Development Projects and Life Satisfaction: An Impact Study on Fair Trade Handicraft Producers

The empirical literature on the determinants of life satisfaction is extremely large and has become a fertile field for interdisciplinary studies. Because wellbeing is studied from different perspectives by psychologists, sociologists and economists (see, among others, Veenhoven 1993; Blanchflower and Oswald 2004; Cummins et al. 2007; Di Tella et al. 2003; Easterlin 2004; Helliwell 2003; Rojas 2005; Frey and Stutzer 2002a, b; Graham and Pettinato 2002; Luttmer 2005; Winkelmann and Winkelmann 1998; Oswald and Powdthavee 2008; Van Praag et al. 2000). In support of the reliability of happiness estimates, we point out that (1) they have a longstanding tradition in psychology and sociology and have therefore undergone a process of “cultural Darwinian selection” in those disciplines (Alesina et al. 2004); (2) significant and positive links have been found between self-declared happiness and healthy physical reactions such as smiling attitudes (Pavot 1991; Eckman et al. 1990) and heart rate and blood pressure responses to stress (Shedler et al.1993); (3) neurosciences have identified a nexus between positive feelings and physical measures of brain activity (higher alpha power in the left prefrontal cortex), while measures of hedonic well being, such as self-declared life satisfaction, have been shown to be related to the same activity (Clark 2006); (4) individuals choose to discontinue activities associated with low levels of well-being (Frijters 2000; Shiv and Huber 2000), and (5) happiness scores of the respondent’s friends and family members are significantly correlated with the respondent’s own report (see Diener et al. 1993; Diener and Lucas 2000).

The law of decreasing marginal utility states that the additional effect in terms of utility generated by an additional unit of a given good (including income) decreases as the number of units already possessed and consumed of the same good increases. It was first formulated by Gossen (1854) and then adopted by the school of marginalist economists (Jevons 1886; Menger 1994).

By way of example, in Ecuador the 2005 conventional market price for 1.14 kilos of bananas was 2.91 US $ against a FT price of 7.75 US $. Evidence on the FT premium on prices of coffee beans and cocoa in the last 20 years is also well known, available from the authors upon request and omitted here for reasons of space.

IFAT (the main federation of producers and fair trading organizations) defines the following Fair Trade criteria: (1) Creating opportunities for economically disadvantaged producers; (2) Transparency and accountability; (3) Capacity building; (4) Promoting Fair Trade; (5) Payment of a fair price; (6) Gender Equity; (7) Working conditions (healthy working environment for producers. The participation of children (if any) does not adversely affect their well-being, security, educational requirements and need for play and conforms to the UN Convention on the Rights of the Child as well as the law and norms in the local context); (8) The environment; (9) Trade Relations (Fair Trade Organizations trade with concern for the social, economic and environmental well-being of marginalized small producers and do not maximise profit at their expense. They maintain long-term relationships based on solidarity, trust and mutual respect that contribute to the promotion and growth of Fair Trade. Whenever possible producers are assisted with access to pre-harvest or pre-production advance payment).

One of the most remarkable features of the Fair Trade phenomenon is of its effect big players in the production and distribution industry (in October 2005 Nestlé introduced a Fair Trade product in its product range; Coop UK has launched its own Fair Trade product line; Starbucks has rapidly became the main seller of FT coffee in recent years). In 2008 Tesco and Sainsbury announced their decision to sell 100% Fair Trade bananas, increasing the UK market share for this product to 25%. The increasing importance of Fair Trade has been acknowledged by the EU Commission, which, in a communication to the European Parliament on May 2009, declared that “Fair Trade has played a pioneering role in illuminating issues of responsibility and solidarity, which has impacted other operators and prompted the emergence of other sustainability regimes. Trade-related private sustainability initiatives use various social or environmental auditing standards, which have grown in number and market share” (European Commission 2009).

For a comparative view of such studies see Ruben (2008).

These studies are also of practical importance, because publication of the paper’s results induced the Meru Herbs organization to promote a system of scholarships for affiliates’ children in order to improve its human capital performance.

The word “Minka” in the quechua language can be translated as “reciprocal help”, meaning social cohesion within a village or among a group of people.

Ethical and responsible tourism is a worldwide initiative which aims at organising tourist activities especially concerned with the environmental and social sustainability of travellers’ impact on the visited countries and fosters social-cultural exchange with the people met. The socially responsible aspect generally implies that a higher share of the value generated by this kind of tourism goes to the local population. Prices in responsible tourism are higher than those paid to local producer by FT importers because producers sell directly the final product to responsible consumers willing to pay for the intangible FT content of the product and all other actors of the value chain (importers, retailers, etc.) and their margins do not apply in such case. As a consequence, the final producer price, even though the product is sold in Peru, is definitely higher than the price paid to the importer. In addition to it the direct relationship between local producers and socially responsible consumers may increase the willingness to pay of consumers.

Chulucanas pottery can be considered a true inheritance from the Precolombian art of the Vicus, not only because of its quality but also because its artists have revived the techniques that were developed more than 2,000 years ago in the northern coasts of Peru. The negative-positive technique has been refined and its renewed use has now evolved into a wide variety of shades ranging from light to a dark, almost black, ocher. The color is obtained by selecting diverse fuels, such as tender or ripe (fresh or dry) leaves from banana and mango trees.

Allpa in the quechua-ayacuchan language means “earth” (soil), and this name has been chosen because it symbolizes the raw material used for all their handicraft products: clay, metal, wood, stones, cotton and alpaca.

The main market is Europe (60% of total exports), and the Fair Trade share in exports is 60–70%.

ALLPA, “Plan de negocios 2007–2011”.

New electric ovens were introduced to improve baking capacity (up to 80 pieces at time).

The questionnaire is available upon request.

Note that the difference in subgroup means in the Chulucanas project in terms of life satisfaction and food consumption expenditure (in Table 2), not in favour of the treatment group, is not statistically significant (the 95% confidence intervals do not overlap). Econometric estimates presented in Sect. 4 will, however, show that FT affiliation indeed affects positively happiness also in Chulucanas (mainly via the number of trading channels variable) after controlling for the impact of other concurring factors.

We consider professional self-esteem to be one of the most interesting and least explored dimensions of subjective wellbeing. In our opinion, the results on the “emerged part of the iceberg” (productivity, income) are crucially influenced by the invisible part, which includes all those immaterial factors such as dignity, self esteem, social recognition which are values per se but also essential preliminary conditions for productive effort. Consider as well that the fair trade movement considers the growth of producers’ self esteem to be one of its targets, and expected consequences from the long-run partnership with importers and consumers, as part of its policy of enhanced market access for producers. Among the few economic studies on the determinants of self esteem see Checchi and Pravettoni (2003) and Plotnick et al. (2002).

According to Veenhoven (2009) the ‘Set-point’ theory establishes that, after a shock, individuals revert to a given level of happiness for which they are mentally programmed. This implies that any policy aimed at increasing happiness is not effective in the long run. The comparison theory establishes that our happiness depends on comparisons we make with other people’s standard of living. The ‘Affect’ theory that happiness answers are produced by a reflection on how individuals feel generally and depend on the gratification of needs.

As well known, in poor areas self production and self consumption are important “invisible” non-market components which increase the visible standard of living based on monetary income.

Estimates are omitted for reasons of space and available upon request.

Among the main studies addressing the issue see Hulme and Mosley (1996), Pitt and Khandker (1998) and Coleman (1999).

Becchetti and Costantino (2008), in their impact analysis of FT affiliated farmers belonging to the Meru Herbs association in Kenya, find anecdotal evidence of an implicit selection, and they control their findings for this effect.

Robustness checks in the two project subsamples confirmed that our results were robust.