Working Paper on Coffee Value Chains by Dr. Daniel Gregg and Prof. Randy Stringer

A key constraint in improving coffee quality in many areas is improving the quality of harvested coffee. We show that standard approaches to organisation of coffee supply chains involves a typical principal-agent problem generating a market for lemons due to the large number of sellers, the inability to enforce ex-ante contracts for quality, low or no incentive payments for effort, and due to the lack of quality monitoring technologies. We outline the implications for quality of harvested coffee of these factors and how quality-conditional incentive payments can resolve the key factors at play generating low-quality harvests. We present a case-study of an investment-research partnership in the eastern highlands of Uganda showing the role that quality-conditional payments have for coffee harvesting at the picker level (using a small sample of labouring experiments) and at the grower level (using a small sample of processing station data) in addition to the role of simple innovations in quality assessment in facilitating the use of quality-conditional contracts. Our results show the potential for a scalable approach to upgrading coffee value chains through integration of economic theory into value chain interventions. Our results also show how making better payments, tied to ethical production practices, can generate both physical and credence quality improvements facilitating access to lucrative specialty coffee markets.