Tracking the Quality Premium of Certified Coffee: Evidence from Ethiopia

Certification of Voluntary Sustainability Standards (VSS) is rapidly increasing in global value chains. While consumers, mostly in developed countries, are willing to pay significant premiums for the certification of such standards, it is not well understood how effectively these incentives are transmitted to producing countries. We study VSS-more in particular Fair Trade and Organic certification-in Ethiopia's coffee sector, the country's most important export commodity, using a unique census of transaction data at the export level and large-scale data at the production level. We find that transmission of export quality premiums to coffee producers is limited, with only less than one-third of this premium being passed on, and we find limited evidence of effects due to communal investments. Moreover, as quality premiums are small and average production levels in these settings are low, we estimate that these premiums would only lead to an increased income for coffee farmers of 22 USD per year even with a perfect transmission scenario, and therefore would have little impact on the welfare of the average coffee farmer. Given that the VSS studied are characterized by the highest premiums among VSS schemes, it can be assumed that even lower benefits from other VSS certification schemes trickle down to producers.