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Willingness to pay for Fair Trade products: Analysis and implications

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The growing popularity of Fair Trade products noted above suggests that people are generally willing to pay this premium for Fair Trade products. How much extra are people willing to pay? The present thesis seeks to review the prior research and answer this question. In addition, factors that underlie the willingness to pay for Fair Trade products are studied. The thesis provides an overview of the published research on this topic and analyzes the recent empirical results.

Specifically, the work focuses on 1 the prevalence to pay a premium i. Based on the findings, implications for marketing are drawn. Fair Trade products are closely related to ethical consumption, as they represent classical ethical products Langen, Fair Trade hereafter also FT has been defined as a trading partnership that seeks greater equity in international trade and sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers — especially in the South EFTA, Hence, FT represents a market-driven commercial model, rather than charity or aid mechanisms.

It addresses three interlinked objectives cf. The first is to alleviate extreme poverty through creating market access for the most disadvantaged producers in developing countries. The second objective includes empowering workers and farmers to use trade relationships and develop their own businesses in order to enhance their social capital. Last, Fair Trade aims to support the wider campaign for global trade reform and trade justice.

The FT model thus operates in stark contrast to the conventional trade relationships i. Fair Trade is specifically defined by a series of social and environmental criteria all of which have to be guaranteed to allow labeling a product cf.

Prices that covers the cost of production, provision for family members, and farm improvements are calculated and guaranteed. Hence, these prices are above the cost of production and allow producers to invest in their business, which promotes sustainability. To receive this extra premium, farmers and workers must form an association that decides democratically how to use the money. FT seeks to minimize the influence of brokers, consolidators and other agents in global supply chain.

Compared to other trade, the goods passes through remarkably few hands on its way from suppliers to consumers. This also applies to the money on its way from consumers to a poor farmer. FT creates long-term relationships between purchasers and producers, which allows producers to plan ahead and invest in the future e. FT fosters purchaser-producer relationships based on mutual respect.

This enables farmers to pre-finance production without the necessity to raise a loan with high rates. Full information about market movement and about how the market price of a good is determined in the different transactions.

Resource management plans are required. Moreover, certain pesticides are prohibited and farmers are fostered to invest in organic certification. No labor abuses may occur during the production process. This also includes the prohibition of child and slave labor abuse. Hence, Fair Trade may be broadly characterized as the market-based approach to help producers in improving their living condition by building a fair trade conditions. FT guarantees prices above the cost of production, promotes sustainability, enables investments and business development through the long-term trading relationship, improves working conditions, and fosters social responsibility.

According to Nicholls and Opal , the growth of Fair Trade can be seen as developing in four waves. Charities in Western Europe e. Similarly, in the Unites States, Ten Thousand Villages formerly Self Help Crafts started buying needlework from Puerto Rico in order to accelerate their economic growth and decrease poverty. In the second wave , market-oriented alternative trading organizations ATOs arose with the aim to stimulate beneficial trade models for producers in developing countries, for example by offering trade conditions without the control of middlemen who would inevitably squeeze prices at the beginning of the supply chain cf.

However, the sales volume of FT products was rather small as they were sold mostly in catalogues and world shops during this period.

The third wave was characterized by promoting FT products to a larger consumer base. During the same period, FT also managed to attract attention at international political fora and established FT certification marks.

The certification guaranteed that a labeled product meets basic environmental and labor standards, and simplified the interface between producers and customers. From that period onwards, moving into the fourth wave , FT hardened its growth in the mainstream. Over the last ten years, there has been a huge increase of FT sales internationally see Figure 1. Global sales of FT products almost tripled between and Krier, The worldwide turnover exceeded 2.

Nowadays, there are over 2, certified producer organizations and partner organization worldwide and FT products are sold in countries. Hence, FT is no longer a niche market Bauer et al. In Germany, FT products are sold in more than specialist shops so-called "world shops" as well as in conventional stores like Aldi, Tengelmann, or Rewe. The price-premium represented over 3 million Euros.

The growth of the overall sales volume in Germany is similar to the developmental trends observed worldwide. Figure 5 presents the sales volume of FT products in the last decade. The overall turnover of FT products increased over eight times since , and more and more certified products are being sold.

Thus, as in other European countries, FT market continues to grow. However, FT certification and labeling are linked to enhanced costs e. Consequently, the prices are higher than those of free trade products Bauer et al. The present thesis addresses the willingness to pay for FT products. As discussed above, FT products are often more expensive than similar conventional products.

Hence, the question arises whether consumers are willing to pay the enhanced price and which highest amount of the price-premium they would accept. It may be expected that this number significantly increased in the last decade due to the improvement of FT awareness and FT acceptance.

The first purpose of the present thesis therefore is to analyze the WTP for FT products as estimated in the most current empirical research studies. However, there may be discrepancies between the claimed and the actual purchase behavior; some people might claim that they would be willing to pay a premium but they do not behave accordingly.

Nicholls and Lee indeed discuss that only a minority of consumers that describe themselves as willing to pay for FT products actually purchase those products. Therefore, the increased WTP as estimated in interviews and surveys need not predict an actual buying behavior. On the other side, the discussed attitude-behavior gap seems to contradict the sales volume increase in the last years see the previous section.

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This thesis is generally accepted by economists • “any good for which there is a willingness to pay or accept count[s] as an willingness to pay thesis $divdiv Despite the fact that, as Shakespeare said, "the pen is mightier than the sword," the pen itself is not enough to make an effective writer/10().

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Generally, about half of the households surveyed are willing to pay for better drinking water. Most of them are HHs living in two major cities, Hanoi and Ho Chi Minh City. On average for all of the sampled households, the value of willingness-to-pay makes up small percentage of household income, just % of total household income. product perceptions either negatively or addition, the willingness to pay (WTP) literature stipulates that WTP is determined by product attributes and individuals’ characteristics. This thesis therefore seeks to ascertain the factors affecting consumers’ preferences and WTP for.

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