The Economics of Quality in the Specialty Coffee Industry_AAEA 2013
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The Economics of Quality in the Specialty Coffee Industry_AAEA 2013
https: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013sonTHRIVE Farmers International Headquarters 215 Hembree Park Drive. Suite 100 Roswell. Georgia 30076 adamfrt thrive fanners.comandNorbert L. w. Wilson Associate Professor Auburn UniversityDepartment of Agricultural Economics & Rural Sociology 100 c Comer Hall Auburn. AL USA 36849 WILSONL(fl auburn. The Economics of Quality in the Specialty Coffee Industry_AAEA 2013eduSelected Paper prepared for presentation at the Agricultural & Applied Economics Association's 2013 AAEA & CAES Joint Annual Meeting, Washington, DThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
C, August 4-6, 2013.Copyright 2013 by Adam p. Wilson and Norbert L. w. Wilson. All rights reserved. Readers may make verbatim copies of this document https: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013ffee Industry: Insights from the Cup of Excellence Auction Programs AbstractThis study estimates price determinants for specialty green coffee auctions using records from the 2004-2010 Cup of Excellence programs hosted by the Alliance for Coffee Excellence. While most recent literature on coffee has The Economics of Quality in the Specialty Coffee Industry_AAEA 2013 focused on certifications and sustainability labels, the discussion of price determinants has been limited in the literature. This paper replicates oThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
ne of the first publications on price determinants (Donnet. et al., 2008) and formulates a new model to more accurately describe the market. We includhttps: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013ong effect on price, the highest premiums stem from obtaining a top rank compared to Other coffees from the same country, and North American buyers are more responsive to sensory quality than buyers in Asian and European markets.The Economics of Quality in the Specialty Coffee Industry*: Insights fr The Economics of Quality in the Specialty Coffee Industry_AAEA 2013om the Cup of Excellence Auction Programs1.IntroductionThe coffee industry has recently received increased attention from economic researchers. SinceThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
the crisis period of the early 1990’s, coffee has been on the leading edge of economic, social and environmental development schemes that now reach mahttps: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013 to lest the claimed price premiums iuid increased welfare for coffee producers. Unfortunately, the verdict is tar from unanimous. Some studies find positive effects on producer welfare (Bacon. 2005. Calo and Wise. 2005. Bolwig. et al.. 2009), yet most rigorous studies provide a more critical view ( The Economics of Quality in the Specialty Coffee Industry_AAEA 2013Bacon, et al., 2008, Barham, et al., 2011. Beuchelt and Zeller. 2011. Ruben and Fort. 2012). The focus given to such studies is in many ways necessaryThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
: the modem paradigm of sustainability labels faces a kairos as it becomes simultaneously more popular and more skeptically viewed by researchers (Davhttps: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013per we devote our attention to a more fundamental question. Nearly every paper on coffee published within the past decade discusses price premiums for different certifications or marketing channels, but thorough research into the primary determinants of coffee prices is nearly nonexistent in the lit The Economics of Quality in the Specialty Coffee Industry_AAEA 2013erature. To our knowledge, only small group of papers have been published in this area: Donnct. Weatherspoon, and Hoehn (2008. 2010). fcubcr (2009. 20The Economics of Quality in the Specialty Coffee Industry_AAEA 2013
10) and 1'cubcr and Herrmann (2012) published studies on price determinants for specially coffee using a hedonic model. Their studies, and indeed the https: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013re.Tomek (1993) has pointed out the critical importance of replicating existing smdies in order to insure the reliability of economic and econometric analysis. With this in mind, we accomplish two goals in this paper: first, we revisit Donner et al. (2008)’s study and replicate their model with an u The Economics of Quality in the Specialty Coffee Industry_AAEA 2013pdated and expanded data set; second, we use a new model specification, with influence from Teuber and Herrmann (2012), and an estimation method to moThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
re accurately describe the market. We focus on Donner et al. (2008) because it is one of the first papers published on this topic and it provides a frhttps: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013on 3 presents the Cup of Excellence programs, section 4 describes the basics of the hedonic method, section 5 presents the data and replication of previous work, and section 6 presents a new model specification and estimation method. Section 7 presents tire results of the new estimation. We conclude The Economics of Quality in the Specialty Coffee Industry_AAEA 2013 with a discussion of the paper’s implications in section 8.2.Specialty and Boutique Coffee MarketsThe term "specialty coffee” was originally used toThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
classify the market niche where coffees are valued for their distinctive individual characteristics rather than their ability to be blended into a stahttps: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013tream and increasingly hard to classify (Petkova, 2006). Ponte (2002) defines specialty coffees as those distinguished from "industrial blends” by their high quality, limited availability, or added flavorings and special packaging. Other researchers add coffees with sustainability labels to this gro The Economics of Quality in the Specialty Coffee Industry_AAEA 2013up (e.g. Wollni and Zeller. 2007). Broadly speaking, "specialty coffee* has transitioned from2referring to a reasonably unique market segment into a tThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
erm describing any coffee that is set apart from the norm. In this paper, we use the term to refer strictly to those coffees distinguished on the basihttps: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 201307).Some specialty firms have felt it necessary- to adopt another term to further distinguish their coffee from what is now the norm of specialty coffee. These firms constitute a niche market within specialty coffee referred to as "boutique” coffee. Boutique coffees are the modem equivalent of the s The Economics of Quality in the Specialty Coffee Industry_AAEA 2013pecialty coffees of the late 1980s and early 1990s, i.e., they are distinguished and valued for their refined flavor, unique growing region, and especThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
ially their limited availability (cf. Roseberry, 1996, Kubota, 2010). For roasters desiring to participate in this niche, procurement of such unique ahttps: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013 quality. The proliferation of the Internet has provided a solution to this, and many boutique coffees are now purchased through online auctions (Donnet et al., 2011). These auctions are sometimes hosted by individual farms, but are most often hosted by marketing organizations such as the Associatio The Economics of Quality in the Specialty Coffee Industry_AAEA 2013n for Coffee Excellence.3.The Cup of Excellence ProgramsThe Cup of Excellence (CoE) programs are competitions designed to allow farmers the opportunitThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
y to test their best quality lots against those of other farmers from the same country. The Association for Coffee Excellence (ACE) hosts these prograhttps: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013mination process where coffees are "cupped” by recognized national and international coffee graders and scored based on quality (Cupping refers to the process of3roasting, grinding, brewing, and tasting coffees according to exact and standardized parameters to ensure consistent results). Submitted c The Economics of Quality in the Specialty Coffee Industry_AAEA 2013offees must pass three rounds of elimination—any coffee discovered to have a defect in any round is dropped from the competition. Those obtaining a quThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
ality score of 84 or above out of 100 in the final round are given the prestigious ('up of Excellence Award. and the award-winning coffees are then rahttps: //k hot h u vien .comThe Economics of Quality in the Specialty Coffee Industry:Insights from the Cup of Excellence Auction ProgramsAdam p. Wils The Economics of Quality in the Specialty Coffee Industry_AAEA 2013ce, etc.). The winning coffees are then entered into an online auction1.The CoE programs constitute a top-tier market for quality coffee, and prices in these auctions are on average 4.5 times higher than the International Coffee Organization (ICO) composite price. The resulting benefit of these pric The Economics of Quality in the Specialty Coffee Industry_AAEA 2013es to producers is clear, especially considering that participation in the program carries little opportunity cost—submitted lots are small, and any lThe Economics of Quality in the Specialty Coffee Industry_AAEA 2013
ots that fail to win the CoE competition are returned to the fanner who can then sell them through existing channels. Moreover since ACE is a non-profGọi ngay
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