A land use model of the effects of eco-labeling in coffee markets

International non-profit organizations have started to implement eco-labeling for credence attributes programs aimed to inform consumers about environmentally sound or “sustainable” production standards for various products. Using coffee labeled as “shade grown” or “bird friendly” as an example, this paper describes the impact such labeling programs may have on local land use patterns in coffee producing regions. Shade grown coffee farms should provide a variety of external benefits, including the preservation of biodiversity, carbon sequestration, the prevention of soil erosion and aquifer recharge. Those externalities, however, are not expected to have observable land use impacts unless they are capitalized in the coffee market. The prospect of market capitalization of externalities suggests the extension of the conventional von Thünen model to the calculation of social location rent. Using the maximization of social location rent as a criterion allows the externality effect to play a direct role in market-based land use allocation of land between eco-labeled shade grown coffee production and other activities.