Food and Beverages

Statement of the problem: Both to protect consumers from potential information problems and to create rich niche market for producers, geographic indication (GI) became an important institutional intervention. Ethiopia, with the help of Oxfam public campaign, managed to introduce GI protection through trademarking for three of its finest coffees. Its main goal was to enable smallholder coffee producers’ capture the price premia foreign consumers are willing pay for the reputable quality coffees. GI protection effectively incentivizes reputations when there is a governance structure that coordinates the value chain. But its effectiveness is not clear when many firms at each stage of the chain have to operate independently in market-oriented approach. Moreover, it is not clear how the impersonalized and non-traceable transaction arrangement of ECX incentivizes reputation. The purpose of this study is to assess the impacts of the trademarking on prices at each stage of the coffee markets. Methodology & Theoretical Orientation: The study uses fixed-effect regression model using origin-disaggregated free on board (FOB) and producer price data that spans from January 2002 to June 2014. Unlike all previous studies on coffee, this study captures the transaction costs at the local markets using prices of dried/wet coffee cherries separately. Findings: The trademarking has considerably increased the FOB prices levels of trademarked coffee relative to non-trademarked ones. But its effects on the trend of FOB prices were very small. In addition, the introduction of Ethiopian commodity exchange (ECX) had negative effects on prices indicating the incompatibility of trademarking and ECX. This is because the exclusive transaction arrangements of ECX are not compatible with the transaction an arrangement trademarking requires. Moreover, contrary to the primary goal of the trademarking initiative, its impacts on producer who are located at the bottom of the market chain was negligible. Almost the whole price premia foreign buyers paid for trademarked coffee is captured by other actor. Recommendation: For the trademarking to benefit farmers, a separate traceable transaction arrangement that incentivizes reputation should be introduced at each market level.