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Producer price and price transmission in a deregulated Ethiopian coffee market

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  • Worako, Tadesse Kumma
  • van Schalkwyk, Herman D.
  • Alemu, Zerihun Gudeta
  • Ayele, Gezahegn

Abstract

Coffee producers in Ethiopia have historically received a very small share of the export price of green coffee. Reasons that are often mentioned are heavy government intervention and high marketing and processing costs. Prior to 1992, government regulation of the domestic coffee market in the form of fixed producer prices and the monopoly power of the Ethiopian Coffee Marketing Corporation put a substantial wedge between the producer price and the world price of coffee by imposing an implicit tax on producers. The domestic coffee marketing system in Ethiopia was liberalised after 1992, which was envisaged to have a positive effect on producer prices and price transmission signals from world markets to producers. This paper, with the help of Cointegration and Error-Correction Model (ECM), attempts to analyse its impact. As findings indicate, the reforms induced stronger long-run relationships among grower, wholesaler and exporter prices. The estimation of the ECM shows that the short-run transmission of price signals from world to domestic markets has improved, but has remained weak in both auction-to-world and producer-to-auction markets. This might be explained by the weak institutional arrangement coordinating the domestic coffee system and contract enforcement. In general, the domestic price adjusts more rapidly to world price changes today than it did prior to the reforms. However, there is an indication that negative price changes transmit much faster than positive ones.

Suggested Citation

  • Worako, Tadesse Kumma & van Schalkwyk, Herman D. & Alemu, Zerihun Gudeta & Ayele, Gezahegn, 2008. "Producer price and price transmission in a deregulated Ethiopian coffee market," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 47(4), pages 1-22, December.
  • Handle: RePEc:ags:agreko:47658
    DOI: 10.22004/ag.econ.47658
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    References listed on IDEAS

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    Cited by:

    1. Fekadu Gelaw & Stijn Speelman & Guido Huylenbroeck, 2017. "Impacts of Institutional Intervention on Price Transmissions: The Case of the Ethiopian Commodity Exchange," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 88-106, November.
    2. Mai, Thang Chien & Shakur, Shamim & Cassells, Sue, 2016. "Price Asymmetry of Coffee Beans: Evidence from Vietnam," 2016 Conference, August 25-26, Nelson, New Zealand 260807, New Zealand Agricultural and Resource Economics Society.
    3. Akpan, S.B. & Udoka, S. J. & Inimfon, V. P., 2016. "Assessment of Rice Market Competiveness Using Horizontal Price Transmission: Empirical Evidence from Southern Region of Nigeria," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 8(2), pages 1-16, June.
    4. David Boansi & Christian Crentsil, 2013. "Competitiveness and Determinants of Coffee Exports Producer Price and Production for Ethiopia," Journal of Advanced Research in Economics and International Business, ASERS Publishing, vol. 1(1), pages 31-45.
    5. Tröster, Bernhard, 2015. "Global commodity chains, financial markets, and local market structures: Price risks in the coffee sector in Ethiopia," Working Papers 56, Österreichische Forschungsstiftung für Internationale Entwicklung (ÖFSE) / Austrian Foundation for Development Research.
    6. Jin Guo & Tetsuji Tanaka, 2020. "Dynamic Transmissions and Volatility Spillovers between Global Price and U.S. Producer Price in Agricultural Markets," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 13(4), pages 1-20, April.
    7. Leonard Leung, 2014. "Eroded Coffee Traceability and Its Impact on Export Coffee Prices for Ethiopia," Development Discussion Papers 2014-04, JDI Executive Programs.
    8. Andersson, Camilla & Bezabih, Mintewab & Mannberg, Andrea, 2017. "The Ethiopian Commodity Exchange and spatial price dispersion," Food Policy, Elsevier, vol. 66(C), pages 1-11.
    9. Stephan von Cramon-Taubadel, 2017. "The analysis of market integration and price transmission – results and implications in an African context," Agrekon, Taylor & Francis Journals, vol. 56(2), pages 83-96, April.
    10. Hernandez, Manuel & Lemma, Solomon & Rashid, Shahidur, 2015. "The Ethiopian Commodity Exchange and the coffee market: Are local prices more integrated to global markets?," 2015 Conference, August 9-14, 2015, Milan, Italy 211732, International Association of Agricultural Economists.
    11. Arslan, Aslıhan & Reicher, Christopher Phillip, 2010. "The effects of the Coffee Trademarking Initiative and Starbucks publicity on export prices of Ethiopian coffee," Kiel Working Papers 1606, Kiel Institute for the World Economy (IfW).
    12. Subervie, Julie, 2011. "Producer price adjustment to commodity price shocks: An application of threshold cointegration," Economic Modelling, Elsevier, vol. 28(5), pages 2239-2246, September.
    13. Tamru, Seneshaw & Minten, Bart, 2018. "Investing in wet mills and washed coffee in Ethiopia: Benefits and constraints," ESSP working papers 121, International Food Policy Research Institute (IFPRI).

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