulations, commodity exchanges, forced divestitures policies, etc. Although political motives often loom large in the formulation of these policies, the experience with liberalization and deregulation has been disappointing in many contexts, suggesting that these policies might sometime correct for market imperfections. Furthermore, as many countries liberalized their agricultural markets, stakeholders have responded to market imperfections developing voluntary sustainability standards (henceforth VSSs) such as NGO driven Fair Trade, Rainforest Alliance, UTZ Certified certifications and, more recently, buyer-driven programs.
Which policies and programs, if any, can help farmers in developing countries to realize and share the gains from globalization? We answer this question developing partnerships, conceptual tools and collecting new data to conduct path-breaking empirical research.
The answer to this conundrum is likely to be found by exploring the pervasive market imperfections that plague agricultural value chains in developing countries. For example, a typical small-holder farmer faces poorly functioning markets for inputs, including land, labour but also seeds and fertilizers. She will be constrained in her ability to borrow to invest in her farm, to save for rainy days, and to purchase insurance against the vagaries of weather or agricultural prices. After having overcome those challenges, she might be restricted to sell to one or few intermediaries or processors. These intermediaries and processors might themselves be subject to poor access to credit, poor management practices or limited competitive pressures. They might be supplying intermediaries and exporters further downstream that have significant market power or that find it challenging to organize sourcing from fragmented, dysfunctional, supply chains. As export markets typically require higher quality standards, these challenges are even harder to address. These market imperfections imply that producers are unlikely to be remunerated according to the value of their produce: for example, significant export gate price premia associated with higher quality produce and standards might not be shared with, and guide the choices of, producers.
Market imperfections raise the possibility that regulatory interventions and standards might improve the functioning of agricultural markets. Not surprisingly, historically as well as today, governments have pervasively intervened in agricultural chains, e.g. through marketing boards, zoning regulations, commodity exchanges, forced divestitures policies, etc. Although political motives often loom large in the formulation of these policies, the experience with liberalization and deregulation has been disappointing in many contexts, suggesting that these policies might sometime correct for market imperfections. Furthermore, as many countries liberalized their agricultural markets, stakeholders have responded to market imperfections developing voluntary sustainability standards (henceforth VSSs) such as NGO driven Fair Trade, Rainforest Alliance, UTZ Certified certifications and, more recently, buyer-driven programs.
Which policies and programs, if any, can help farmers in developing countries to realize and share the gains from globalization? We answer this question developing partnerships, conceptual tools and collecting new data to conduct path-breaking empirical research.
A first set of projects collects novel data and provide conceptual tools to understand the impact of domestic regulations and global market power in agricultural chains.
Through a strong research partnership with the Costa Rica coffee board (ICAFE), we develop and estimate an empirical framework to perform counterfactual analysis of the likely impact of regulatory changes.
Market power and concentration in global markets is also a contentious issue: at times described as the main force behind farmers' struggles around the world, at times hailed as the solution to agricultural chains problems. These debates are rarely rooted in hard facts. We have begun an ambitious data collection exercise to provide the first detailed analysis of the extent, drivers and consequences of market power in a global commodity market -- coffee.
A second set of projects considers sourcing programs more closely.
A first project conceptualizes buyer-driven programs as relational vertical restraints – a type of contracts in which the terms between the buyer and the supplier specifies conditions (e.g. a price premium to producers) under which the product ought to be sourced. We apply the model to quantify the impact of the AAA Sustainable Quality Program in the Colombia coffee chain. The study provides both a conceptual foundation and a concrete example of how buyer-driven programs can positively impact agricultural chains in developing countries.
In a second project, we co-design and evaluate a Farmer Development Program (FDP) in close partnership with one of the world’s leading coffee multinationals. Through a combination of experimental and quasi-experimental methods, we explore three interconnected questions: (1) What is the impact of the FDP on farmers’ sales, practices and upgrading? (2) Does the FDP induce spillovers on disadvantaged, non-eligible, farmers? and (3) Which organizational capabilities are most most effective in establishing trusting relationships with small holders?
Through a strong research partnership with the Costa Rica coffee board (ICAFE), we develop and estimate an empirical framework to perform counterfactual analysis of the likely impact of regulatory changes.
Market power and concentration in global markets is also a contentious issue: at times described as the main force behind farmers' struggles around the world, at times hailed as the solution to agricultural chains problems. These debates are rarely rooted in hard facts. We have begun an ambitious data collection exercise to provide the first detailed analysis of the extent, drivers and consequences of market power in a global commodity market -- coffee.
A second set of projects considers sourcing programs more closely.
A first project conceptualizes buyer-driven programs as relational vertical restraints – a type of contracts in which the terms between the buyer and the supplier specifies conditions (e.g. a price premium to producers) under which the product ought to be sourced. We apply the model to quantify the impact of the AAA Sustainable Quality Program in the Colombia coffee chain. The study provides both a conceptual foundation and a concrete example of how buyer-driven programs can positively impact agricultural chains in developing countries.
In a second project, we co-design and evaluate a Farmer Development Program (FDP) in close partnership with one of the world’s leading coffee multinationals. Through a combination of experimental and quasi-experimental methods, we explore three interconnected questions: (1) What is the impact of the FDP on farmers’ sales, practices and upgrading? (2) Does the FDP induce spillovers on disadvantaged, non-eligible, farmers? and (3) Which organizational capabilities are most most effective in establishing trusting relationships with small holders?
Through multiple long-term partnerships in the global coffee chain – a fascinating context that is both intrinsically relevant and rich of generalizable insights – these deepen our understanding of concrete policy interventions and programs that can enhance the functioning of agricultural value chains in developing countries to improve income and livelihoods of small-holder farmers.