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Wall Street Journal: For ‘Fair Trade’ Coffee, How Big a Market?
04/27/2011 - 3:46 PM

By Christopher Shea

A significant number of consumers will opt for “Fair Trade” coffee over the alternatives, a new study finds. And they’ll continue to buy it even in the face of an 8% price hike.

The study took place in 26 stores of an unnamed upscale chain.

In one test, in half the stores researchers put small “Fair Trade Certified” stickers on the two most popular coffees sold in bulk: Coffee Blend, a lower-cost option (for this chain!), at $10,99 per pound, and French Roast, both more popular and more expensive, at $11.99 per pound. In the other stores, the researchers placed similar stickers that just named the coffees. Meanwhile, the stores continued to sell six other coffees in bulk, at prices similar to those.

With a Fair Trade label slapped on, at those prices, sales of French Roast leapt 8% and sales of Columbian Roast jumped 13%, while overall coffee sales remained level.

In a second test, the price of each Fair Trade coffee was raised by a dollar a pound. Sales of the more-popular French Roast actually rose 2%, despite the higher price. In the economic jargon, demand for this variety of Fair Trade coffee was “inelastic,” or non-responsive to price changes (within reason). But sales of Coffee Blend, the cheaper option, dropped by 30%.

In short, the study identified two kinds of consumers: One group finds the Fair Trade emblem to be a potent, positive signal, worth paying a premium for. This is a group of substantial size—considering that French Roast was the most popular coffee in the store—and one that retailers and activists can tap.

Less surprisingly, there’s a more cost-conscious group who may prefer Fair Trade, all things being equal, but won’t pay more for it.

“Consumer Demand for the Fair Trade Label: Evidence from a Field Experiment,” Jens Hainmueller, Michael J. Hiscox and Sandra Sequeira, working paper (April)

PS I wondered if this study involved (mild) deception: Did people buy coffee labeled “Fair Trade” that was not, in fact, certified as such? No, it turns out, because both blends were already Fair Trade certified. There’s no regulation that says Fair Trade coffee has to be labeled as such, so no harm was done in removing those labels, in some stores, in the course of the experiment.