Abstract: How does competition affect market outcomes when formal contracts are not enforceable and parties’ resort to relational contracts? Difficulties with measuring relational contracts and dealing with the endogeneity of competition have frustrated attempts to answer this question. We make progress by studying relational contracts between upstream farmers and downstream mills in Rwanda’s coffee industry. First, we identify salient dimensions of their relational contracts and measure them through an original survey of mills and farmers. Second, we take advantage of an engineering model for the optimal placement of mills to construct an instrument that isolates geographically determined variation in competition. Conditional on the suitability for mills’ placement within the catchment area, we find that mills surrounded by more suitable areas: (i) face more competition from other mills; (ii) use fewer relational contracts with farmers; and (iii) exhibit worse performance. An additional competing mill also (iv) reduces the aggregate quantity of coffee supplied to mills by farmers and (v) makes farmers worse off. Competition hampers relational contracts directly by increasing farmers’ temptation to default on the relational contract and indirectly by reducing mill’s profits.

Since January 2021, we have been conducting research activities in collaboration with RwaCof, a coffee  sourcing company in Rwanda. RwaCof sources from approximately 30,000 smallholder farmers in Rwanda. These farmers tend to have remarkably low yields and income, and are highly fragmented. The main goal of the collaboration is to conduct research that supports RwaCof in fostering and strengthening sustainable sourcing practices in the supply chain. RwaCof and our research team jointly design interventions in the supply chain, which are then rolled out as pilots and rigorously tested through a combination of randomized control trial (RCTs) and original data collection. These activities aim to produce a fully traceable supply chain and support smallholder farmers’ incomes and investments.

Abstract: Well-functioning markets allocate assets to owners that improve firms’ management and performance. We study the effects of ownership changes on coffee mills in Rwanda – an industry in which managing relationships with farmers and seasonal workers is important and that has seen many ownership changes in recent years. We combine administrative data, a survey panel of mills and an original survey of acquirers that allows us to construct acquirer-specific and target-specific control groups. A difference-in-differences design reveals that ownership changes do not improve performance unless the mill is acquired by a foreign firm. Our preferred interpretation – supported by detailed survey evidence that considers alternative hypotheses – is that foreign firms successfully implement management changes in key operational areas. Upon acquisition, both domestic and foreign owned mills attempt to implement similar changes, but domestic firms face resistance from workers and farmers. Domestic owners have relationships with their local communities, which can create opportunities to establish new mills and acquire existing ones. However, these same relationships create pressure to maintain status-quo relational arrangements, which makes it harder to implement managerial changes

An in-progress collaboration with Davide Del Prete (Napoli Parthenope).

Abstract: We compare transactions within integrated firms and in long-term relationships between firms in the Costa Rica coffee chain. We unveil a qualitative difference between these two organizational forms: the size of forward sales supported by long-term relationships is limited because better opportunities arising after the forward transaction is agreed might tempt the seller into default. Integration shifts ownership of coffee away from the seller and removes such temptations. We model this difference and exploit weather-induced supply shocks to test for constraints to forward trade. We show that forward trade in long-term relationships is constrained, while forward trade within integrated firms and spot trade are not. The evidence supports models in which firm’s boundaries alter parties’ ability to enforce past promises to trade.

An in-progress collaboration with Fabrizio Leone (ECARES), Josepa Miquel-Florensa (Toulouse School of Economics) and Nicola Pavanini (Tilburg).

Abstract: This paper studies the Sustainable Quality Program in Colombia – a quality upgrading program implemented on behalf of a multinational coffee buyer. The Program is a bundle of contractual arrangements involving farmers, intermediaries, exporters and the multinational buyer. We tackle three questions. First, we investigate the impact of the Program on the supply of quality coffee. Eligible farmers upgraded their plantations, expanded land under coffee cultivation, increased quality and received higher farm gate prices. Second, we quantify how the Program gains are shared between farmers and intermediaries along the chain. In regions in which the Program was rolled out surplus along the chain increased by ≈ 30%. Eligible farmers kept at least half of the gains and their welfare increased by ≈ 20%. Finally, we examine how the Program works conducting counterfactual exercises and comparing the Program price premia along the chain against two prominent non-buyer driven certifications. The Program achieved a better transmission of the export gate price premium for quality to the farm gate and curbed market failures that stifled quality upgrading. Contractual arrangements at the export gate significantly contributed to higher farmers welfare in rural areas.

An in-progress collaboration with Josepa Miquel-Florensa (Toulouse School of Economics), Nicolas de Roux (Universidad de los Andes, Bogotá) and Eric Verhoogen (Columbia).

An in-progress collaboration with Davide Del Prete (Napoli Parthenope), Pablo Fajgelbaum (UCLA) and Amit Khandelwal (Yale).

An in-progress collaboration with Davide Del Prete (Napoli Parthenope) and Arthur Blouin (Toronto).