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The welfare gain from eliminating coffee price volatility: the case of indian coffee producers

Author

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  • Sushil Mohan

    () (University of Brighton, UK)

  • Firdu Gemech
  • Alan Reeves
  • John Struthers

    (University of the West of Scotland, UK)

Abstract

It is commonly felt that the liberalisation of commodity markets has increased the exposure of commodity producers to price volatility. Using a generalized autoregressive conditional heteroskedasticity framework, we make a distinction between the predictable and unpredictable components of volatility, the latter exposing producers to price risk. By using empirical estimates of the coefficient of relative risk aversion drawn from the literature, we show that the welfare gain from eliminating this price risk for Indian coffee producers is on average 4.8 percent of their revenue from coffee sales, which for a poor producer may be more than a month’s income. This underlines the need for providing producers access to suitable price-risk management or hedging mechanisms.

Suggested Citation

  • Sushil Mohan & Firdu Gemech & Alan Reeves & John Struthers, 2014. "The welfare gain from eliminating coffee price volatility: the case of indian coffee producers," Journal of Developing Areas, Tennessee State University, College of Business, vol. 48(4), pages 57-72, October-D.
  • Handle: RePEc:jda:journl:vol.48:year:2014:issue4:pp:57-72
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    More about this item

    Keywords

    India; coffee producers; price volatility; risk aversion; welfare loss; GARCH;

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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