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Economic Impacts of El Niño Southern Oscillation: Evidence from the Colombian Coffee Market

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  • Bastianin, Andrea
  • Lanza, Alessandro
  • Manera, Matteo

Abstract

We develop a structural econometric model to study the impacts of El Niño Southern Oscillation (ENSO) on Colombian coffee production, exports and price. Our empirical specification is consistent with an economic model of the coffee market that, in the short-run, is characterized by a downward-sloping demand curve and by a vertical supply curve. This allows the study of the effects of unpredictable innovations to ENSO on the Colombian coffee price, while controlling for shocks arising from both the supply and the demand-side of the market. We show that El Niño events (i.e. positive shocks to ENSO) might be beneficial for production and exports and tend to decrease the price of coffee. On the contrary, La Niña conditions (i.e. negative shocks to ENSO) depress coffee production and exports and increase price. However, the overall impact of ENSO shocks is small. In the short-run, ENSO shocks explain 2% of the fluctuations of coffee production and 0.2% of the variability of the price of coffee. In the long-run, these percentages rise to 8% and 6%, respectively. Both in the short-run and in the long-run, demand-side shocks are more relevant than supply-side shocks in explaining the dynamics of the price of coffee.

Suggested Citation

  • Bastianin, Andrea & Lanza, Alessandro & Manera, Matteo, 2016. "Economic Impacts of El Niño Southern Oscillation: Evidence from the Colombian Coffee Market," EIA: Climate Change: Economic Impacts and Adaptation 250258, Fondazione Eni Enrico Mattei (FEEM).
  • Handle: RePEc:ags:feemei:250258
    DOI: 10.22004/ag.econ.250258
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    File URL: http://ageconsearch.umn.edu/record/250258/files/NDL2016-073.pdf
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    References listed on IDEAS

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    Keywords

    Agricultural Finance;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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