willingness to pay for sustainable coffee
TRANSCRIPT
WILLINGNESS TO PAY FOR SUSTAINABLE COFFEE A CASE STUDY IN CANGGU, BALI Aantal woorden/ Word count: 12,332
Joshi Boomputte Stamnummer/ student number : 01170683 Promotor/ Supervisor: Prof. dr. Brent Bleys Co-promotor/ Co-supervisor: Prof. dr. Bart Defloor Masterproef voorgedragen tot het bekomen van de graad van: Master’s Dissertation submitted to obtain the degree of:
Master of Science in Business Economics Academiejaar/ Academic year: 2016 - 2017
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WILLINGNESS TO PAY FOR SUSTAINABLE COFFEE A CASE STUDY IN CANGGU, BALI Aantal woorden/ Word count: 12,332
Joshi Boomputte Stamnummer/ student number : 01170683 Promotor/ Supervisor: Prof. dr. Brent Bleys Co-promotor/ Co-supervisor: Prof. dr. Bart Defloor Masterproef voorgedragen tot het bekomen van de graad van: Master’s Dissertation submitted to obtain the degree of:
Master of Science in Business Economics Academiejaar/ Academic year: 2016 - 2017
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PERMISSION I declare that the content of this Master’s Dissertation may be consulted and/or reproduced, provided that the source is referenced. Name student: Joshi Boomputte Signature
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SAMENVATTING Koffie behoort tot de meest geproduceerde en verhandelde goederen op aarde. Daarnaast winnen ethische
verantwoorde producten aan belang en was de koffiesector steeds een pionier in het hanteren van
keurmerken. De toenemende erkenning van ecologische problemen en uitbuiting van koffieboeren tijdens
het productieproces spelen hierin een belangrijke rol. Hierbij rijst echter de vraag: hoeveel waarde de
consument hecht aan koffie dat voortkomt uit een duurzaam productieproces. Bovendien vormt dit een
bijkomende verwikkeling in de prijszetting door koffieshops.
Het doel van dit onderzoek is het achterhalen van de maximale prijs die een koffiedrinker bereid is te betalen
voor duurzame koffie in een koffieshop in Canggu, Bali. Volgende onderzoeksvraag werd hiertoe
opgesteld: Wat is de betalingsbereidheid voor duurzame koffie in een koffieshop? Aanvullend werd
ingegaan op de invloed van zogenaamde ‘ethische attributen’ van duurzame koffie op deze
betalingsbereidheid. Daarnaast werd eveneens onderzocht of demografische gegevens hierin een rol spelen.
Om deze onderzoeksvraag te beantwoorden werden de klanten in acht verschillende koffieshops in Canggu
bevraagd door middel van een enquête. De interpretaties van de verschillende prijsniveaus voor duurzame
koffie werden geanalyseerd met behulp van de Price Sensitivity Meter om zo prijzen te vergelijken tussen
conventionele en duurzame koffie.
Uit het onderzoek blijkt dat de maximale betalingsbereidheid voor conventionele koffie €2.04 bedraagt
terwijl dit voor duurzame koffie €2.54 bedraagt. Dit vertaalt zich in een stijging van de bereidwilligheid
tot betalen met 24.51%, in geval van aanwezigheid van ethische attributen. Hoewel de koffie attributen
gericht op boeren over het algemeen als belangrijker worden ingeschat, blijkt het gebruik van biogas voor
het roosteren van de koffiebonen het enige significante attribuut te zijn dat leidt tot een hogere
betalingsbereidheid. Demografische gegevens hebben geen significant effect. Verder blijken de lokale
prijzen voor conventionele koffie in de koffieshops in Canggu de bereidheid tot betalen te overstijgen wat
mogelijks vraag om een herziening van de prijszetting.
Dit onderzoek wijst erop dat de koffiedrinkers in de koffieshops sociale en ecologische problemen in de
productie van koffie erkennen en dat deze klanten bereid zijn een premie te betalen voor koffie dat op een
duurzame manier geproduceerd wordt.
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PREFACE In the course of my Master’s degree, Business Administration – Commercial Management, I was privileged to be part of Su-re.co (Sustainability & Resilience Company) in Bali during my internship. Amongst the many research and consulting projects towards sustainable development, I was involved in the Su-re.coffee project, under the wings of GreenWin. The Su-re.co team is experimenting with the production of coffee under sustainable circumstances in order to set up a sustainable supply chain for coffee shops in Bali.
During my internship, I was inspired to start an investigation about the perceived value of sustainable coffee to the coffee consumers. I have therefore integrated this interesting research into my Master’s dissertation.
This study is dedicated to Su-re.co as a contribution to the sustainable coffee project and as an expression of my immense gratitude. I am proud to announce that I am invited by CEO prof. dr. Takeshi Takama, to present the findings of my study at the General Assembly meeting of the GreenWin project in Delft, The Netherlands, on September 28th, 2017. I would like to express my gratitude to my promotor prof. dr. Brent Bleys for providing me the opportunity to study this fascinating subject and for the valuable guidance and comments that pushed me to improve my master’s thesis.
Special thanks to CEO prof. dr. Takeshi Takama and the entire Su-re.co team, out of which lifelong friendships have arisen, for their expertise and continuous support.
Also, I wish to thank my comrades in Erpelsteeg 66, and my other friends, who have been supporting me directly and indirectly throughout this journey.
But most of all, my endless gratitude to my mother and my father. This wouldn’t be possible without you.
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TABLE OF CONTENTS
INTRODUCTION....................................................................................................................................1
LITERATUREREVIEW............................................................................................................................3CHAPTER1.THECOFFEEMARKET.....................................................................................................................31.1theproductionofcoffee..................................................................................................................31.2Coffeeasaleadingtradedcommodity...........................................................................................51.3TheIndonesiancoffeemarket.........................................................................................................7
CHAPTER2.SUSTAINABLECOFFEE....................................................................................................................82.1Thenotionofsustainablecoffee.....................................................................................................82.2Sustainablecoffeeasarisingtrend................................................................................................92.3SustainabilityinitiativesinIndonesia:third-partycertifications..................................................11
CHAPTER3.THEECONOMICVALUEOFSUSTAINABLECOFFEE...............................................................................133.1Thevalue-addedofsustainablecoffee..........................................................................................133.2Thepriceproblem.........................................................................................................................143.3Ethicalconsumption......................................................................................................................143.4WTPasanestimationfortheeconomicvalueofsustainablecoffee...........................................15
RESEARCHMETHODS.........................................................................................................................17CHOICEOFMETHOD....................................................................................................................................17DATACOLLECTION.......................................................................................................................................18SURVEYMETHOD........................................................................................................................................20
RESULTS.............................................................................................................................................21VANWESTENDORPPRICESENSITIVITYMETER.................................................................................................211.Theacceptablepricerange.............................................................................................................242.Theoptimalpricepoint...................................................................................................................253.ThepointofmarginalexpensivenessasanindicatorforWTP.......................................................254.ComparisonofcoffeeshoppricesinCanggutoconsumers’WTP..................................................26
STATEDWTP.............................................................................................................................................261.Socio-demographicanalysis............................................................................................................272.Ethicalattributesofsustainablecoffee...........................................................................................283.Reasonsforchoosingsustainablecoffee.........................................................................................30
CONCLUSION......................................................................................................................................32
DISCUSSION.......................................................................................................................................33
REFERENCES.......................................................................................................................................35
APPENDIX............................................................................................................................................ASURVEY......................................................................................................................................................A
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List of Abbreviations
i. 4C Common Code for the Coffee Community ii. CA Conjoint Analysis
iii. CE Choice Experiment iv. CV Contingent Valuation v. GBP Global Coffee Platform
vi. GDP Gross Domestic Product vii. ICCRI Indonesian Coffee and Cocoa Research Institute
viii. ICO International Coffee Organization ix. IDR Indonesian Rupiah x. IISD International Institute for Sustainable Development
xi. IPP Indifference price point xii. MNC Multinational Corporation
xiii. NGO Non-Governmental Organization xiv. OPP Optimal price point xv. PMC Point of marginal cheapness
xvi. PME Point of marginal expensiveness xvii. PSM Price Sensitivity Model
xviii. RA Rainforest Alliance xix. USDA United States Department for Agriculture xx. WCED World Commission on Environment and Development
xxi. WTP Willingness to Pay List of Tables
i. Table 1. Climate conditions for growing Arabica and Robusta coffee p. 3 ii. Table 2. Description of the sample p. 19
iii. Table 3. Cumulative percentage frequencies for conventional coffee p. 21 iv. Table 4. Cumulative percentage frequencies for sustainable coffee p. 22 v. Table 5. Price level intersections p. 24
vi. Table 6. Acceptable price range for conventional and sustainable coffee p. 24 vii. Table 7. Comparison of acceptable price ranges for conventional coffee p. 26
viii. Table 8. Willingness to pay p. 27 ix. Table 9. Respondent Characteristics’ influence on WTP p. 28 x. Table 10. Influence of ethical attributes on the WTP p. 28
xi. Table 11. Percentage frequencies of the importance of ethical attributes p. 30 List of Figures
i. Figure 1. The coffee belt p. 4 ii. Figure 2. Global coffee production and export evolution p. 5
iii. Figure 3. Leading countries in the production of coffee p. 6 iv. Figure 4. Global production evolution of certified coffee p. 10 v. Figure 5. The main certifications by evolution in global production area p. 11
vi. Figure 6. The Van Westendorp Price Sensitivity Meter for conventional coffee p. 23 vii. Figure 7. The Van Westendorp Price Sensitivity Meter for sustainable coffee p. 23
viii. Figure 8. The importance of ethical attributes p. 29
1
INTRODUCTION Coffee, one of the most traded commodities in the world, is embraced in almost every society. The long
supply chain, from local farmers in developing countries to coffee drinkers in developed countries, is
characterised by many market inefficiencies. Local farmers suffer from wages that are too low, and
volatility in the price market leaves these farmers with uncertain incomes. More recently, an additional
complication has emerged for these farmers: the struggle to cope with the effects of climate change (IPCC,
2014). As the agriculture in many developing countries depends on coffee production, climate change has
devastating consequences for coffee plantations, and for the overall economies of these countries. The
combination of draughts and the rise in temperature is rendering certain areas unsuitable for growing coffee
(Schroth, Läderach, Cuero, Neilson, & Bunn, 2015).
As a result, different initiatives are attempting to contribute to a more sustainable coffee industry. One
innovative approach to solving this problem is a focus on transparency when addressing the coffee
consumer, by means of a certification label for example. Communicating with the end-consumer regarding
market inefficiencies and environmental preservation is a strategy used to sell sustainable coffee for a
premium price, which helps to fund a sustainable future. These initiatives are responsible for investing in
two areas of the coffee production process: equal rights and fair incomes for farmers, and environmentally
friendly production. The various production factors of the production process of coffee are divided among
these two areas. In this study, these factors will be referred to as the ethical attributes of sustainable coffee.
Given the increasing popularity of sustainable coffees, the extent to which the consumer values the
sustainability of coffee should be investigated. Little research has been done concerning the value of
sustainable coffee, especially in coffee shops. Since the consumers’ demand is price sensitive, coffee shops
who are willing to include sustainable coffee in their assortment face difficulties in pricing decisions. Next
to price determinations based on competitor strategies or manufacturing costs, the consumers’ price
perception is of great importance.
As a profit-making company, facing the risk of negative consumer reactions is leading to price
determination problems. This study explores the price that consumers are willing to pay for sustainable
coffee at a coffee shop in Canggu in Bali, Indonesia, and which ethical attributes drive them towards this
contribution. Moreover, the value difference between conventional and sustainable coffee will be estimated
as an approach to the WTP for sustainable coffee. In this study the term conventional coffee is referred to
as coffee produced without any ethical attributes nor any sustainability standards or certifications.
The following research questions were proposed:
1. What is the willingness to pay for sustainable coffee in a coffee shop?
2. Is the willingness to pay influenced by the ethical attributes of sustainable coffee?
3. Do socio-demographic characteristics play a role in the willingness to pay for sustainable coffee?
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Respondents in this study were asked about their willingness-to-pay, WTP hereafter, using the collective
term ‘sustainable coffee’, without suggesting certifications. For this paper, the notion of sustainable coffee
includes certified coffees and non-certified local coffees in Bali, Indonesia. In Canggu, it has become a
trend that coffee shops buy their coffee beans directly from local coffee farmers and brew their own coffee.
Although these coffees are not certified, local coffees may be produced with sustainable characteristics,
such as fair wages and cutting out coffee distributors. The goal of this paper is to provide insight into the
WTP for sustainable coffee in general, as no certifications nor any coffee brands are mentioned in the
survey.
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LITERATURE REVIEW
CHAPTER 1. THE COFFEE MARKET
1.1 THE PRODUCTION OF COFFEE
In the last century, the production of coffee has expanded to more than 70 countries and the coffee drinking
culture has been adopted by most communities around the world. Lower prices, a larger assortment, and
the enhanced quality of coffee products are increasing the demand for coffee (FAO, 2015). Since many
developing countries’ GDPs depend on the agricultural sector, many of these countries have experienced
the benefits of directing efforts to coffee production. Coffee is an attractive crop because it is relatively
easy to grow, it creates employment opportunities, and it is a potential source of national income (Rahayu,
Chang, & Anindita, 2015). Coffee can be an employment provider for farmers in the production process
and for traders and distributors when exporting to non-producing countries, which contributes to the GDP.
Moreover, in countries such as Ethiopia, Burundi, Uganda, and Rwanda, coffee production and export have
played a significant role in increasing their GDPs (DaMatta & Ramalho, 2008; Davis, Gole, Baena, & Moat,
2012).
Producing coffee is only possible under certain climate conditions (see Table 1), which vary depending on
the type of coffee beans. The coffee market primarily consists of two types of beans: Arabica and Robusta.
Arabica coffee beans are known for their high quality, and are therefore more expensive (ICO, 2017). The
climatic circumstances for these types of beans deviate, depending on the location of production. Table 1
illustrates the ideal climate conditions for both Arabica and Robusta.
TABLE 1 Climate conditions for growing Arabica and Robusta coffee
Arabica Robusta
Temperature 15 °C – 30 °C 24 °C – 35 °C
Rain fall Avg. 2,000 mm per year Avg. 2,000 mm per year
Altitude above sea level 600 m – 2,200 m < 800 m Source: Adapted from Killeen and Harper (2016) and UTZ (2016, November).
For instance, Indonesia’s climate provides many opportunities for growing Robusta coffee beans. Robusta
represents approximately 85% of the coffee production in Indonesia, and only 15% is Arabica (USDA,
2017). A long draught in Indonesia with high temperatures and a lack of rain fall may harm Arabica and
Robusta coffee crops (Schroth et al., 2015). In contrast, global coffee production is divided into 70%
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Arabica and approximately 30% Robusta (Damatta & Ramalho, 2006; Davis et al., 2012). Arabica is more
tolerant of different climate conditions, particularly those in the ‘coffee belt’. The coffee belt is an area
demarcated by two imaginary lines at 25 degrees North and 30 degrees South, between which the local
climate allows for the successful production of coffee (see Figure 1).
The countries on the coffee belt produce enough coffee to meet the worldwide demand, resulting in a large
supply chain. In the coffee supply chain, coffee is exported and traded between collectors, traders, and
distributors, all over the world. The coffee industry has grown to the extent that coffee is now one of the
most traded commodities in the world (Bongase, 2017).
Figure 1. The coffee belt.
Source: Compiled from ICO (2017).
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1.2 COFFEE AS A LEADING TRADED COMMODITY
Figure 2 shows the evolution of total worldwide coffee production and export from 1990 to 2016. In the
last 25 years, coffee production and export have increased. In the year of 2016, the total production of
coffee by all exporting countries was over nine million tons (ICO 2017). While the export of coffee
fluctuates with the total production, the domestic usage remains approximately constant.
Figure 2. Global coffee production and export evolution
Source: Adapted from ICO (2017).
Despite the growth of the coffee market, it has been susceptible to the influence of external factors. Before
1989, ICO regulated the international coffee market to keep the coffee supplies and the prices under control
(Talbot, 2004). After ICO stopped the regulation with quotas, the competition increased which resulted in
a rise in supplies and a decline in the prices (Talbot, 2004). Consequently, the international coffee market
crashed in the late 1990s. In the literature, this historical event is referred to as ‘the coffee crisis’ (FAO,
2002; Ponte, 2002; Bacon, 2005). Many researchers have investigated the coffee crisis and the changes in
international coffee prices. After analysing the impact of price fluctuations on producing countries and the
rest of the coffee supply chain, researchers have defined coffee as an uncertain trading commodity with
volatile prices (FAO, 2002; Ponte, 2002; Mehta & Chavas, 2008; ICO, 2017). Besides overproduction,
Ponte (2002) found that changes in production technology and the power of key players in the international
coffee market also have a considerable impact on these price fluctuations. For example, Vietnam’s fast-
growing coffee production (1995-2000) significantly contributed to the historical lows of international
coffee prices in the early 2000s (FAO, 2002; Ponte, 2002). This large supply shock in the international
0
1.000.000
2.000.000
3.000.000
4.000.000
5.000.000
6.000.000
7.000.000
8.000.000
9.000.000
10.000.000
1990/91 1995/96 2000/01 2005/06 2010/11 2015/16
Metric
tons
Croppingyear
TotalPoduction TotalExport
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coffee market caused a drop in the prices. Figure 3 visualizes the way in which volatility, the increased
supply, and the rising demand for coffee impact the production of the leading coffee-producing countries.
These countries, in decreasing order, are Brazil, Vietnam, Colombia, and Indonesia.
Figure 3. Leading countries in the production of coffee
Source: Compiled from ICO (2017).
Production in Brazil has fluctuated throughout the past two decades. For example, after production
technology innovations were released, which stimulated coffee production in the late 1990s, Brazil suffered
during the coffee crisis.
Vietnams expansion into the coffee market created uncertainties for producing countries such as Brazil, as
Vietnam spotted the benefits of coffee production and the gaps within the coffee industry. It is remarkable
how effectively Vietnam penetrated the coffee market. From 1990 until 2000, the Asian leading producer
increased production from roughly 78,000 tons to 890,000 tons of coffee. In ten years, Vietnam went from
17th place to 2nd place in the global production of coffee (ICO, 2017). It continued to grow with a production
level of approximately 1.7 million tons in 2015, increasing by almost 22 times the level of production in
1990.
Moreover, Indonesia has had stable, but slowly increasing coffee production. Their production and export
of coffee have been slowly rising to address the increasing worldwide and domestic demand (Neilson,
2013). Indonesia had a total production of approximately 600 thousand tons in the commencing cropping
year of 2015/16 (ICO, 2017). However, in the last cropping year of 2016/17, the production and export of
coffee in Indonesia decreased due to acute draughts, which were mostly felt in the major Robusta regions
0
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1.500.000
2.000.000
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3.000.000
3.500.000
1990/91 1995/96 2000/01 2005/06 2010/11 2015/16
Metric
tons
Croppingyear
Brazil Vietnam Colombia Indonesia
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(e.g. South Sumatra and Java; Source: USDA, 2016). Unfavourable weather conditions and other effects of
climate change have also seriously impacted the prices. (Gallenti, Troiano, Cosmina, & Marangon, 2016).
Besides unfavourable weather condition, Indonesia is dealing with more difficulties in the coffee supply
chain. In the course of this study, the next section approaches how coffee plays an important role for
Indonesia and how its coffee production is in a vulnerable position.
1.3 THE INDONESIAN COFFEE MARKET
Indonesia’s agricultural sector, of which rice and coffee have the largest share, has been stable since 2010,
accounting for 13.45% of Indonesia’s GDP in 2016 (The World Bank, 2017). The enormous coffee
production sector in Indonesia primarily consists of smallholder production (Lewin, Giovannucci, &
Varangis, 2004; Neilson, 2008; Wahyudi & Jati, 2012; Lernoud et al., 2017). Smallholder coffee farmers
usually work in developing countries and have family incomes that highly depend on coffee. There are 20
to 25 million coffee farmers involved in global coffee production (Lernoud et al., 2017), of which
approximately two million are Indonesian (Wahyudi & Jati, 2012). Indonesian farmers have spread their
plantations over many islands. Indonesia is the major Robusta producer and exporter in the world, but
Arabica coffee plantations is also found on these islands (Giovannucci & Koekoek, 2003; Neilson, 2013).
South Sumatra, Lampung, East Java, and Bali have established more Robusta coffee plantations, whereas
most Arabica coffee plantations are spread and harvested in Aceh, North Sumatra, South Sulawesi.
Indonesia’s Arabica coffee is more common than Robusta coffee due to its high quality, and it has therefore
become an important Arabica coffee grower for international coffee market players, such as Starbucks
(Neilson, 2013).
Indonesia’s coffee economy is thus highly dependent on the world market conditions., approximately 63%
of its coffee production was exported in 2015 (Rahayu et al., 2015). Unfortunately, the supply chain of
coffee production, is characterized by many market inefficiencies between farmers and exporters (Wijaya,
2016). Middlemen or traders have a serious hold on the price setting to Indonesian farmers, which leads to
farmers selling coffee at low prices (Rahayu et al., 2015). Due to insufficient budgets, and lack of market
information and agricultural training, Indonesian coffee farmers cannot produce high-quality coffee
(Mawardi, Ismayadi, Wibawa, Sulistyowati & Yusianto, 2006; Neilson, 2008). These factors also prevent
them from innovating and investing in new technologies to improve quality and environmental-friendly
production (Neilson, Hartatri, & Lagerqvist, 2013). According to Wahyudi and Jati (2012), coffee farmers
are unaware of the worth and relative prices of coffee, which makes them susceptible to exploitation by
traders or distributors. In general, coffee farmers mostly receive a share of less than 10% of sales in the
supply chain, while other players such as traders and coffee roasters receive a much larger portion of up to
83% (Rotaris & Danielis, 2011; Gallenti et al., 2016).
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As mentioned above, after many years of low wages and volatile coffee prices, small-holder coffee growers
in Indonesia are now being confronted with a third threat: climate change (Bacon, 2005; Schroth et al.,
2009; Läderach et al., 2011; IPCC, 2014). Regardless of the different possible scenarios, several studies
point out that farmers face difficult times. They are at risk of increased harvest failures in the future,
resulting in reduced coffee harvest, which may have devastating consequences for individual farmers, such
as reduced income levels and loss of jobs. In the worst scenario, it would bring some farmer families under
the poverty level and may lead to starvation.
The environmental issues caused by the production, trade, and consumption of coffee in modern capitalist
societies require more attention and recognition. On the other hand, market failures (e.g. underpaid famers)
will prove inevitable in the absence of governmental intervention or the involvement of international
institutions. Therefore, different types of initiatives have emerged over the past few years to enhance the
sustainability of coffee.
CHAPTER 2. SUSTAINABLE COFFEE
2.1 THE NOTION OF SUSTAINABLE COFFEE
The most quoted and accepted definition of sustainability, which is in the process of being more accurately
defined, is stated in the Brundtland Report: “Sustainable development is development that meets the needs
of the present without compromising the ability of future generations to meet their own needs” (WCED,
1987). In this definition, development includes economic development, social development, and
environmental protection (WCED, 1987).
Despite the lack of academic work addressing market inefficiencies (e.g. underpaid farmers) and
environmental issues related to coffee production there are countless sustainability initiatives. An example
of environmental issues is emissions from fermentation and waste water production throughout the
production of coffee (van Rikxoort, Schroth, Läderach, & Rodríguez-Sánchez, 2014). While the notion of
sustainable coffee is difficult to define, scholars agree that it alludes to coffees which are recognized and
certified by third-parties or NGOs in the private sector. To obtain this recognition, it is necessary to meet
specific economic, social, and environmental standards. In addition to international regulating
organizations (e.g. International Coffee Organization; ICO) and governmental regulation (e.g. Indonesian
Coffee and Cocoa Research Institute; ICCRI), these certifications that are obtained from non-governmental
organizations (NGOs; e.g. Fair Trade) are a popular and effective to improve the environmental, social, and
economic conditions of coffee production (Wijaya, 2016; Hartatri, 2016). Assessing the public regulation
of sustainability efforts goes beyond this study. Furthermore, third-parties are explored since they are
9
directly in contact with the consumer who is buying the as sustainable labelled coffee. Moreover, these are
the organisations that are linking the farmer with the coffee consumers with a focus on an ethically
responsible process (Raynolds, Murray, & Heller, 2007; Neilson, 2013).
The coffee industry has been a pioneer in the field of sustainability and certification since the beginning of
the 21st century (Potts et al., 2014; Lernoud et al., 2017). Since the retreat of the ICO in 1989, the market
has been disorganized, leading to increased competition between coffee producing countries. Concurrently,
large corporate coffee roasters and distributors are competing to dominate the coffee chain (Ponte, 2002;
Raynolds et al., 2007). NGOs have been mediating these powerful multinational companies (MNCs) and
the disadvantaged coffee farmers (Gresser, & Tickell, 2002). These private regulatory efforts are in a strong
position to adopt coffee producers into their system, ensuring revenues by market shares, consumer loyalty,
and price premiums (Raynolds et al., 2007). A price premium is the amount that a farmer receives in
addition to the payment for their coffee. This is an example of a standard that is set by a recognized third-
party such as Fair Trade, which is communicated through certifications and labels to the end-consumer.
Giovannucci and Koekoek (2003) defined sustainable coffees as including Fair Trade and eco-friendly,
organic production. Organic referred to as coffee produced without to use of pesticides or chemicals.
These types of coffee represent a balance between social, economic, and environmental needs for
sustainability. Sustainable coffee involves preserving the environment by reducing pollution in the
production process and when competing on the market. (Giovannucci, & Koekoek, 2003; Giovannucci et
al., 2008). Furthermore, it describes the need to create healthy and safe working conditions for farmers
and respect for their rights, as well as the necessity of offering of fair prices to other players involved in
the supply chain (Wahyudi, & Jati, 2012). Finally, transparency and guaranteed quality for the end-
consumer are also critical (Lernoud et al., 2017).
2.2 SUSTAINABLE COFFEE AS A RISING TREND
The phenome ’sustainable coffee’ has been integrating in our society for years. Starting as an initiative to
protect the players in the coffee supply chain, sustainability has become an important attribute of coffee to
many coffee drinkers. Different third-parties have been initiated to contribute towards a sustainable
production process of coffee, and with an increasing success. Since the beginning of the century, research
has demonstrated that NGO’s independence offers them a great potential to grow and allows them to
develop a credible image to the coffee consumer (Cashore, Auld, & Newsom, 2004; Gereffi, Garcia-
Johnson, & Sasser, 2001). They become more competitive in the market because of this credibility and a
set of diversified ethical standards (Raynolds et al., 2007).
10
Figure 4 shows the most recent data on total coffee production that is grown with at least one certification;
it illustrates the vast increase over the last ten years. The global sustainable coffee production is rising as
sustainable initiatives are expanding to answer the increasing demand for sustainable coffee (Pierrot,
Giovannucci, & Kasterine, 2010; Neilson, 2013). Approximately four million tons of coffee were certified
in 2015, which is eight times higher than the amount of coffee produced with a certification in 2008
(approximately 500 thousand tons). There are organizations on local, national, and international level that
support sustainable coffee production in developing regions in Asia, Latin America, and Africa (Raynolds
et al., 2007). Coffee brands (e.g. Nescafé), international coffeehouse chains (e.g. Starbucks), retail chains,
and local coffee shops are also starting to buy their coffee from ethical sources. Due to changing coffee
products and developments in the labelling system (Hartatri, 2016), these actors have identified an
opportunity to respond to the rising demand for sustainable coffee.
Figure 4. Global production evolution of certified coffee
Reprinted from The State of Sustainable Markets Statistics and Emerging Trends 2017 (p. 89), by J. Lernoud, J. Potts, G. Sampson, S. Garibay, M. Lynch, V. Voora, … & J. Wozniak, 2017, Geneva: ITC. Copyright [2017] by the International Trade Centre. Reprinted with permission. Secondary source: FiBL-IISD-ITC survey, 2017. VSS: 4C, Fairtrade International, organic, Rainforest Alliance/SAN and UTZ.
According to Pierrot et al. (2010), the demand for sustainable coffee has risen by 20-25% annually since
2010, compared to a 2% rise in conventional coffee. Thus, the production of sustainable coffee increased
dramatically between 2010 and 2015. According to the International Institute for Sustainable Development
(IISD), certification of coffee by sustainability standards increased by 63.3% between 2011 and 2015
(Lernoud et al., 2017). Nearly half of global coffee production is currently produced under at least one
certification initiative. The sustainability of coffee is becoming bigger than a market niche, and is
considered more often as an important coffee attribute for consumers and producers (Pierrot et al., 2010).
11
2.3 SUSTAINABILITY INITIATIVES IN INDONESIA: THIRD-PARTY CERTIFICATIONS
As the coffee drinker in local coffee shops in Bali is the target of this study, the role of recognized third-
party certifications in the coffee sector in Indonesia will be further examined. The four consumer-orientated
main standards that include independent monitoring and certification are: Fair Trade, Organic, Rainforest
Alliance, and Utz Certified (Figure 5). The Common Code for the Coffee Community (4C) is functioning
as a business-to-business initiative, and is cooperating with larger coffee producers (Pierrot et al., 2010).
Figure 5. The main certifications by evolution in global production area
Note: The organic area is the area harvested estimated by FiBL, assuming that 90% of the fully converted area is actually harvested. For the Rainforest Alliance/SAN, the area cultivated is shown. Reprinted from The State of Sustainable Markets Statistics and Emerging Trends 2017 (p. 88), by J. Lernoud, J. Potts, G. Sampson, S. Garibay, M. Lynch, V. Voora, … & J. Wozniak, 2017, Geneva: ITC. Copyright [2017] by the International Trade Centre. Reprinted with permission. Secondary source: FiBL-IISD-ITC survey, 2017. VSS: 4C, Fairtrade International, organic, Rainforest Alliance/SAN and UTZ. Secondary sources: 4C, 2014, 2015, and 2016; Fairtrade International, 2017; FiBL, 2017; Rainforest Alliance/SAN, 2014, 2015, and 2016; UTZ, 2014, 2015, and 2016.
The most recent data was used to investigate the role of these standards in Indonesia. The IISD plotted its
most recent data on these standards, addressing most coffee production areas, as shown in Figure 5
(Lernoud et al., 2017).
4C is a code of conduct in support of other initiatives or large producers, and it is therefore a so
called second-party certification. Although only third-parties are examined in this study, 4C’s important
share in the global and Indonesian production area of coffee demands for a closer look. Raynolds et al.
12
(2007) describe this certification as follows: “Second-party certifications involve industry associations in
establishing standards or verifying compliance. These industry efforts often supplant first-party efforts,
enhancing the rigor and transparency of standards and procedures” (p. 149). At the time of writing this
study, 4C has become operational as the Global Coffee Platform (GBP). It covered the largest global
production area in 2015 of 1.59 million hectares (see Figure 4). Furthermore, the share of 4C coffee from
the global coffee area was 15.21% in 2015 (Lernoud et al., 2017); 4C’s global production volume of
2,629,339 metric tons accounted for 28.94% of the total production of coffee in 2015 (Lernoud et al., 2017;
ICO, 2017). Indonesia is the fourth leading producer with 82,991 metric tons, which represented 11.23%
of its total coffee production in 2015 (Lernoud et al., 2017; ICO, 2017).
Fair Trade is an organization that is active across 74 countries, and has set standards to protect the
rights of farmers in developing countries and provide them with a fair price for their share of the coffee that
is sold to the end consumer (Raynolds et al., 2007). These standards are communicated through the labelling
of their products using certifications. The fair prices are based on two principles: The Fair-Trade minimum
price and the Fair-Trade premium. If the international prices fall and cause unfavourable conditions for the
farmers, they receive a Fair-Trade minimum price (Fair Trade, 2017). Farmers also receive a premium,
which comes from a communal budget that is funded by selling products with the Fair-Trade label (Fair
Trade, 2017). This budget is allocated to support member farmers in different parts of the world if they
produce coffee according to Fair Trade terms. Therefore, through this label, consumers are assured that
these products meet ecological and social standards to reduce their negative impact on climate change, child
and forced labour, workers’ rights, gender, and access to financial support (Fair Trade, 2017). Furthermore,
Fair Trade reinvests its revenues into improving working conditions for coffee producers. Since the start of
Fair Trade in 1989, this coffee has continuously had the largest share in sales volume. In 2015, Fair Trade’s
share of the profitable coffee area was nearly 12% of the global coffee area (Lernoud et al., 2017). In 2015,
Indonesia was on the fourth place with 73,367 ha of Fair Trade coffee (Lernoud et al., 2017).
Organic coffee alludes to the production of coffee without the use of chemicals and pesticides to
preserve the soil (Giovanucci et al. 2008). To produce organic coffee, fertilizers must consist entirely of
natural substances, such as reused animal waste or compost to enhance the soil quality and benefit future
crops (Budiasa, 2014). This is also beneficial to the farmer’s health, who would otherwise be exposed to
these chemicals and pesticides. Of the total global coffee production, 8.6% was organically produced in
2015 (Lernoud et al., 2017). The amount of global organic coffee increased by 45% between 2011 and
2015, and by no less than 29% in 2015 (Lernoud et al., 2017). Moreover, Indonesia is the fourth largest
global organic coffee producer with an area of 74,300 ha (Lernoud et al., 2017).
At last, the smaller NGOs, Rainforest Alliance and Utz Certified, announced to combine forces in
the future (RA, 2017). By merging, they obtain a more competitive market position, tackling social and
13
environmental issues more efficiently. RA (2017) states its mission as follows: “From deforestation and
global warming to drought and extreme poverty, the Rainforest Alliance is working to solve urgent
environmental and social challenges”. Revenues of sealed products are reinvested to sustain forests,
biodiversity and the protection of human rights. Utz Certified is involved in the coffee production in 25
countries and is focused on supporting of sustainable farming processes (UTZ, 2017). RA and Utz are
proportionally lower than Fair Trade and Organic coffee in Indonesia, compared to the global production
area. Lernoud et al. (2017) documented that in 2015, RA covered 16,224 ha in Indonesia of the global
production area, representing 410,000 ha. The coffee production area of Utz Certified in Indonesia was
almost the same in 2015, representing an amount of 16,445 ha of the global production area of 550,000 ha
(Lernoud et al., 2017). The organization is good.
As these main organisations have become important players in the global production of sustainable
coffee, they are also contributing to the coffee production in Indonesian.
Profits from certified coffees are often directly and indirectly invested into the fundamentals of the
production process to develop a more ethical process. An example of direct investments is fair prices to
farmers. Indirectly investing, are for instance investments in organic farming system to prevent farmers of
using chemicals which may be harming the coffee consumer (Budiasa, 2014). As the purpose of
certifications is of great importance to the revenue of disadvantaged farmers, this raises the question as to
how much does the coffee consumer values these investments, since these measures are often not
perceptible to the coffee consumer. Moreover, how much does the coffee consumer value the
sustainability of coffee?
The next chapter is approaching the economic value of sustainable coffee. Furthermore, it provides an
overview of the literature on previous research to measure the economic value of sustainable coffee.
CHAPTER 3. THE ECONOMIC VALUE OF SUSTAINABLE COFFEE
3.1 THE VALUE-ADDED OF SUSTAINABLE COFFEE
Sustainability initiatives, as discussed before, do not consider making profits as their primary goal. In
contrast to international coffee retailers (e.g. Nespresso), their purpose is to contribute to a sustainable
development. This raises the question as to why sustainable coffee is more expensive, whilst for instance
the chain of Fair Trade coffee is cutting the middlemen out. These middlemen are collectors, traders and
distributors who are making profits along the supply chain before the coffee is sold to the end consumer. A
misunderstanding could be that sustainable coffee is cheaper than conventional coffee since the costs are
lower and the pursue for profit less important.
14
As mentioned previously, many farmers are the victims of low wages, and a portion of the premium price
goes directly to the farmers, which can sometimes amount up to twice the amount they received before
(Fair Trade, 2017). Moreover, the middlemen’s share of the value-added can be replaced by sustainable
measures in the famers’ production process, which are cost-demanding. These measures include innovation,
adaptation, and training on sustainable practice. Examples of investments or innovations in the support of
coffee farmers include: investing in organic farming systems, biogas digesters, and wastewater management
(Budiasa, 2014; van Rikxoort et al., 2014). Biogas can be used instead of LPG or electricity for de-pulping
or roasting of the coffee beans while wastewater management recycles or reuses waste water (van Rikxoort
et al., 2014). Consequently, these costs are charged to the consumers of sustainable coffee.
Although there is no consensus on the appropriate price of sustainability with regard to coffee, its value
may depend on consumers’ willingness to pay. The willingness to pay, WTP hereafter, is defined as the
maximum amount that consumers are willing to pay for the product (Varian, 1992). This is also called the
reservation price. As to conclude, the WTP for sustainable coffee, in comparison with conventional coffee,
likely depends on how much consumers care about the ethical aspects of coffee (De Pelsmacker, Driesen,
& Rayp, 2005). While the perceived value of sustainable coffee remains ambiguous, this may lead to price
problems for the coffee shops.
3.2 THE PRICE PROBLEM
Pricing includes the determination of the price at which a business will sell its products. Usually, pricing is
a type of strategy which is based on business costs or the competitors’ strategy. Since customers are price
sensitive, a price that is too low may raise concerns about the quality of coffee and a price that is too high
may prevent customers from purchasing (Chhabra, 2015).
Price determination is an important factor that has a direct influence on the coffee shops’ profit. This makes
it difficult whereas the respondents’ WTP for sustainable is unclear to the coffee shops. Price decisions for
sustainable coffee require more research such as an estimation of the WTP for sustainable coffee, or an
investigation to understand what drives the consumer towards purchasing sustainable coffee.
3.3 ETHICAL CONSUMPTION
The consumers’ psychology concerning the decision-making process and the purchasing behaviour goes
beyond this study. Therefore, ethical consumption is briefly approached in this section.
Ethical consumption is defined as purchasing products, while considering the social and environmental
consequences of the production process, rather than the price alone (Doane, 2001; Arnot, Boxall, & Cash,
2006; Coff, Korthals, & Barling, 2008; Neilsen, 2008). Choosing to purchase coffee with or without ethical
15
attributes can be linked to ethical consumption (De Pelsmacker et al., 2005). An attribute of coffee is a
characteristic that differentiates coffee from other coffees. In this study, we use two types of coffee
attributes: non-ethical attributes (e.g. the brand, the flavour) and ethical attributes (e.g. organically grown
coffee and fair prices to farmers), which form together the sustainability of coffee. Consumers believe they
are contributing to the society and the environment considering the ethical aspects of the production and
distribution process when buying products (De Pelsmacker et al., 2005). Therefore, ethical consumption is
aligned with the concept of sustainability, or more specific: with sustainable coffee (Gallenti et al., 2016).
Much research has been done on ethical consumption and the WTP for ethical products (Vermeir &
Verbeke, 2006; Coff et al. 2008; De Pelsmacker et al., 2005). The literature suggests that the demand from
developed countries for products with ethical attributes is steadily increasing (Bosbach & Maietta, 2011;
Schollenberg, 2012). While sustainable initiatives for coffee production are increasing and its supply chain
is growing, the demand for sustainable coffee has also started to rise (Pierrot et al. 2010). Since the demand
depends on consumer preferences, it is difficult to clearly delineate it from an economic perspective, and
to separate it from sociological and psychological considerations. As mentioned previously, the consumer
market for sustainable coffee also depends on their interest in ethical and non-ethical attributes (De
Pelsmacker et al., 2005). As certifications have different standards and are involved in tackling different
social and environmental issues, this may influence the consumers’ preferences (Maietta, 2003). In other
words, the WTP may depend on the different types of ethical attributes of sustainable coffee (Gallenti et
al., 2016). To measure the market potential and identify the importance of coffee sustainability for the
coffee consumer, research and consumers’ WTP analyses are required to understand the economic value of
sustainable coffee (Gallenti et al., 2016). Furthermore, results of previous experiments may provide an
answer to what extent ethical attributes have an influence on the consumers’ WTP.
3.4 WTP AS AN ESTIMATION FOR THE ECONOMIC VALUE OF SUSTAINABLE COFFEE
To understand the consumer demand for sustainable coffee and its pricing towards the consumer, an
exploration of consumers’ value attached to the sustainability of coffee is required. The literature shows
that WTP analysis is a valid research method for defining the economic value of a good and its attributes
(Anderson, Jain, & Chintagunta, 1993). In the last decade, several authors have examined the WTP for
different types of sustainable coffee. However, their findings are not consistent and they do not use the
same methods to apply the WTP to the context of sustainable coffee.
The first crucial difference in their application of the WTP concerns the population that is under
investigation. Some have targeted coffee consumers that buy in-store coffee packages (De Pelsmacker et
al., 2005; Gallenti et al., 2016), whereas other studies were based on a sample of consumers buying a cup
of coffee in a coffee shop or bar (Arnot et al., 2006; Yang, Hu, Mupandawana, & Liu, 2012). In-store,
16
coffee consumers choose between certified and non-certified packages that carry different prices, while
coffee shops can serve sustainable and conventional coffee, which may have different effects on customers’
preferences.
A second difference is the research method that is used to determine the consumers’ preferences
and measure the WTP. Researchers often conduct experiments using survey methods, such as the choice
experiment (CE; Arnot et al., 2006; Gallenti et al., 2016), conjoint analysis (CA; De Pelsmacker et al.,
2005; Rotaris & Danielis, 2011), and contingent valuation (CV; Loureiro & Lotade, 2005; Yang et al.,
2012) methods. The CE and CA are experimental designs that set up a real purchasing situation where
coffee consumers face generated choice situations. These choice situations consist of different coffees,
defined by generated attributes, including a price and certification label, between which the consumer must
choose. In the CV method, researchers directly ask the respondents how much they are willing to pay for a
conventional coffee with a certification label. With these methods, it is possible to estimate the extent to
which the consumers value different attributes, such as a certification label or the sustainable character of
the coffee.
Finally, the results of the literature suggest that the average consumer is prepared to pay more for
sustainable coffee. Arnot et al. (2006) suggests that the presence of ethical attributes may be greater than
the importance of the price, as consumers are more motivated to buy sustainable coffee. Furthermore, De
Pelsmacker et al. (2005) reported that Belgians agreed to pay 10% more for coffee packages that were
labelled with Fair Trade. They found that only 10% of the sample was willing to pay the actual Fair-Trade
price premium of 27%. Other authors have also identified high WTP scores for sustainable coffee (Maietta,
2003; Basu & Hicks, 2008; Rotaris & Danielis, 2011). The highest estimation was a WTP for a premium
price of 38% in Sweden (Schollenberg, 2012).
Experiments on purchase of a cup of sustainable coffee showed results that are consistent with previous
investigations of in-store coffee. For instance, at a coffee vendor on a major university campus in Canada,
Arnot et al. (2006) concluded that Fair Trade coffee drinkers are less likely to be influenced to switch to
another type of coffee by a price increase than conventional coffee drinkers. In addition, Yang et al. (2012)
found that Chinese coffee drinkers agreed to pay a premium price of 22% over the regular price of a cup of
coffee, and a study in the United States of America reported that the respondents were willing to pay the
following premiums on $6.50 per pound of coffee: $0.22 for Fair Trade coffee, $0.20 for shade grown
coffee, and $0.16 for organic coffee (Loureiro & Lotade, 2005).
These findings divide the literature in two areas, consumer preferences for Fair Trade coffee and consumer
preferences for organic coffee, which result in different WTPs for these two coffees and require deeper
investigation. While some experiments have found higher WTP scores for organic or shade grown coffee,
others have found a significantly higher WTP for Fair Trade coffee. For example, Maietta (2003) found
that Italians had a WTP of 9% for Fair Trade, compared to a WTP of 25% for organic coffee, which may
because the respondents are more concerned about the environment than social and ethical attributes when
17
consuming coffee (Gallenti et al., 2016). The ethical consumption of coffee depends on the consumers’
preferences for coffee attributes and their relative WTP. Thus, environmental attributes (e.g. restricting the
use of chemicals or fertilizers for growing coffee) may be linked to organic coffee, while social attributes
(e.g. safe working conditions and fair prices for farmers) may be linked to Fair Trade coffee (Coff et al.,
2008; Gallenti et al., 2016). Likewise, high WTP scores were noted for the organic labelled coffee, to the
detriment of Fair Trade coffee (Gallenti et al., 2016). Gallenti et al. (2016) indicated that the respondents
were not willing to pay a significant premium price for Fair Trade coffee due to a lack of information about
it. Another study in Sweden showed that consumers were willing to pay 9.5% more for organic coffee, and
only 5.7% more for Fair Trade coffee (Wikström, 2003).
Studies have examined the socio-demographical characteristics in an attempt to define the respondent that
is WTP more for sustainable coffee. The typical characteristics of coffee consumers who are willing to pay
a premium price are young, females with a high level of education (De Pelsmacker et al., 2005; Rotaris, &
Danielis, 2011; Yang et al. 2012; Louiero & Lotade, 2005). A high level of education has a positive impact
on the WTP for Fair Trade and shade grown coffee, but not for organic coffee, according to Loureiro and
Lotade (2005). Although experiments show consistent correlations between certain demographic
characteristics and WTP, the ethical consumer cannot be defined merely on demographics.
Previous sections have drawn a framework around the economic value of sustainable coffee in order to
approach the WTP for sustainable coffee. The following part of this study estimates the WTP for sustainable
coffee in coffee shops in Canggu, Bali. Moreover, the difference between the WTP for conventional coffee
and sustainable coffee will be estimated to understand how much people are WTP more for sustainable
coffee.
RESEARCH METHODS
CHOICE OF METHOD Various methods can be used to measure the WTP. Among the hypothetical stated preferences, the CE and
CA are more accurately replicating a real-market situation, but they are more complex and often require a
second study for the designing of the choice model (Lipovetsky, Magnan, & Zanetti-Polzi, 2011). A much
simpler method for measuring the hypothetical stated preferences is the Van Westendorp Price Sensitivity
Meter (PSM; Van Westendorp, 1976).
18
It is based on the assumption that for consumers, reasonable prices exist in every category and for each
perceived level of quality within a category (Lipovetsky, 2006; Chhabra, 2015). Consumer price decisions
are made by balancing value against price; and there is an upper and lower limit to the price a consumer is
willing to pay for a product. (Lipovetsky, 2006; Chhabra, 2015). The PSM is a method for directly asking
consumers about their perceptions at different price levels (Van Westendorp, 1976). In this survey, each
respondent indicated their perceptions of the given price levels for conventional and sustainable coffee. By
asking the same four questions for conventional and sustainable coffee, the relative frequencies of the
choices were cumulated for graphical analysis. The graphical analysis enables estimation of the price ranges
that are considered cheap or expensive to the coffee consumer. The optimal price point can also be
determined with the PSM model.
This study aims to estimate the WTP for sustainable coffee by comparing conventional coffee and
sustainable coffee using a PSM for each coffee. Consequently, a comparison between its cumulative
frequencies, charts, and price ranges, permits the approximation of the ultimate price difference. Finally,
by comparing the difference in the upper limits of the acceptable price range, the WTP for sustainable
coffee can be defined. Lipovetsky et al. (2011) stated the two preferred methods of the PSM used in
practice: prices set by the researchers or prices set by respondents to obtain a wider range of prices. Prior
to conducting the survey, prices were collected in the eight coffee shops in Canggu. Because the prices
were already noted, the first option was applied in this study.
DATA COLLECTION In this study, a survey was conducted with coffee drinkers in different coffee shops in Canggu, Bali to
estimate how much more they are willing to pay for a cup of coffee that is sustainable. Only respondents
who correctly completed the survey are included in the PSM model. Out of the 109 respondents, 99
respondents completed in the survey. In addition, two respondents provided inconsistent answers and were
therefore eliminated from the sample, which resulted in a sample of 97 respondents. This sample was small
because of several coffee shops refused to collaborate. The survey was conducted during the last two weeks
of May, which is the lower tourist season in Bali. The respondents were coffee drinkers and were randomly
selected during the coffee shop’s opening hours on different days of the week and weekend. The
questionnaire was conducted in eight randomly chosen coffee shops on the main street, Batu Bolong, to
obtain a diverse sample.
In this sample, 43% of the respondents were females (Table 2) and most customers at the coffee were in a
young age group. 30% of the sample was younger than 25 years, while the group 25 to 34 group contained
49% of the sample. In other words, people younger than 34 years represent 79% of the total sample, while
only 8% was older than 45. Most of the sample, 79%, had completed a bachelor’s, master’s, or doctorate
19
degree, while 21% did not have a higher degree. Moreover, 55% of the sample were tourists in Bali
compared to 24% who lived in Bali. Of those living in Bali, only nine were Indonesian. 57% of the sample
goes to a coffee shop two to three times or more per week, while 26% is daily visiting a coffee shop. The
level of income was not requested in the survey. The sample indicates that a greater amount in the coffee
shops are younger and higher educated women. It also appears most of the coffee shop visitors are for
touristic reasons in Bali. As for the respondents’ knowledge, 80% claimed to be familiar with the term,
where out 30% had an idea of what sustainability is while 50% certainly knew what sustainable means.
Moreover, 60% confirmed they are buying sustainable coffee.
TABLE 2 Description of the sample
Characteristics Sample percentage (N = 97)
Gender Male 43 Female 57 Age Younger than 25 30 25 - 34 49 35 - 44 13 45 and older 8 Education level No higher degree 21 Bachelor degree 47 Master degree 28 Doctoral degree 4 Reason for being in Bali Tourist 55 Temporarily for studying 13 Temporarily for business 8 Living in Bali 24 Coffee shop visits Daily 25 4 - 6 times per week 16 2 - 3 times per week 26 Once a week 19 Once a month or less 14
Familiar with the term sustainability 80 Buying sustainable coffee 60
20
SURVEY METHOD The survey consisted of two parts: Part one contained questions about the respondent’s familiarity with
sustainable coffee, and part two contained questions about the respondents’ opinions and preferences of
sustainability. The PSM approach was used in the following questions about conventional coffee and
sustainable coffee. In both cases, the respondents were given nine different price levels to interpret and
assign to subsequent questions in order to estimate their WTP (Van Westendorp, 1976):
• Choose at what price levels you think a cup of CONVENTIONAL coffee is ... for you
(in a coffee shop in Canggu) (see Appendix Survey Q10)
o Too cheap
o Cheap
o Expensive
o Too expensive
• Choose at what price levels you think a cup of SUSTAINABLE coffee is ... for you (in a coffee
shop in Canggu) (see Appendix Survey Q11)
o Too cheap
o Cheap
o Expensive
o Too expensive
While the meaning of the three other terms speak for itself, “Too cheap” is interpreted as the price is cheap
that the consumer would question its quality and would not buy it (Lipovetsky et al., 2011).
Furthermore, respondents were asked how important different given ethical attributes of the sustainable
coffee production process are to them (see Appendix Survey Q19 to Q23). The questionnaire included an
informative currency exchange for every price-related question. These currencies 1contained the national
currency of the Indonesian Rupiah (IDR) and the international Euro (€) to ensure that the respondents were
familiar with the prices and fully understood the price differences.
1 Currency on May 14, 2017 used for the survey: €1 = 14,563.376998 IDR
21
RESULTS
VAN WESTENDORP PRICE SENSITIVITY METER Table 3 and Table 4 show the cumulative percentage frequencies per price level, to investigate the number
of respondents who are willing to pay a given price. For instance, 8.25% of the respondents perceived a
price level of €1.71 for conventional coffee as too cheap, almost 30% perceived it as cheap, 18.56%
considered it expensive, and 2.06% thought this price was too expensive. In comparison, for the price of
€1.71 for sustainable coffee, the perception of too cheap and cheap increased significantly to 38.14% and
55%. The number of respondents who considered this price expensive and too expensive diminished to
13.40% and 1.03%. Moreover, in the perception of expensive increases for both types of coffees.
Comparing the two tables allows to see a noticeable difference between the acceptance or refusal of the
price levels of conventional coffee and sustainable coffee. For instance, these results show that 62.89% of
respondents perceived €2.40 as expensive for conventional coffee, while 42.27% has indicated that this
was expensive for sustainable coffee. It is also possible to estimate the percentage that would not buy the
coffee at a particular price level. For instance, at a price level of €3.42, only 52.58% of the respondents
consider this as too expensive for sustainable coffee, while 79.38% of respondents would not buy
conventional coffee at this price.
TABLE 3 Cumulative percentage frequencies for conventional coffee Relative frequencies (%)
Price Too cheap Cheap Expensive Too expensive
€1.03 50.52 98.97 1.03 0.00
€1.37 29.90 50.52 5.15 0.00
€1.71 8.25 29.90 18.56 2.06
€2.05 1.03 8.25 42.27 10.31
€2.40 0.00 1.03 62.89 18.56
€2.74 0.00 0.00 83.51 36.08
€3.08 0.00 0.00 93.81 59.79
€3.42 0.00 0.00 94.85 79.38
€3.77 0.00 0.00 95.88 89.69
22
TABLE 4 Cumulative percentage frequencies for sustainable coffee Relative frequencies (%)
Price Too cheap Cheap Expensive Too expensive
€1.03 71.13 100.00 0.00 0.00
€1.37 55.67 71.13 2.06 0.00
€1.71 38.14 55.67 13.40 1.03
€2.05 24.74 38.14 29.90 7.22
€2.40 10.31 24.74 42.27 13.40
€2.74 2.06 10.31 56.70 26.80
€3.08 0.00 2.06 71.13 37.11
€3.42 0.00 0.00 90.72 52.58
€3.77 0.00 0.00 95.88 63.92
Subsequently, the cumulative percentage frequencies of the four questions were plotted for both
conventional as sustainable coffee: the two decreasing curves for ‘too cheap’ and ‘cheap’, and the two
increasing curves for ‘expensive’ and ‘too expensive’ (see Figure 6 and Figure 7). The intersections of these
curves are important price points, indicating the boundaries of the acceptable price range. The four price
levels of the intersections are defined as follows (van Westendorp, 1976; Wildner & Conklin, 2003, June):
Point of marginal cheapness (PMC): the intersection of too cheap and expensive, which is the lower boundary of the acceptable price range
Point of marginal expensiveness (PME): the intersection of cheap and too expensive, which is the upper boundary of the acceptable price range Optimal price point (OPP): the intersection where the same number of respondents perceive the price as ‘too cheap’ and ‘too expensive’, which is the price level with the least consumer resistance Indifference price point (IPP): the normal price point, which an equal number of respondents consider cheap and expensive
23
Figure 6. The Van Westendorp Price Sensitivity Meter for conventional coffee
Figure 7. The Van Westendorp Price Sensitivity Meter for sustainable coffee
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00
1,03 1,37 1,71 2,05 2,40 2,74 3,08 3,42 3,77
Cumulativefreq
uencies(%)
Price(€)
Toocheap Cheap Expensive Tooexpensive
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00
1,03 1,37 1,71 2,05 2,40 2,74 3,08 3,42 3,77
Cumulativefreq
uencies(%)
Price(€)
Toocheap Cheap Expensive Tooexpensive
24
Comparing both charts, the curves for sustainable coffee (Figure 7) are flatter than the curves for
conventional coffee (Figure 6). Because the curves increase and decrease less drastically, this means the
customers are less price sensitive for changes in the price of sustainable coffee. Consequently, the
intersections on the sustainable coffee chart are shifted to the right side of the x-axis, which means people
are interpreting sustainable coffee as a higher priced product than conventional coffee. Table 5 illustrates a
comparison between the price intersections for both conventional and sustainable coffee. The price
intersections have a much higher value for sustainable coffee.
TABLE 5 Price level intersections
Price intersections PMC IPP OPP PME
Conventional coffee €1.61 €1.80 €1.86 €2.04
Sustainable coffee €2.00 €2.17 €2.35 €2.54
1. THE ACCEPTABLE PRICE RANGE
Figure 6 and Figure 7 illustrate the acceptable price range to consumers, demarcated by the lower bound
(PMC) and the upper bound (PME; van Westendorp, 1976). Outside this range, too many consumers are
refusing the offer because they perceive the coffee as ‘too cheap’ or ‘too expensive’. The range between
PMC and IPP is where the prices are marked as “relatively cheap” and the second range between
intersections IPP and PME is interpreted as “relatively expensive” (Table 6; Van Westendorp, 1976). Prices
imposed within these ranges influence the amount of coffee sales, since the number of customers may
increase at a lower price level and customers may withdraw from higher price levels. Low prices may raise
concerns about quality, and high prices may be rejected.
TABLE 6
Acceptable price range for conventional and sustainable coffee Price range
Relatively cheap Relatively expensive
Conventional coffee €1.61 – €1.80 €1.80 – €2,04 Sustainable coffee €2.00 – €2.17 €2.17 – €2.54
Table 6 demonstrates the difference in acceptable price ranges. The acceptable price range of conventional
coffee is between €1.61 and €2.04, while the acceptable price range of sustainable coffee is from €2.00
to €2.54. Since the charts above show the price ranges shifted to the right, the lower price range of relatively
25
cheap (€2.00 to €2.17) sustainable coffee starts near the end of the price range of relatively expensive
(€1.80 to €2.04) conventional coffee. In addition, the upper price range of sustainable coffee has the
longest price range of €2.17 to €2.54, suggesting that these coffee drinkers are tolerant to greater increases
in the price of sustainable coffee.
2. THE OPTIMAL PRICE POINT
The results of the graphical analyses show that the consumers’ optimal price point for a conventional coffee
is €1.86 and they are willing to pay an increase of 26.34% for sustainable coffee with an optimal price
point of €2.34. This means that, on average, the respondents accept these prices with the least resistance.
Price levels higher or lower than the OPP, do not imply that consumers will not purchase the coffee, as the
resistance depends on how much higher or lower the price is and how far it is positioned from the OPP.
Moreover, the OPP is an important indicator of the share of the consumers that will not purchase coffee at
this price. The relative, cumulative frequency of an OPP of €1.80 is approximately 5.36% for conventional
coffee, which means this small share will not buy conventional coffee at a price of €1.80. In other words,
94.64% of the respondents did not experience the price as too cheap or too expensive. In the case of
sustainable coffee, a cumulative frequency of 12.58% is estimated at a OPP of €2.17. Although the OPP
of sustainable coffee is higher than the OPP of conventional coffee, 87.42% of the respondents did not
experience this OPP as too cheap or too expensive.
3. THE POINT OF MARGINAL EXPENSIVENESS AS AN INDICATOR FOR WTP
The PME is the upper limit of the acceptable price range and is therefore the maximum price level at which
a considerable amount of coffee drinkers still is willing to buy a coffee (van Westendorp, 1976). As prices
beyond the PME are indicated as too expensive to the respondents, this is can be interpreted as a threshold
for the amount consumers are willing to pay. As a conclusion, the PME can be defined as the maximum
amount a consumer is willing to pay for coffee, or the WTP for coffee in this study.
For the conventional coffee, this maximum price level is €2,04 and consumers are willing to pay an
increase of 24.51% for sustainable coffee, which has a PME of €2.54. In other words, the WTP for
conventional coffee is €2,04 and the WTP for sustainable coffee is €2.54.
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4. COMPARISON OF COFFEE SHOP PRICES IN CANGGU TO CONSUMERS’ WTP
While conducting the survey in the eight coffee shops in Canggu, attention was paid to the type of coffee
served to the customer. There was no communication of serving coffee at produced sustainable measures
or ethical attributes, nor was there any sign of sustainable certification standards. Therefore, it is concluded
that these prices are the prices for conventional coffee for the analysis of this study.
The average price for conventional coffee in the eight coffee shops in Canggu was €2.02 and these prices
ranged from €1.65 to €2.61 compared to the acceptable price range of €1.61 to €2.04 as our results point
out for conventional coffee (see Table 7). A price of €1.65 is near the boundary of the lower price range
for conventional coffee and was considered a cheap price for the customers. On the other hand, the
maximum measured price of €2.61 significantly exceeds the boundary of the upper price range of €2.04.
This finding does not indicate that consumers are unwilling to buy coffee at that price, since graphical
analysis of Figure 6 shows that 75.63% of the respondents considered €2.61 expensive and not too
expensive.
TABLE 7 Comparison of acceptable price ranges for conventional coffee
Acceptable price range boundaries
Minimum Maximum
Coffee shops in Canggu €1.65 €2.61
Price Sensitivity Meter €1.61 €2.04 Note. The prices include VAT and were recorded in the coffee shops on May 14, 2017 in IDR at the currency of €1 = 14,563.376998 IDR.
STATED WTP
In addition to the price meter, the respondents were directly asked to indicate their maximum WTP for
conventional coffee and sustainable coffee (see Appendix Survey Q13). This was an open question that
allowed the respondent to consider the difference between the WTPs for both types of coffee. In the course
of this study, their answer is referred to as their “stated WTP”. For further analysis, and in order to use the
stated WTP, an assumption was made that the coffee consumers had a clear view of their difference in WTP
between conventional and sustainable coffee. Using the stated WTP makes it possible to analyse socio-
demographical trends and the impact of ethical attributes as an influence on the consumers’ stated WTP.
27
Table 8 shows the stated maxima WTP are approximating the measured WTP (the PME boundaries of the
PSM) for both conventional and sustainable coffee. The stated maximum WTP for conventional coffee of
€2.03 approximates the PME of €2.04. In the case of sustainable coffee, there is a slight difference of
€0.08 between the stated WTP and the WTP. The error between the two values may be due to respondents
stating slightly inconsistent WTPs. The intersections in the PSM such as the PME of the acceptable price
range, are therefore adjusted, causing a small error in the values (see Table 8).
The respondents seem to have small, consistent differences between WTPs for both coffees since the
average relative WTPs are similar. Therefore, the absolute values of their stated WTP are not used as
indicators in this approach because small changes in the sample may have a larger impact on the price
curves in the PSM model (Lipovetsky et al., 2011). Instead, the relative difference between the stated WTP
for conventional and sustainable coffee is used for the further investigations.
TABLE 8 Willingness to pay
WTP* Stated WTP
Conventional coffee €2.04 €2.03
Sustainable coffee €2.54 €2.62 *the measured PME of the PSM
1. SOCIO-DEMOGRAPHIC ANALYSIS
Different tests were computed to assess socio-demographical characteristics as an impact on the relative
difference between the stated WTP of conventional and sustainable coffee. An independent-sample t-test
was conducted to compare the relative difference in stated WTP for sustainable coffee and conventional
coffee between women and men. There was no significant difference in the scores for the women (M =
0.3106; SD = 0.22311) and men (M = 0.2947; SD = 0.19898) conditions (t(95)= p = 0.715; Table 9). In
contrast to previous research (De Pelsmacker et al., 2005; Yang et al. 2012), these results suggest that the
average WTP for sustainable coffee is not influenced by gender. As mentioned above, past research has
identified the significant influence of a young age and high education level on the WTP for sustainable
coffee (Loureiro & Lotade, 2005; Rotaris & Danielis, 2011). To assess the correlation between the
respondents’ age and their WTP, a Pearson correlation coefficient was computed. There was no correlation
between these variables (rs = -.110, n = 97, p = 0.286; Table 9). Furthermore, a Spearman’s rank-order
correlation was implemented to estimate the relationship between the respondent’s education level and their
WTP. Against expectations, there was no significant correlation between the level of education and the
WTP (rs = -.023, n = 97, p = 0.821; Table 9). In contrast to previous findings, this study suggests that none
of these demographic characteristics have a significant effect on the WTP. Finally, the reason for the
28
respondent’s presence in Bali was examined to determine its influence on the change in WTP. A one-way
between subjects ANOVA was computed to compare the WTP for sustainable coffee between the
respondents being in Bali for studying, for business, as a tourist or just living in Bali. There was no
significant difference effect between the groups of the WTP for sustainable coffee at a p > 0.05 for the four
conditions (F(2, 94) = 2.364, p = 0.100; Table 9).
TABLE 9 Respondent Characteristics’ influence on WTP
Characteristic p-value*
Gender .715
Age .286
Education level .821
Reason for being in Bali .100 *Significant at level 0.05
2. ETHICAL ATTRIBUTES OF SUSTAINABLE COFFEE
Investigating the sustainable characteristics of sustainable coffee may provide insight into factors that drive
people to pay this extra price. The respondents were presented with eight ethical attributes that contribute
to the production process of sustainable coffee, and were asked to rate them according to their level of
importance (Q14).
A Spearman’s correlation for every factor was computed to assess the correlations between these factors
and the WTP of the sample. Table 10 presents the means, correlations and significance of the different
ethical attributes. These results show that only one factor is significant with the WTP. The use of biogas
for roasting the coffee beans instead of using electricity or Liquefied Petroleum Gas (LPG) has a weak
uphill correlation with the level of WTP for sustainable coffee, which is statistically significant, rs = 0.212,
p = 0.037 (Table 10).
The factors in Table 10 are ranked by mean. The three factors regarding the farmer’s rights have the highest
means and are ranked in order: no child labour (M = 4.46), fair prices to coffee farmers (M = 4.12), and
safe working conditions for farmers (M = 4.07). These three ethical attributes are social attributes, which
means respondents score higher on the importance of social attributes.
29
TABLE 10 Influence of ethical attributes on the WTP
Ethical attributes Mean* r Sig.
No child labour 4.46 0.081 0.432
Fair prices to coffee farmers 4.12 0.099 0.336
Safe working conditions 4.07 0.128 0.213
Organic 3.95 0.046 0.652
Recyclable packaging 3.85 0.153 0.134
Wastewater management 3.60 -0.161 0.115
Origin of coffee 3.19 -0.002 0.985
Biogas for roasting coffee beans 2.90 0.212 0.037** * Scores are from 1 (Not at all important) to 5 (Extremely important) ** Significant at a level of 0.05
Next, the relative frequencies of the total sample were calculated and plotted in Figure 8 per rated level of
importance for the different ethical factors of the coffee production process.
The visual summary illustrates that of all of the ethical attributes but biogas and the origin of coffee, at least
80% considers the ethical attributes moderately important or even more important. Moreover, for the five
attributes at the bottom on Figure 8, at least 30% claimed these attributes as extremely important.
Figure 8. The importance of ethical attributes
0 10 20 30 40 50 60 70 80 90 100
Nochildlabour
Fairpricestocoffeefarmers
Safeworkingconditionsforfarmers
Organic(Nouseofchemicals)
Recycablepackaging
Wastewatermanagement
Originofcoffee
Biogasforroastingcoffeebeans
Frequencypercentage(%)
Notatall Slightly Moderately Very Extremely
30
A more detailed description of the relative frequencies of the importance of each ethical attribute is
presented in Table 11. Two factors have a moderately important trend, 41.24% for the origin of coffee and
34.02% for biogas, where the relative frequencies diminish at an increasing level of importance. Therefore,
the use of biogas has the lowest mean of all factors, suggesting that people who consider Biogas as more
important have a greater WTP for sustainable coffee.
TABLE 11 Percentage frequencies of the importance of ethical attributes Importance (%)
Ethical attributes Not at all Slightly Moderately Very Extremely
No child labour 3.09 4.12 5.15 19.59 70.10
Fair prices to farmers 1.03 3.09 16.49 43.30 38.14
Safe working conditions 1.03 5.15 16.49 42.27 37.11
Organic 3.09 5.15 22.68 34.02 37.11
Recyclable packaging 1.03 10.31 23.71 35.05 31.96
Wastewater management 1.03 15.46 25.77 41.24 18.56
Origin of coffee 8.25 14.43 41.24 25.77 12.37 Biogas for roasting coffee beans 12.37 24.74 34.02 22.68 8.25
Note. Percentages are rounded The three upper ethical attributes have higher relative frequencies for very important and extremely
important, compared to the other attributes. Seventy percent of the respondents indicated no child labour is
extremely important, while it is very important for almost 20%; this represents almost 90% of the
respondents. In contrast, the fair prices and safe working conditions had higher relative frequencies for very
important of 43.30% and 42.27%, respectively, compared to only 19.59% of respondents who judged no
child labour as very important. All of the ethical attributes have a relative frequency close to zero, except
for the biogas, with a score of 12.37%. Although these high-rated factors do not seem to be expressed in
WTP, the results suggest that they play an important role in coffee consumption in general.
3. REASONS FOR CHOOSING SUSTAINABLE COFFEE
To understand the motives that drive the respondents to purchasing sustainable coffee, an open question
was included in the survey (see Appendix Survey Q8). The respondents were asked why they choose or do
not choose sustainable coffee. Two out of three respondents chose to express his opinion by answering this
question. The findings show three different groups.
31
The first group seemed informed about sustainable coffee and expressed their concerns about the exploits
of producing coffee. Sixteen respondents expressed their concerns about the coffee farmers and other
people in the coffee production process. Supporting of the local economy and fair prices to farmers were
also mentioned. Furthermore, twelve respondents declared that preserving the environment is important to
them. Twelve respondents had vague answers to this question. Their incentives to purchase sustainable
coffee included believing in a better world and feeling better after this purchase.
The second group of coffee consumers was less informed about sustainable coffee. Seven respondents did
not know where to find sustainable coffee or declared that it was difficult to find, and another six did not
know that sustainable coffee exists. Five respondents stated that they would choose sustainable coffee
instead of conventional coffee if a coffee shop provided this option.
The last group did not make a commitment to sustainable coffee at all. Seven respondents stated that they
did not care, claiming that other attributes of the coffee are more important. For example, four respondents
declared that the quality and taste of the coffee most important to them.
Coffee drinkers seem to have an idea of the impact of producing coffee on the environment and people.
They realize that sustainable coffee plays a role in respecting the environment and people along the
production process and they agree to pay an additional fee for a greater cause. Moreover, people who are
not familiar with sustainable coffee may be potential sales targets because some claimed that they would
buy sustainable coffee if it is available. Furthermore, six respondents stated that their intention to purchase
sustainable coffee depends on the price.
32
CONCLUSION
As coffee drinkers find it difficult to express the difference between conventional and sustainable coffee in
terms of economic value, which renders coffee pricing particularly difficult. This study examined the WTP
for a sustainable coffee in a coffee shop in Canggu, Bali. The PSM was used to estimate the respondents’
perceptions of different price levels in a survey. By plotting the cumulative percentage of frequencies, a
comparison between prices of conventional and sustainable coffee defined the WTP for both coffees.
Consequently, the difference between the two WTPs is calculated as the economic value for sustainable
coffee.
The results confirm previous findings and point out that the coffee consumer is willing to pay more for
coffee with the attribute of sustainability. The WTP for conventional coffee is €2.04, while the WTP for
sustainable coffee is an amount of €2.54. In other words, the coffee drinker indicates he is willing to pay
an additional 24.51% or €0.50 for a sustainable coffee. In comparing the consumers’ WTP with the prices
in coffee shops in Canggu, these actual prices exceeded these results. The estimated acceptable price ranges
for conventional and sustainable coffee, respectively €1.61 to €2.04 and €2 to €2.54, are covering the
whole range of coffee prices in coffee shops in Canggu, i.e. €1.61 to €2.65.
The respondents expressed their WTP for sustainable coffee in an open question and argued the ethical
attributes of coffee are the most important factor driving them towards purchasing sustainable coffee. To
have a better understanding, ethical attributes of sustainable coffee are investigated as an incentive to have
a WTP. However, it was observed that ethical attributes are not significantly influencing the WTP.
Nonetheless, the respondents indicated that, according to them, social factors are more important than
environmental attributes to the coffee production process in general. However, this was not put forward as
having a correlation with the WTP for sustainable coffee. Although previous research identified the coffee
drinker whom is willing to pay more for sustainable coffee to be a young, higher educated woman (De
Pelsmacker et al., 2005; Rotaris, & Danielis, 2011), the results of this study did not point out any significant
differences in WTP related to socio-demographical characteristics.
This study investigated the role of sustainability initiatives in the emerging coffee market and how they are
expanding in Indonesia, which plays its role as one of the leading producing countries of coffee.
Furthermore, the results point out the coffee consumer is recognizing social and environmental issues in
the production process of coffee. As more sustainable initiatives are initiated, the demand for sustainability
is in a rise. Although the respondents did not express the extent to which they value ethical attributes in a
higher WTP, these attributes are considered as important when consuming coffee in general. As coffee
labelled with certifications is being sold in stores at higher prices, the customer in a coffee shop is willing
pay more for sustainable coffee.
33
DISCUSSION
In the course of this study, a survey was conducted in eight random coffee shops in Canggu in order to
estimate the customer’s WTP for sustainable coffee. To obtain a diverse sample, customers at every two
tables were approached on different days of the week, including the weekend. Moreover, the general
concept of sustainable coffee was explained prior to asking the customer’s price perceptions. Valid answers
are obtained, as the respondents fully understood the concept about which prices are being evaluated. In
addition, the measurement results are consistent with everyday practice since customers are questioned
during their visit in a coffee shop. The PSM approach is used as a valid technique that is often applied in
market research as a guide for price strategies (Chhabra, 2015).
The results show that customers in a coffee shop are willing to pay more for sustainable coffee than for
conventional coffee. The PSM results point out that the WTP for conventional coffee and sustainable coffee
are €2.04 and €2.54 is. This is a considerable increase of 24.51% for the sustainability of coffee and a
confirmation of what is previously written in the literature. Studies have concluded that the coffee consumer
is WTP a considerable amount for sustainable coffee. As mentioned in the literature review (section 3.4),
some of these studies found that the respondents’ WTP varied according to the adopted ethical attributes of
the sustainable coffee. As this study estimated the WTP for sustainable coffee in general, comparison
between WTP based on these ethical attributes is not possible. Nonetheless, our results show that the found
WTP of 24.51% is consistent with the WTP for organic coffee in Italy; 25% (Maietta, 2003) and with the
WTP for Fair Trade coffee in China; 22% (Yang et al., 2012).
The average prices of coffee shops in Canggu range from €1.65 to € 2.61 for conventional coffee. In the
case of conventional coffee, the found WTP of €2.04 approximates the average coffee shop price of €2,13
in Canggu. On the other hand, there are coffee shops offering conventional coffee up to €2.61, exceeding
the WTP for it of €2.54 is. In the scenario where a coffee shop in Canggu is offering sustainable coffee,
where sustainable coffee is sold at higher prices to cover the costs, this might be too expensive for the
customers as the WTP is €2.54 and the optimal price point amounts only €2.34 for sustainable coffee.
The increasing popularity of certification labels may be the explanation for the WTP for sustainable coffee.
But, also recognition of social and environmental issues could be a stimulating an increase in the WTP.
Furthermore, the literature is divided based on preferences towards the ethical attributes of sustainable
coffee. Some experiments show that the WTP was higher for Fair Trade coffee, which supports the coffee
farmer. Other studies found that people are more concerned about the environment and expressed this in
their WTP for sustainable coffee (Maietta, 2003). Our results suggest that the attributes related to farmers
are slightly more favourable than environmental attributes, although this correlation is not significant.
Biogas used for the roasting of coffee instead of electricity or LPG is the only significant attribute that
34
expresses its importance in a higher WTP for sustainable coffee. It is possible that most respondents are not
familiar with biogas, and those who are familiar with them are willing to pay more for sustainable coffee
and have indicated this as more important. The low frequencies at high levels of importance, compared to
other factors, confirms this theory.
This study is relevant as a replenishment to the little research that has been conducted previously, especially
in the case of sustainable coffee in a coffee shop. This is also the first study applying the PSM method as a
comparison between conventional coffee and sustainable coffee in order to measure the value of
sustainability of coffee.
Next to this, previous research has questioned the accuracy of the PSM results (Breidert, Hahsler, &
Reutterer, 2006; Lipovetsky et al., 2011). Customers are often underestimating their price sensitivity and
are often overstating claimed prices they are willing to pay, which leads to inaccurate results (Wertenbroch
and Skiera, 2002; Lipovetsky et al., 2011). Also, Breidert et al. (2006) have documented that results may
be biased since respondents may not reveal their true WTP in hypothetical questionnaires. In general, the
respondent is not able to state his exact price perceptions compared to a real purchasing situations (Breidert
et al., 2006). Beside this, a larger sample should be used for the PSM model to obtain more accurate results.
The small sample of 97 respondents used in this study is due to the fact that several coffee shops resufed to
cooperate for the sake of this study. Therefore, the collection of the responses was found to be difficult.
It is beyond the scope of this study to investigate the purchasing behaviour and the decision-making process
of the coffee consumer. Future research can be complementary to this study to better understand the
psychological factors that play a role in the purchasing of sustainable coffee.
A first direction for future research could be a comparative and similar study as an extension to this thesis.
One possible approach is the use of a conjoint analysis or a choice experiment, which allows the respondent
to compare two or more different products based on distinctive attributes. Consequently, the value of
different attributes can be estimated, whereas sustainability should be included. Another reliable method is
a field-experiment which could be an answer to the previous paragraph. This method is conducted in an
actual market setting and examines the customers’ behaviour in a real purchasing situation. This approach
may reveal a more accurate WTP as the customers’ purchasing behaviour is taken into account.
A second suggestion for future research is to estimate the WTP for sustainable coffee sold in a store or
supermarket in Canggu, Bali. Similar to previous research, the WTP for certification labelled coffee can be
estimated. Moreover, this study can investigate the difference in WTP of foreigners and the local people in
Indonesia. Finally, the WTP for in-store sustainable coffee can be compared to the WTP for sustainable
coffee in a coffee shop.
35
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APPENDIX
SURVEY Q1 Dear participant, In the course of my studies Business Administration at the University of Ghent, Belgium, I am investigating the value of sustainable coffee. This project is from Su-re.co (Sustainable and Resilience company) and is supported by GREENWIN under the wings of the European Commission. It will only take 5 minutes to complete. Please fill in the form completely and as honest as possible in. All the data will be processed anonymously and with trust. By filling in your e-mail at the end of the survey, you are participating to win an award of €50 (730.000 IDR). Many thanks in advance for your contribution. If you have any questions, please contact me: [email protected] Joshi Boomputte Master Business Administration Su-re.co
PART ONE Q2 How often do you drink coffee?
o Daily (1)
o 4-6 times a week (2)
o 2-3 times a week (3)
o Once a week (4)
o Once a month (5)
B
Q3 How often do you go to a coffee shop?
o Daily (1)
o 4-6 times per week (2)
o 2-3 times per week (3)
o Once a week (4)
o Once a month or less (5)
Q4 Please read the following information carefully, in order to fully understand: Sustainable coffee is coffee that is produced in conditions where social, ecological and economical standards are taken into account. This in order to protect and preserve the biodiversity and human kind, in the present and in the future in a local and global environment. The coffee is not only about profit-making, its vision is equal rights for the farmers, producing while reducing waste and respect for the environment and the end consumer. `
o I have read the information above. (1)
Q5 Did you ever drink sustainable coffee?
o Yes (1)
o No (2)
o I don't know (3)
Display This Question:
If Did you ever drink sustainable coffee? Yes Is Selected
Q6 If you go to a store to buy coffee, do you buy sustainable/environmentally-friendly coffee?
o Yes (1)
o No (2)
o I don't buy coffee in a store (3)
C
Q7 How much do you care about coffee that is sustainable?
o I don't care (1)
o I slightly care (2)
o I moderately care (3)
o I care very much (4)
o I extremely care (5)
Q8 Why do you choose or don't you choose sustainable coffee? (Q10)
D
Q9 How important are following factors to you, if you drink coffee in a coffee shop?
Not at all important (1)
Slightly important (2)
Moderately important (3)
Very important (4)
Extremely important (5)
Taste (1) o o o o o Quality of
coffee beans (2) o o o o o Variety of
coffee types (3) o o o o o Presentation of coffee cup (4) o o o o o Sustainability
(5) o o o o o Friendly service
(6) o o o o o Speed of service
(7) o o o o o Convenient location (8) o o o o o
Atmosphere (9) o o o o o Price (10) o o o o o Available
information about the coffee
(11) o o o o o
E
PART TWO Q10 Choose at what price levels you think a cup of CONVENTIONAL coffee is ... to you (in a coffee shop in Canggu)
Too cheap (1) Cheap (2) Expensive (3) Too Expensive (6)
15.000 IDR (€1,03) (1) o o o o
20.000 IDR (€1,37) (2) o o o o
25.000 IDR (€1,71) (3) o o o o
30.000 IDR (€2,05) (4) o o o o
35.000 IDR (€2,40) (5) o o o o
40.000 IDR (€2,74) (6) o o o o
45.000 IDR (€3,08) (7) o o o o
50.000 IDR (€3,42) (8) o o o o
55.000 IDR (€3,77) (9) o o o o
F
Q11 Choose at what price levels you think a cup of SUSTAINABLE coffee is ... to you (in a coffee shop in Canggu)
Too Cheap (1) Cheap (2) Expensive (3) Too Expensive (4)
15.000 IDR (€1,03) (1) o o o o
20.000 IDR (€1,37) (2) o o o o
25.000 IDR (€1,71) (3) o o o o
30.000 IDR (€2,05) (4) o o o o
35.000 IDR (€2,40) (5) o o o o
40.000 IDR (€2,74) (6) o o o o
45.000 IDR (€3,08) (7) o o o o
50.000 IDR (€3,42) (8) o o o o
55.000 IDR (€3,77) (9) o o o o
G
Q12 Are you willing to pay more for coffee that is sustainable?
o Yes (1)
o No (2)
Q13 How much are you willing to pay MAXIMUM for a cup of coffee in a coffee shop in Canggu? (The score you are giving is in €) Currency help
Euro (€)
Indonesian Rupiah (IDR)
1,03 15000 1,37 20000 1,71 25000 2,05 30000 2,40 35000 2,74 40000 3,08 45000 3,42 50000 3,77 55000
Normal coffee (1)
Sustainable coffee (2)
H
Q14 How important are following factors in the production process of coffee to you?
Not at all important (1)
Slightly important (2)
Moderately important (3)
Very important (4)
Extremely important (5)
Fair prices to coffee farmers
(1) o o o o o Safe working conditions for
farmers (2) o o o o o No child labour
(3) o o o o o Organic (No use
of chemicals) (4) o o o o o
Biogas for roasting instead of electricity or
LPG (5) o o o o o
Recyclable packaging (6) o o o o o
Origin of coffee (7) o o o o o
Wastewater management (8) o o o o o
I
Q15 How environmental-friendly are you?
Position yourself, according to your lifestyle: (1)
Q16 How concerned are you about the environment?
Position yourself on following scale: (1)
Q17 Are you contributing (Payments, Working for, Memberships, ...) to an environmental organization? (WWF, Greenpeace, ...)
o Yes (1)
o No (2)
Q18 How familiar were you with the word "sustainable" before filling in this questionnaire?
o I had no idea (1)
o I have heard of it (2)
o I had an idea of what it is (3)
o I certainly knew what it was (4)
J
Q19 What is your highest reach of educational level?
o Primary school (1)
o High school (2)
o Bachelor’s degree (3)
o Master’s degree (4)
o Doctorate degree (5)
o I do not wish to answer (6)
Q20 Which of the following is the most correct reason you are in Bali?
o I am here as a tourist (2)
o I am here temporarily for studying (incl. internship) (3)
o I am here temporarily for business (4)
o I live in Bali (5)
Q21 What is your gender?
o Male (1)
o Female (2)
Q22 Where are you from?
o Afghanistan (1)
o …
o Zimbabwe (197)
K
Q23 What is your age?
Q24 By filling in your e-mail below, you are participating to win the €50 (730.000 IDR) award for your contribution in this investigation. (You will only receive an e-mail about the award.)