Can agricultural traders be trusted? Evidence from urban coffee markets in Ethiopia

Traditional food marketing systems in developing countries are often not trusted. In consequence, policy makers frequently try to regulate them and modern market arrangements increasingly are emerging to address some of their presumed deficiencies. However, it is unclear how trustworthy these markets actually are and if and to what extent regulation and modernization affects market governance. In this paper we look at the case of coffee in urban settings in Ethiopia to test trustworthiness along three dimensions of trade transactions - weights, quality, and the presence of illegal trade. We find that traders are relatively trustworthy on observable quality characteristics and weights. However, there is significant illegal trade (disallowed trade of export quality coffee) and a consistent pattern of over-representation of not easily verifiable quality characteristics. We find that modern marketing outlets or formats, including modern domestic retail and branded packaged products, deliver higher quality at a higher price, but are not any more trustworthy than traditional marketing arrangements in terms of these dimensions of trade transactions.