The results support our hypotheses. More specifically, (i) characteristics that indicate an efficient institutional environment are correlated to a decline in the difference between farm-gate and export prices in the coffee supply chain; (ii) aspects that illustrate proper infrastructure are correlated to a reduction in the difference between farm-gate and export prices in the coffee supply chain.
Our findings support the general idea that institutions and infrastructure matter when analyzing unfair trading practices in agri-food chains. More specifically, Table 4
(Model 2) shows that property rights are correlated to a higher ratio between farm-gate prices and FOB prices, i.e., the better the institutional environment, the fairer the prices paid to coffee farmers. We also found a similar result regarding infrastructure, measured by access to electricity and quality of roads, i.e., the better the infrastructure, the fairer the prices paid to coffee farmers.
Institutions and Infrastructure
shows that from 2007 to 2016, Brazil was the leading country, on average displaying the highest ratio between farm-gate and FOB prices (92%), followed by Guatemala (87%), Colombia (82%), Honduras (75%), and Peru (71%). Ethiopia is the country in which producers obtained the lowest value (53%) in the period analyzed.
In Brazil, coffee production involves complex governance mechanisms to coordinate the whole chain towards both domestic and international markets [21
]. Although present in remote locations, the supply chain involves a supportive activity from private agents who collectively handle issues that government fails to address [30
]. There is no public organization responsible for the sector in the country, but there are several associations and cooperatives that provide support to producers. One example is the Cooxupé cooperative [42
Many farmers negotiate their coffee in international markets, as well as provide adequate transportation services to ports at a low cost. Due to the relevance of such collective actions in the sector in Brazil, farmers often use them, and economy of scale is usual, making investments on transportation worthy. The so-called dry ports and the good roads and ports conditions stand out. Since the late 1990s, export tariffs have been reduced to zero, which has enabled greater gains for producers [21
]. Finally, the country also offers efficient institutions to support producers, which results in fairer farm-gate prices, i.e., similar to those of exports (FOB).
In the case of Guatemala, the coffee sector has received support from a relevant institution since 1960, the Anacafé (Asociación Nacional del Café). The association is considered efficient and important in supporting coffee farmers in activities of trading, financial, and regulatory support. Assistance in exporting and rural development in geographically remote areas are also included [43
]. The producers who do not participate in a cooperative or association are exposed to intermediaries, also known as coyotes, who usually offer lower prices at farm-gate level [44
]. As a result, an interesting internationalization strategy from Anacafé can be observed: in 2010 the institution launched a platform that connects international buyers to local sellers at the farm-level [45
]. According to this report, currently an issue is still traced to the poor transportation infrastructure of the country, which causes delays and increases production costs. A possible solution would be making investments in specific priority producing regions and most used port facilities.
Similarly, while being recognized as one of the highest quality producers in terms of beans, the Colombian market faces the same challenge in transportation infrastructure. Coffee beans are transported across remote areas without adequate roads from farms to buying centers, and then to cooperatives and ports. Gonzalez-Perez and Gutierrez-Viana [46
] argue that ‘Colombian freight rates are very high by international standards. FNC [Federación Nacional de Cafeteros de Colombia] has shown that it is far more expensive to take a container from coffee growing in Armenia to Cartagena (900 km) than from China to one of Colombia’s ports’ (p. 5). On the other hand, the coffee supply chain in the country also counts on a unique and active coffee institution—FNC—that supports the market domestically and internationally, providing logistic and institutional support for small producers. That said, some logistic constraints faced by Colombian small coffee producers—like the beans transport through the Andean region—could be handled by public goods through FNC support.
The coffee sector in Honduras presents another relevant institution to support its supply chain in terms of market access, technological assistance, training, etc., the Honduran Coffee Institute. However, the National Coffee Fund is the institution responsible for making supportive investments in building roads and bridges, creating infrastructure projects, and granting non-refundable resources to support farmers associations. On the other side, a step further to be developed in the country is the improvement of some policies regulating middleman activities. Improvement of market transparency is an important and needed step to be developed in order to foster growth in a sustainable way in the Honduran coffee chain [47
The Peruvian coffee industry also faces issues on transportation. Sipa’s report [48
] states that Peru can face problematic weather patterns, with heavy rains that stress pre-existing logistic issues within the supply chain, thus affecting its general performance. There is still a need to improve the quality of transportation activities in the Country, led by either cooperatives or intermediaries. The report also suggests that the Country has a fragmented coffee production, with a challenge to the orchestration of institutions. This report indicates the lack of a central agency that could represent “the public and private actors and that could coordinate the actions of all major national institutions, numerous regional/provincial organizations, and thousands of independent coffee producers” [48, p.31]. To these authors, despite the National Coffee Council (Consejo Nacional del Café, created in 2002), responsible for regulatory coordination and coffee industry development, the Country still needs a centralized entity that could provide a better leadership and a united vision of the industry. Lastly, the report Plan Nacional de Acción del Café Peruano [49
] states that the Country has been going through an increase in violence and criminal rates in recent years, a situation that is even more intense in rural areas where the police presence is lessened, reflecting additional costs in cargo insurance to mitigate thefts during transportation.
The Ethiopian coffee chain presents an interesting scenario as well. The country counts on a relevant institution to coordinate prices in the market, the well-known Ethiopian Commodity Exchange (ECX) [33
]. On the other hand, the supply chain is still inefficient in the relevant aspect of transportation. According to Hütz-Adams [35
], ‘to improve the situation on the Ethiopian coffee market, the infrastructure must improve significantly, as this would automatically reduce costs and increase farm-gate price.’ (p. 3) The article “The Ethiopian commodity exchange and spatial price dispersion” points out that even though the ECX is associated with transparency in prices information, the lack of secure storage in the country limits the institution’s potential [50
]. Additionally, transportation difficulty implies an increase in the number of required intermediaries to take the coffee to its final destination, increasing transaction costs.
According to Sachs et al. [1
], the infrastructure indeed seems to be a global and recurrent grand challenge to coffee producing countries. Moreover, aspects regarding the coordination of the supply chain, such as institutions supporting the involved economic agents, also seems to be a key aspect. Based on institutionalist scholars (e.g., [29
]), our empirical analyses suggest that better institutions can reduce transaction costs in the relationships along the supply chain, and then decrease the number of intermediaries, ultimately reducing the prices obtained by producers. In other words, it may affect unfair trading practices in agri-food chains.