DP13935 Buyer-Driven Upgrading in GVCs: The Sustainable Quality Program in Colombia

Author(s): Rocco Macchiavello, Josepa Miquel-Florensa
Publication Date: August 2019
Keyword(s): BuyerDriven Supply Chain, Contracts, market structure, Quality upgrading, voluntary standards
JEL(s): F61, L23, O12, Q12, Q13
Programme Areas: Industrial Organization, International Trade and Regional Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13935

This paper studies the Sustainable Quality Program in Colombia - a quality upgrading program implemented on behalf of a multinational coffee buyer. The Program is a bundle of contractual arrangements involving farmers, intermediaries, exporters and the multinational buyer. We tackle three questions. First, we investigate the impact of the Program on the supply of quality coffee. Eligible farmers upgraded their plantations, expanded land under coffee cultivation, increased quality and received higher farm gate prices. Second, we quantify how the Program gains are shared between farmers and intermediaries along the chain. In regions in which the Program was rolled out surplus along the chain increased by 30%. Eligible farmers kept at least half of the gains and their welfare increased by 20%. Finally, we examine how the Program works conducting counterfactual exercises and comparing the Program price premia along the chain against two prominent non-buyer driven certifications. The Program achieved a better transmission of the export gate price premium for quality to the farm gate and curbed market failures that stifled quality upgrading. Contractual arrangements at the export gate significantly contributed to higher farmers welfare in rural areas.