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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 36, No. 1, pp.79-111
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2023
Received 27 Oct 2022 Revised 11 Jan 2023 Accepted 11 Jan 2023
DOI: https://doi.org/10.22904/sje.2023.36.1.003

Governance and Asymmetry in Global Value Chains of the Coffee Industry: Possibility for Catch-Up by Emerging Economies

Uallace Moreira Lima ; Keun Lee
Uallace Moreira Lima, Corresponding author, Associate Professor at Faculty of Economics, the Federal University of Bahia, Brazil uallacemoreira@gmail.com
Keun Lee, Distinguished Professor, Department of Economics, Seoul National University, Seoul, Visiting Professor, College of Business and Economics, University of Johannesburg, Johannesburg, South Africa; Fellow, CIFAR (IEP), Korea kenneth@snu.ac.kr

JEL Classification: F02; F23; F51; L1; L52; O13; O3

Abstract

This paper analyzes the global value chains (GVC) of the coffee industry, particularly in the emerging economies of Vietnam, Colombia, and Brazil, which are the largest producers and exporters of unprocessed coffee in the world. However, value-added or processed coffee exports are equally dominated by advanced countries, such as Switzerland, Germany, and Italy. Thus, to upgrade the coffee sector and the GVC, the challenges for latecomers not only lie in strengthening their productive structures via technological upgrading but also in changing the governance structure, including the asymmetry in global value distribution and the tariffs and no-tariffs barriers, in international coffee trade. This paper discusses the structural and artificial barriers associated with monopoly in brand power and marketing channels as well as the protectionist tariff and non-tariff barriers in advanced country markets.

Overcoming such barriers requires targeted interventions in the form of industrial policies, including capability building and export taxes against unprocessed coffee in emerging countries, countermeasures against trade barriers, and even M&A of foreign brand incumbents. Another radical option is to form a coffee cartel, similar to the OPEC for crude oil, that unites the top three or five coffee-producing countries. A pre-condition to form such cartel is consolidating the coffee industries of emerging countries into several large procuring companies in order to gain certain market power. Even without a cartel, imposing common and coordinated export taxes on unprocessed coffee would increase the amount of coffee beans remaining in the domestic market and processed by domestic firms in order to be exported as processed coffee.

Keywords:

Coffee, GVC, Cartel, Tariff, Non-tariff barriers, value-added

Acknowledgments

Earlier versions of this paper have been presented on several occasions, including the SJE International Symposium held in October 2022. The authors thank the discussants and other participants for their useful comments. This paper was written when the first author was a visiting scholar at the Institute of Economic Research of Seoul National University. The first author acknowledges the financial support from the Brazilian government through CAPES-PRINT (Fundação Coordenação de Aperfeiçoamento de Pessoal de Nível Superior – Programa Institucional de Internacionalização). The second author acknowledges the financial support from the National Research Foundation of South Africa (Grant Number: 118873) via the DSI/NRF/Newton Fund Trilateral Chair in Transformative Innovation, the 4IR, and Sustainable Development.

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