A proposal to correct external effects in the coffee market: A tax on regular coffee and tea to subsidise the fair trade coffee


  • Ibon Galarraga DEID, University of Bath Claverton Down.
  • Anil Markandya DEID, University of Bath Claverton Down.




Coffee market, Fair trade


This paper justifies the need to introduce a tax on regular coffee drinkers in the UK to subsidise the fair trade/organic coffee production. This policy will allow to take full account of the negative external effect of regular coffee production while internalising the positive effect of fair trade initiatives. Designing such a policy is possible and the benefits of it can be calculated. This paper shows how.


Download data is not yet available.


Baumol, W. and Oates, W. (1988). The Theory of Environmental Policy. Cambridge, UK: Cambridge University Press. https://doi.org/10.1017/CBO9781139173513

Diamond, P.A. and McFadden, D.L. (1974). «Some Uses of the Expenditure Function in Public Finance». Journal of Public Economics, 3:3-21. https://doi.org/10.1016/0047-2727(74)90020-6

Galarraga, I. (2001), «On the Economics of Eco-labeling: A Case Study for Fair Trade Coffee in the UK». PhD Thesis, Department of Economics and International Development, University of Bath (UK).

Galarraga, I. and Markandya, A. (2004). «Economic Techniques to Estimate the Demand for Sustainable Products: A Case Study for Fair Trade and Organic Coffee in the United Kingdom». Economía Agraria y Recursos Naturales, vol. 4 (7):109-134.

Galarraga, I. and Markandya, A. (2003). «The Analysis of the Welfare Effects of an Environmental Product Tax: an Application to the Taxation of Car Tyres in Hungary». Fiscal Studies, vol. 24 (1):97-114. https://doi.org/10.1111/j.1475-5890.2003.tb00078.x

Guillaumont, P. and Bonjean, C. (1991). «Effects on Agricultural Supply of Producer Price Level and Stability With and Without Goods Scarcity: The Case of Coffee Supply in Madagascar», Journal of International Development, vol. 3(2). https://doi.org/10.1002/jid.4010030203

Marcucci, E. (1999), «Road Pricing: Old Beliefs, Present Awareness and Future Research Patterns»’. Nota di Lavoro 4, FEEM. https://doi.org/10.2139/ssrn.158348

Morris, G. E. and Kis, A. (1996). The Design and Assessment of an Environmental Product Charge on Tires in Hungary. Report prepared by the Harvard Institute for International Development.

Rabobank International (1998). The World Coffee Market. Food and Agrobusiness Research.

Rosen, H. S. (1999), Public Finance, McGraw-Hill, 5th ed. London.

UNCTAD secretariat (1996). Organic Production in Developing Countries: Potential for Trade, Environmental Improvement and Social Development. July, 9.