Quality Upgrading and Competition: Theory and Evidence from Uganda’s Coffee Sector

In export-oriented industries, quality upgrading is particularly crucial, as firms strive to access the quality premia offered by world markets. However, for many goods exported by developing countries, quality is not determined solely by the final exporter, but rather is shaped by the often-long domestic supply chains from which exporters source. This project studies how incentives for quality provision are passed along these domestic supply chain, and how this is affected by market structure within the context of coffee in Uganda. The researchers aim to answer three questions: (1) How do quality premiums get passed through along the supply chain? (2) How is pass-through shaped by market competition? (3) How does variation in the quality premium affect traders and farmers' investment in quality?

The project leverages a two-pronged randomised control trial to identify pass-through of quality premiums along agricultural supply chains and the impact that this has on producer investment in quality upgrading. In the first experiment, the researchers will generate exogenous variation in quality premiums faced by intermediaries (and the saturation of these premiums in a given market) in order to determine how variation in competition at different points in the value chain shapes the effective quality premium faced by upstream producers. In the second experiment, the researchers will directly manipulate the quality premium faced by farmers, in order to measure how farmer investment in quality upgrading responds to price incentives.

This project will help inform the policies of developing country governments that are eager for exporting firms in their country to break into higher quality world markets. This research will shed light on why these firms often have a difficult time sourcing high-quality products, and how domestic supply chains affect incentives for quality provision by producers.  It will help further inform the national development priorities of the Government of Uganda. This project is also one of the first studies to generate experimental variation in quality premiums and competition for the premiums.



Jie Bai

Harvard University

Lauren Falcao Bergquist

University of Michigan

Ameet Morjaria

Northwestern University