View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Lincoln University Research Archive Fair Trade Coffee Supply Chains in the Highlands of Papua New Guinea: Do They Give Higher Returns to Smallholders? ________________________________________________________________ A Thesis Submitted in partial fulfilment of the requirements for the Degree of Master of Applied Science at Lincoln University by Wayne Ishmael Powae _____________________________________ Lincoln University 2009 i Abstract Abstract of the thesis submitted in partial fulfilment of the requirements for the Degree of M.Appl.Sc Fair Trade Coffee Supply Chains in the Highlands of Papua New Guinea: Do They Give Higher Returns to Smallholders? By Wayne Ismael Powae This research focussed on Fair Trade (FT) coffee supply chains in Papua New Guinea. Three research questions were asked. First, do smallholders in the FT chains receive higher returns than the smallholders in the conventional chains? Secondly, if smallholders in the FT coffee chains receive higher returns from their coffee than the smallholders in the conventional chains, what are the sources of these higher returns? Finally, if smallholders in the FT chains don’t receive higher returns than in the conventional chains, what are the constraints to smallholders receiving higher returns from the FT coffee chains than the conventional chains? A conceptual framework for agribusiness supply chain was developed that was used to guide the field work. A comparative case study methodology was selected as an appropriate method for eliciting the required information. Four case study chains were selected. A paired FT and conventional coffee chains from Okapa and another paired FT and conventional chains from Kainantu districts, Eastern Highlands Province were selected for the study. The research found that smallholders in the FT chains and conventional chains receive very similar prices for their coffee (parchment price equivalent). Hence, there was no evidence that smallholders in the FT chains received higher prices or returns from their coffee production than smallholders in conventional chains. This study also found that there was no evidence of FLO certification improving returns to smallholders in the FT chains over those returns received in the conventional chains, but the community that the FT smallholder producers come from did benefit. The sources of these community benefits lies in the shorter FT chains and the distributions of the margin that would have been otherwise made by ii processors to producers, exporters and the community. In addition, this study found that constraints associated with value creation are similar in all the four chains studied. However, there are some added hurdles for the FT chains in adhering to FT and organic coffee standards. Moreover, FT co-operatives lacked capacity to trade and their only functions were to help with FLO certification and distribute the FT premium to the community. The findings of this research support some aspects of the literature, but not others. The research contribution is the finding that in this period of high conventional coffee prices, returns to smallholders from FT chains were no better than the returns gained in conventional chians, which leads to opportunism and lack of loyalty by smallholders in the FT chains. The other contribution of this research is in identifying a particular type of free rider who is not a member of the FT co-operative but has right to the community benefits generated by the FT chain. Keywords: Papua New Guinea, Agribusiness Supply Chains, Coffee, Fair Trade, Conventional, Smallholder Coffee Producers iii To my late inspirational mother Itaiso Tunume Powae and brother Gohave Loko _________________________________________________________________ iv Acknowledgements I would like to express my utmost gratitude to my supervisor, Associate Professor Sandra Martin, and my Associate Supervisor, Dr. Liesbeth Dries for all their guidance, support and encouragement. Without their gentleness, understanding, suggestions and comments, this thesis would not have been a success. I humbly appreciate and honour them. My utmost gratitude and appreciation goes to NZAID for providing the kind scholarship and also finance for my field work, completion of my study and final printing of this thesis. I wish to thank Associate Professor Dr. Rubert Tipples, Associate Professor Michael Lyne and Mr. Guy Trafford for their professional and human exchange of ideas during the thesis processes. I am also grateful to my wife Josepha for her support and administering of family affairs during my study at Lincoln University. Special thanks are due to Robert and Carolyne Lutelele for their unceasing support to my children back in PNG so that I could complete this not so easy endeavour. To dear Delta, Golikuto and Gumoro who have borne the hardships back in PNG, and Punove, Ginitome and Gossimamu who have had to endure the hardship of my student life at Lincoln, thanks to all of you for giving me the courage and strength to continue during those times of weariness. I am indebted to the board members of FT cooperatives in Okapa and Kainantu districts for their assistance in identifying interviewees. Also my special thanks go to Dr Arnold Parapi and Ruben Sengere at the Coffee Research Institute, Aiyura, for their hospitality during my research. To those who, in one way or another, have contributed in the completion of this research, my sincerest thanks and appreciation goes out to all of you. I would also like to convey my appreciation to my father Powae Punove, Papa Ismael Kumuli and brother Sanny, Hovis and Tumo for their consistent moral support, and those clan and church families from Kotuni- Gorohanota who pray for me. Above all, I must thank the Almighty God for His Abundant Love, Mercy and Guidance. v Table of Contents Page Abstract………………………………………………………………………..……………ii Acknowledgement……………………………………………………………….………… v List of Figures…..………………………………………………………………………..….x List of Tables……………..……………………………………………………………….....xi Acronyms……………………………………………………………………………….…..xii Appendices…………………………………………………………………………..…….xiii Chapter 1 Introduction....………………………………………………………………1 1.1 Rationale …….……………...………………………………………………………..1 1.2 Statement of the Problem ……………………………………………………..……..4 1.3 Research Questions …………………………………………………………………..4 1.4 Organization of the Thesis ………………………………………………………...…4 Chapter 2 Coffee Supply Chain in the Context of PNG Coffee Industry …………...6 2.1 Introduction …………………………………………………………………………..6 2.2 Coffee Growing Areas in Papua New Guinea ………………………………………..6 2.3 Government Support for the Coffee Industry ……………………………………..…7 2.4 Description of the Conventional and Fair Trade Coffee Supply Chains in PNG ….…8 2.4.1 The Conventional Coffee Supply Chain …………………..………………….8 2.4.2 The FT Coffee Supply Chain …………………………………………..……11 2.5 Conclusion …………………………………………………………………………..14 Chapter 3 Literature Review ………………………………………….………………15 3.1 The Concepts and Context of Coffee Supply Chains ………………………………..15 3.2 The Conceptual Framework ……………………………………………...………….18 3.2.1 Returns …………………………………………………………………...….20 3.2.2 Value Creations ……………………………………………………………..22 3.2.3 Value Creating Activities …………………………………………………...24 vi 3.2.4 Relationships and coordination …………………………………………….31 3.2.5 Constraints …………………………………………………………………35 3.3 Conclusion …………………………………………………………………………38 Chapter 4 Methodology ……………………………………………………………….39 4.1 Introduction …………………………………………………….…………………..39 4.2 Research Framework ……………………………………………….……………….39 4.3 Field Work Approach ……………………………………………….………..…….41 4.3.1 Case Study Approach ………………………………………….………..….41 4.3.2 The Research Approach and Data Collection ……………………………...42 4.3.3 The Limitations and Constraints ……………………………………………45 4.4 Data Analysis and Report Writing ………………………………………………….46 4.5 Conclusion …………………………………………………………………………..47 Chapter 5 Results ………...…………………………………………………………….48 5.1 Introduction ………………………………………………………………………….48 5.2 Case 1: Fair Trade Coffee Supply Chain Originating from Okapa ………………….48 5.2.1 Span of Chain ………………………………………………………………..48 5.2.2 Processes ………………………………………………………………….....50 5.2.3 Information Flows …………………………………………………………...55 5.2.4 Relationships …………………………………………………………...……58 5.2.5 Returns ………………………………………………………………………60 5.3 Case 2: Conventional Coffee Supply Chain Originating from Okapa ………………63 5.3.1 Span of Chain ………………………………………………………………..63 5.3.2 Processes ………………………………………………………………….....65 5.3.3 Information Flows …………………………………………………………...70 5.3.4 Relationships …………………………………………………………...……73 5.3.5 Returns ………………………………………………………………………74 vii 5.4 Case 3: Conventional Coffee Supply Chain Originating from Kainantu ……………76 5.4.1 Span of Chain ………………………………………………………………..76 5.4.2 Processes ………………………………………………………………….....78 5.4.3 Information Flows …………………………………………………………...83 5.4.4 Relationships …………………………………………………………...……85 5.4.5 Returns ………………………………………………………………………87 5.5 Case 4: Conventional Coffee Supply Chain Originating from Kainantu ……………90 5.5.1 Span of Chain ………………………………………………………………..90 5.5.2 Processes ………………………………………………………………….....92 5.5.3 Information Flows …………………………………………………………...96 5.5.4 Relationships …………………………………………………………...……98 5.5.5 Returns …………………………………………………………………..…..99 Chapter 6 Analysis ……..………………………………….………………………….101 6.1 Introduction ………………………………………………………………………...101 6.2 Analysis of Prices and Returns …………………………………………………….101 6.2.1 Smallholders’ Prices and Returns ………………………………………….101