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Margins of Fair Trade Wine along the Supply Chain: Evidence from South African Wine in the U.S. Market

Published online by Cambridge University Press:  19 December 2019

Robin M. Back ,
Xinyang Liu ,
Britta Niklas ,
Karl Storchmann  and
Nick Vink
Robin M. Back
Affiliation:
Rosen College of Hospitality Management, University of Central Florida, 9907 Universal Boulevard, Orlando, FL32819-8701; e-mail: [email protected].
Xinyang Liu
Affiliation:
Goldman Sachs Securities Division, 200 West Street, New York, NY10282; e-mail: [email protected].
Britta Niklas
Affiliation:
Economics Department, Institute of Development Research and Development Policy, Ruhr-University Bochum, Universitätsstr. 105, 44789Bochum, Germany; e-mail: [email protected].
Karl Storchmann*
Affiliation:
Economics Department, New York University, 19 West 4th Street, New York, NY10012.
Nick Vink
Affiliation:
Department of Agricultural Economics, Stellenbosch University, Private Bag X1, 7602Matieland, South Africa; e-mail: [email protected].
*
e-mail: [email protected] (corresponding author)
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Abstract

In this paper, we analyze profit margins and markups of Fair Trade (FT) wines sold in the United States. We are particularly interested in whether and to what extent the FT cost impulse in production is passed along to the supply chain. We draw on a limited sample of about 470 South African wines sold in Connecticut and New Jersey in the fall of 2016; about 90 of them are certified FT. For these wines we have free on board export prices, wholesale prices, and retail prices, which allows us to compute wholesale and retail margins and analyze the FT treatment effect. We run OLS, 2SLS, and propensity score matching models and find evidence of asymmetrical pricing behavior. While wholesalers seem to fully pass-through the FT cost effect, retailers appear to amplify the cost effect. As a result, at the retail level, FT wines yield significantly higher margins than their non-FT counterparts. (JEL Classifications: L11, L31, L43, L81, Q17)

Keywords

Fair Tradepropensity score matchingpass-throughsupply chainwine
Type
Articles
Information
Journal of Wine Economics , Volume 14 , Issue 3 , August 2019 , pp. 274 - 297
Copyright
Copyright © American Association of Wine Economists 2019

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Footnotes

We thank an anonymous reviewer, participants at seminars at INSEEC Paris, Washington State University, Rutgers University, the University of Bordeaux, and the Annual Conference of the American Association of Wine Economists in Padova for numerous helpful comments.

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