Label performance and the willingness to pay for Fair Trade coffee: a cross‐national perspective

TLDR

The study examines how information about Fair Trade coffee’s performance on farmers’ revenue influences consumers’ willingness to pay in the United States and Germany. University students in both countries were given details on the program’s benefits to marginal farmers and then completed a stated‑preference conjoint survey to assess how this performance criterion affects willingness to pay. Results reveal an inverted‑U relationship: willingness to pay rises with the program’s scope up to a critical threshold, after which it falls, a pattern observed in both the US and German samples with differing thresholds.

Abstract

Abstract In this paper, we investigate how label information detailing the performance of the Fair Trade labelling programme with respect to coffee affect consumers' willingness to pay in the US and in Germany. We provide respondents (university students in the US and Germany) information regarding the hypothetical benefits of the Fair Trade coffee programme on its intended beneficiaries on the production side [the revenue gains to participating marginal farmers (scope of the programme)] and, using stated preference conjoint methods, test how this performance criterion relates to the willingness to pay for Fair Trade coffee. Our empirical results identify a ‘threshold’ property of performance‐based labels. In effect, the willingness‐to‐pay for performance‐based Fair Trade labelled coffee exhibits an inverted U shape in the sense that the willingness to pay is positively related to the scope of the programme, but only up to a critical level. Thereafter, the willingness to pay declines as the income gains to participating growers increase further. Interestingly, this inverted U property is exhibited by both the US and German respondents with different critical thresholds.