Journal of International Trade, Logistics and Law, Vol. 6, Num. 1, 2020, 52-60
52
ECONOMIC IMPACT OF FAIR-TRADE CERTIFICATION ON SMALL-SCALE
COFFEE PRODUCERS IN ETHIOPIA
Fikadu Gutu BULGA
Jimma University, Ethiopia
Wondaferahu Mulugeta DEMISSIE
Jimma University, Ethiopia
Sisay Tolla WHAKESHUM
Jimma University, Ethiopia
Received: May 02, 2020 Accepted: May 22, 2020 Published: June 01, 2020
Abstract:
Exporting attracts attention as an international sales activity, which has been studied by the country’s economic managements, firm In
Ethiopia coffee production is one of the most important sectors of livelihood, and the largest portion of coffee production comes from
smallholder farmers. Small-scale coffee farmers producing for fair-trade market outlets are commonly considered to benefit from enhanced
prices and established market channels. Nevertheless, some empirical studies are validating this conception adversely. This study,
consequently, tried to assess the impact of fair-trade certification on the economy of small-scale coffee producers using both descrip-tive and
econometrics techniques for the selected 383 respondents in Jimma zone of south west Ethiopia. According to the finding of the study;
educational level, status of household head, fair-trade membership position, market and infrastructure access variables are statisti-cally
significant and determine income of smallholder coffee farmers positively. Logistic regression result indicates that, the coefficient (or
parameter estimate) for the variable fair-trade membership position is 3.383. This means that for every one-unit increase in fair-trade
membership, we expect a 3.383 increase in the log-odds of the income increment, keeping all other independent variables constant.
Therefore, leeway of fair-trade certification ought to be reflected as one of poverty and susceptibility reduction implements among economic
strategists and practitioners.
Keywords:
Fair-trade certification, Coffee, Economic Impact, Ethiopia
1. Introduction
Coffee is a global commodity with trade networks spreading wide-reaching. International exchange markets in New
York and London largely determine coffee prices, making it diffi-cult for producing countries, except for major
producers such as Brazil and Vietnam, to influence world price formation. The international nature of coffee
marketing and sales directly exposes coffee producers in developing countries to international price fluctuations
(Kodama, 2007).
According to fair-trade foundation (2012), fair-trade certification is the preeminent solution to increase the socio-
economic benefits of producer and cooperative union, environmental protection at regional and national level
development. Furthermore, by increasing the productivity and benefit of coffee producing regions/area either by
direct international sales through eliminating the middle man who makes higher profit at the expense of farmers
and/or by promoting sustainability standards and fair-trade certifications which assurance their price and allow them
to get social premium in order to enhance local infrastructures and make them better social and environmental
responsibility. The practice hints them the best beneficiary and they will operate sustainably in the global market
according to their effort. Alternatively, fair-trade was created in order to regulate the market and bring more
advantages to the coffee producers in exporting countries. The organization aims to create an equitable and stable
Economic Impact of Fair-Trade Certification on Small-Scale Coffee Producers in Ethiopia
53
trading system by establishing a fair price for goods and direct mar-ket access for farmers. It guarantees prices to
cover the coffee producers’ costs of produc-tion, which in turn enables improvement of their livelihood: the overall
aim being social and economic development of the community.
The magnitudes and values of fair-trade certification for coffee producers and their organizations have been analysed
in numerous studies. Thorough case studies from coffee cooperatives in Costa Rica (Ronchi, 2002), Nicaragua
(Bacon, 2005) and Mexico (Jaffee, 2014) confirm that fair-trade certification reinforced producer organizations and
advocate that fair-trade tenets improved returns to smallholder coffee makers, positively affected their eminence of
life and reinforced the power of local organizations. Additional lessons revealed that fair-trade arrangements
enhanced the welfare of small-scale coffee producers and their families, primarily due to enhanced access to credit
services and outer funds, and above through training and refining product organization (Murray et al., 2006).
In Ethiopia coffee has been utilized as a drink and food for numerous hundred, if not thou-sands, of years.
Henceforth, Ethiopia can be reflected as the natural and cultural home of coffee. Nowadays, an estimated 525,000
hectares (5,250 km2) of coffee are engrained in Ethiopia; nonetheless the tangible area is most likely in excess of
20,000 km2. Coffee deliv-ers Ethiopia with its furthermost noteworthy agricultural commodity, backing around one
quarter of its entire export retributions (Minten et al., 2014).
In the context of fair-trade certification, Ethiopian government ratified the Cooperative Proclamation No. 147/1998
that identified clear goals, objectives and also their authorities (FDRE, 2008). From the Federal Democratic Republic
of Ethiopia (FDRE) proclamation, it is possible to understand how the government wants to support a more
advantageous legal background for the formation of Ethiopian cooperatives. The main goals of proclamations were
to include socio-economic and other motives that require joint actions for attaining a common target. However, the
extent to which the cooperatives in Ethiopia have been able to attain these goals has not been adequately analyzed.
In addition, the actual extent of the cooperative movement is unknown and not assessed and valuated in general
sequence. For that reason, this study collected basic evidences from 383 respondents to assess economic impacts of
fair-trade certification on smallholders coffee producers which are members of cooperative union in Ethiopia.
Indeed, the main objective of this study was to analyze the economic impact of fair-trade certification among
smallholder coffee producers in case of Jimma zone of south west Ethiopia using both descriptive and econometrics
techniques. And the result of the study revealed that educational level, status of household head, fair-trade
membership position, market and infrastructure access variables manage income of smallholder coffee planters
positively.
2. Methods of the Study
2.1. Sources and Type of Data
This study was conducted based on both primary and secondary data. The primary data were collected by face to
face interviews using structured questionnaire. The questionnaire included both closed and open ended questions.
The closed-ended questions were used to collect background information about the respondent. It covered the
personal information, institutional (cooperative union), economic, social structure, and regional infrastructure
development. Secondary sources were included unpublished and published materials about fair-trade certification
activities.
2.2. Study Design and Period
A cross-sectional study design was employed to look for socio-economic impact of fair-trade certification on small
household coffee producers and cooperative unions. From each selected coffee cooperative union, the researchers
selected ten primary coffee producer cooperatives for this study, which means five of them are fair-trade certified
and the others are none. The non-certified are sellected based on various comparability factors, including similarity
on infrastructure availability, communication facilities and other socio-economic characteristics, such as topography,
accessibility and presence of other development programs. All farmers including respondents are residing in the
selected cooprative village were consitituted as the study population. The study was conducted from September
2016 to end of June 2017.
Fikadu Gutu BULGA & Wondaferahu Mulugeta DEMISSIE & Sisay Tolla WHAKESHUM
54
2.3. Sample Size Determination and Sampling Techniques
Multi-stage sampling techniques were employed to determine sample size. The researchers applied lottery method to
select certified and non-certified from each selected cooperative unions from four selected coffee cooperative unions
in Ethiopia. After researchers determined total sample of cooperatives from both certified and non-certified; the
selection criteria of farmers was based on the membership registry book of each cooperative.
The sample size was determined by the following formula (Noel, et al, 2012).
Where, is the total population, is the required sample size, margin of error, is the confidence level. And n=383
for total population (N) =8934.
2.4. Data Analysis
Data were coded, checked for completeness and entered into a computer. Then, coded data were analysed using
STATA software package version 13.0 for regression analysis. The empirical analysis of this study was conducted
using both descriptive statistics and logistic regression analysis. Assessing the impact of Fair-trade certification on
increasing farmer’s income at household level of respondents and cooperative union requires adjustments to control
for differences between membership and non-membership to evaluate the economic impact. The impact of fair-
trade certification on respondents was assessed based on the independent variables indicated below. The variables
used in regression are respondent age, total farmland, membership status of fair-trade certificate, amount of coffee
land, households’ headship status. The functional relationship between the probabilities of income increment impact
at household level and explanatory variables are specified as:
Let Yij be the ith farmers response for component indicate income increasing status (a binary outcome, 1= alone,
0=otherwise) for small household farmers in the jth cooperative.
𝑙𝑜𝑔
𝑃𝑗
1−𝑃𝑗
= 𝛽0 + 𝛽1𝑋1 + 𝛽2𝑋2 + ⋯+ 𝛽𝑘𝑋𝑘……………………………………………….. (2)
where is the population proportion of income increment mainly at household level in the jth cooperative, ith
farmers response for the components index of economic impact of fair-trade certification, are households socio-
economic characteristics of the study subjects or independent variables and are their associated regression
coefficients or parameter to be studied. To analyse studies that involve qualitative choice, especially to evaluate
dichotomous variables most studies employed logit and probit model. The logit and probit formulations are quite
comparable, for this study Logit model has got advantage over probit in the analysis of dichotomous outcome
variable in that, it is extremely flexible and easily used model from mathematical point of view (Hosmer et al.,2013).
Finally, the question of income increment at household level is expressed in dichotomous form. Thus, a farmer
whose income is increased is assigned a value of 1, otherwise 0.
3. Result and Discussions
3.1. Economic Impact of Fair-Trade Certification on Small-Holder Coffee Producers and Cooperatives
According to the result of the table 3.1 below, Fair-trade certification status has improved annual income of the
certified small household coffee producer farmers. Interviews were conducted with a total of 383 small household
coffee producers farmers involved in this study. As it has shown in the table, of those 383 producers, 116 (30.3%)
belonged to a Fair-trade certified cooperatives, while 267(59.7%) were from non-members
As it has indicated from the study survey, nearly most of respondents reported as they have an average 0.5hector of
coffee farm and respond that their income increases since the last three years. Within these cooperatives both fair -
trade certified and non- Certified, the size of individual coffee farms varied between 0.5 and 4.5hector; nearly (4)
4.6% of the coffee farmers had more than 4.5 hector of coffee farms. Based on the information, out of total coffee
producers 170(44.4%) respond that their income increases while the remaining 213(54.6%) were report that their
annual income was not increasing in the last three harvest-ing year
......................................................................................................(1)
Economic Impact of Fair-Trade Certification on Small-Scale Coffee Producers in Ethiopia
55
Table 3. 1. Percentage Distribution of Farmers’ Income Status from Coffee (n=383)
Characteristics
Is there any change in your annual income from coffee production
in recent years?
Yes No Total
Variables Responses Number % Number % Numbe
r
%
Educational
level of
household
head
No
education
36 9.4 172 44.9 208 54.3
Read and
write
134 35 41 10.7 175 45.7
Total 170 44.4 213 55.6 383 100
Fair-trade
certificate
membership
status
Yes 110 28.7 6 1.6 116 30.3
No 60 15.7 207 54 267 59.7
Total 170 44.4 213 55.6 383 100
Household
headship
status
Female 8 2.1 77 20.1 85 22.2
Male 162 42.3 136 35.5 298 77.8
Total 170 44.4 213 55.6 383 100
Credit
Opportunity
Yes 56 14.6 52 13.6 108 28.2
No 114 29.8 161 42 275 79.8
Total 170 44.4 135 55.6 383 100
Access to
Market
Yes 155 40.5 25 6.5 180 47
No 15 3.9 188 49.1 203 53
Total 170 44.4 213 55.6 383 100
Source: Study Survey 2017
Similarly, only 6(1.6%) certified cooperative members replied that income were not increas-ing; while 207(54%) from
non-certified member of coffee cooperative reported that their annual income was not increasing in the last three
years. This shows that there was a differ-ence between those certified and non-certified cooperatives in terms of
income. Even if there is a remarkable difference between fair-trade certified and non-certified members of coffee
producer cooperatives regarding to their income; the coverage of fair-trade certificate mem-bership status is still very
low when compared to the numbers of household coffee producers in the study area. Of total respondents or
households, 108 (28.2%) reported that they have gotten credit opportunity and 275(79.8%) of them were reported
that, otherwise. Producing coffee is not enough for farmers; the case is very worth for small household coffee
producer in developing countries. Because they produce coffee with many challenges and also with many hopes of
income for their household. Next issue to production of coffee was market access. According to the respondents,
180(47%) said that the access to market was good and 203(53%) were reported that, access to market is not easy for
them.
3.1.1. Relationship between Credit Opportunity and Fair-Trade Certification
Finance is a weapon to eradicate poverty. The case of finance is more sensitive in the case of developing country
than that of developed ones. Credit opportunity or access to finance is an essential tool of growth and productivity.
Credit-worthy cooperatives and unions can act as intermediaries for their member farmers because they give
members access when formal credit lending institutions do not exist sufficiently. As it has shown in the table 3.1.1
below, only 12(10.3%) respondents from certified cooperative members responded no for credit facility though
114(89.7%) have got such access. Providing credit to member coffee farmers in small-scale cooperatives who are
often structurally or institutionally prevented from accessing it has proved hugely successful in a variety of domains.
Not only coopera-tive and or obliged to provide credit facility to their members but also the cooperative or the
union themselves should get pre-financing from buyers to cover harvesting and other costs since credit provision is
enshrined in the fair-trade relationship with their member.
Fikadu Gutu BULGA & Wondaferahu Mulugeta DEMISSIE & Sisay Tolla WHAKESHUM
56
Our finding is in agreement with the study conducted by many scholars. For example, in a study by Mendez et al.
(2010) of 469 coffee producers in Central America and Mexico, fair-trade farmers had higher reported access to
credit (42%) than conventional coffee farmers (34%). This could be related to the fact that the fair-trade social
premium finances credit funds that are run by cooperatives to make credit available to producers (ibid.p.2) and
Ruben et al (2009)). These funds are particularly useful in so far as banks often fail to provide credit to small-scale
producers in most of developing countries like Ethiopia.
Table 3.1.1 Relationship between Credit Opportunity and Fair-Trade Membership Status (n=383)
Responses Fair-trade Membership Status Total
Characteristics No Yes
Credit
Opportunity
No
Number 203 72 275
Percent
within
Credit
Opportunit
y
73.8 26.2 100
Percent of
Total
53 18.8 71.8
Yes
Number 64 44 108
Percent
within
Credit
Opportunit
y
59.3 40.7 100
Percent of
Total
16.7 11.5 28.2
Total Number 267 116 383
Percent
within
Credit
Opportunit
y
69.7 30.3 100
Total Percent of
Total
sample
69.7 30.3 100
Source: Survey Study, 2017
Our finding was in agreement with the study conducted by Murray et al (2006). The study result of Murray et al.,
(2003), shows that, some cooperatives in Mexico have taken a slice of the fair-trade premium and invested it in small,
cooperatives administered credit funds that can be accessed by members for small emergencies. It is possible to
conclude that ac-cess to credit gives farmers increased opportunities for productivity investments and helps them
avoid predatory lending at exorbitant rates. And also, there is a remarkable differences between fair-trade certified
cooperative and non-certified. Demand for coffee is higher when it was the product of fair-trade certified members
of cooperative than non-certified.
3.2. Logistic Regression Results
3.2.1. The Economic Impact of Fair -trade certificate on Smallholder Coffee Producer farmers
According to the result of table 3.2.1, the coefficient (or parameter estimate) for the varia-ble educational level status
of household head is 1.681. This means that for a one-unit in-crease in education level, we expect a 1.681 increase in
the log-odds of the Income Incre-ment, holding all other independent variables constant. The coefficient (or
parameter esti-mate) for the variable fair-trade membership status is 3.383 This means that for every one-unit
Economic Impact of Fair-Trade Certification on Small-Scale Coffee Producers in Ethiopia
57
increase in fair trade membership, we expect a 3.383 increase in the log-odds of the income increment, keeping all
other independent variables constant. The coefficient (or parameter estimate) for the variable market access is 3.49.
This indicates that for every one-unit increase in market access, it is expected that a 3.49 increase in the log-odds of
the in-come increment, keeping all other independent variables constant. And the result shows that, the probability
of income augmentation has a direct relationship with explanatory variables. The coefficient (or parameter estimate)
for the variable of infrastructure access to farmers is 0.727. This means that households those have a better
infrastructural access, we expect a 0.727 increase in the log-odds of the Income Increment, holding all other
independent vari-ables constant.
Table 3.2.1: Binary Logistic Regression Result (n=383)
Source: Study survey, 2017
Generally, our finding is in agreement with the study conducted in other countries or there is similar income growth
reported from other studies. A separate study in Nicaragua found that farmers averaged $0.56/lb of coffee sold
through a cooperative linked with the fair-trade certified organic market, compared to $0.40/lb for their
conventional market counterparts (Bacon, 2008). Fair-trade-associated cooperative farmers in Costa Rica received
incomes that were 39% higher on average than farmers not involved with fair-trade (ibid.p.2). Also our finding is in
agreement with the study conducted by many other scholars. For example, the study conducted by Mendez et al.
(2010) shows that, within a sample of 469 coffee producers in Central America and Mexico for the 2003/2004
harvest, the researchers constructed an average price measure using farm gate prices received from different markets
(organic, certified fair-trade, and conventional) weighted by the percentage of the harvest sold at that price to reflect
the prices that farmers obtain at the farm gate. The authors find that fair- trade certified farmers received $0.17 more
per pound of coffee sold while fair-trade/Organic certified farmers received $0.38 more per pound of coffee sold
compared to non-certified farmers.
3.2. Fair-Trade Certification Impact on Infrastructure Development in the Study Area
The coefficient (or parameter estimate) for the variable fair-trade membership status is 0.751. This shows that for
every one-unit increase in fair-trade membership, we expect a 0.751 increase in the log-odds of the infrastructure
Dependent variable Coefficient Standard
error (r)
Z p>
|z|
Age of household head (continuous) -0.002 0.0214 -0.13 0.900
Household educational level
(continuous)
1.681 0.477 3.58 0.000
Dummy, fair-trade membership
status(1=member)
3.383 0.672 5.03 0.000
Dummy, HH headship (1=male) 0.875 0.583 1.50 0.134
Family size (1= <5) 0.002 0.079 0.02 0.983
Total land size (continuous) 0.132 0.179 0.74 0.461
Total land for coffee (continuous) -0.427 0.302 -0.14 0.887
Coffee production amount in KG
(continuous)
0.601 0.541 1.11 0.266
Dummy, market access (1=Yes) 3.490 0.511 6.83 0.000
Dummy, Infrastructures access
(1=Yes)
0.727 0.324 2.24 0.025
Constant -11.074 1.174 -2.63 0.000
Fikadu Gutu BULGA & Wondaferahu Mulugeta DEMISSIE & Sisay Tolla WHAKESHUM
58
development, keeping all other independ-ent variables constant. One objectives of fair-trade certification is related to
development of infrastructure. This infrastructure is funded from what we call social premium. The Social premium
has typically been invested in other funds for community projects or to enhance the capacities of the cooperatives,
unions and its members. Surprisingly, most of farmers from non-certified cooperative member have the information
that those fair-trade certified cooperatives have got fair-trade premium each year and they shared the social projects
equally which has been built by the premium. As mention at the first line of this paragraph, fair-trade certification
program touch its goal by using income/payment from social premi-um. For example, according to Kenter coffee
producer cooperative union, 32 water pumps were built by the union for the surrounding community. In addition,
the cooperative union also built one library in Bilida kebele. For more details, see the following figure.
Figure 3.2. Local infrastructure built by Kenter Coffee Producer Farmers’ Cooperative Un-ion
4. Conclusion and Policy Implications
4.1. Conclusion
The core of the research design was a cross-sectional based survey focused to identify the impact of fair-trade
certification on the income of small-scale coffee producers. This study was adopted a combination of research tools,
both quantitative and qualitative. This in-volved a long paper-based questionnaire applied to stratified random
samples within the research sites and interviews with fair- trade members and non-members of fair-trade in
accordance with a set of analytical criteria, so as to allow for more detailed and different kinds of evidence.
According to this study result, income increment and infrastructural development impacts of fair-trade certification
is significant and positive, hence paving attention for the importance of fair-trade certification. Conferring to the
output of the study, fair-trade certification has a direct and significant impact on economies of small household
coffee farmers and also plays great role in the development of infrastructures of the study area. Also, Fair-trade has
improved the life of fair-trade certified cooperative member farmers than non-certified coffee producers. This
guarantees the growth of the cooperative and also made the coopera-tive to be competent and sustainable coffee
supplier to the international market. Logistic regression result indicates that, the coefficient (or parameter estimate)
for the variable fair-trade membership status is 3.383. This means that for every one-unit increase in fair-trade
membership, we expect a 3.383 increase in the log-odds of the income increment, keeping all other independent
Economic Impact of Fair-Trade Certification on Small-Scale Coffee Producers in Ethiopia
59
variables constant. In addition, the coefficient (or parameter estimate) for the variable educational level status of
household head is 1.681. The coefficient (or parame-ter estimate) for the variable market access is 3.49, keeping all
other independent variables constant. The result shows that the probability of income increment has a direct
relationship with explanatory variables. Also, the coefficient (or parameter estimate) for the variable of infrastructure
access to farmers is 0.727. This means that households those have a better infrastructural access, we expect a 0.727
increase in the log-odds of the income increment, holding all other independent variables constant. Also, this study
finding shows that, the coverage of fair-trade certificate membership status is still very low when compared to the
numbers of household coffee producers in the study area.
4.2 Policy Implications
Based on the finding of the research, the researchers forward the following policy implica-tion for optimal
exploitation of fair-trade certification, which will make smallholders farmers more beneficiary:
Fair-trade certification as a trade license has a promising result regarding to economic and infrastructural
development advantages to small-scale coffee farmers in particular and the community in general. This particular
research study result also shows that fair-trade certifi-cation has a great impact on small scale coffee farmer wellbeing
in changing the livelihood of destitute coffee farmers and also improved the development infrastructures of
communi-ty. Therefore, fair-trade certification should be considered as one of development riding forces and
instruments among policy makers.
Regardless of the substantial impact of fair-trade certification, study revealed that the cov-erage of fair-trade
certification was very low. Hence, main stakeholders such as government, non- government organization, coffee
producers and buyers ought to work deeply to envel-op wide community as much as possible. Market access and
credit opportunity matters the success of lifting poor small-scale farmers out of poverty. Therefore, financial bodies
like formal and informal credit and saving institutions, market makers should further get in touch with small scale
coffee farms. Educational level status has a positive and significant impact on the income of smallholder coffee
farmers. So, government and NGOs should focus how to increase farmer’s access to functional adult literacy
program.
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