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Responding to the Coffee Crisis: What We Can Learn from Price Dynamics

Listed author(s):
  • Mehta, A.
  • Chavas, Jean-Paul

An econometric model of coffee price dynamics is specified and estimated to capture the evolution of coffee prices at the farm, wholesale and retail levels. It investigates the historical influence of the International Coffee Agreement (ICA) through its effects on yield and planting decisions. In the short run, the ICA caused Brazilian farm prices to become disconnected from international prices. The ICA helped coffee producers to better incorporate current world price information into planting decisions. This created a price cycle that did not exist in non-ICA periods. The low coffee prices experienced since the disintegration of the ICA are consistent with low supply response to price information. Asymmetric price transmission at the retail level helped roasters and retailers benefit from upstream price interventions. Our results urge caution when considering future coffee price interventions.

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File URL: http://purl.umn.edu/201444
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Paper provided by University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group in its series Working Papers with number 201444.

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Date of creation: Dec 2008
Handle: RePEc:ags:uwfswp:201444
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  1. Durevall, Dick, 2005. "Demand for Coffee: The Role of Prices, Preferences and Market Power," Working Papers in Economics 162, University of Gothenburg, Department of Economics.
  2. Bohman, Mary & Jarvis, Lovell & Barichello, Richard, 1996. "Rent Seeking and International Commodity Agreements: The Case of Coffee," Economic Development and Cultural Change, University of Chicago Press, vol. 44(2), pages 379-404, January.
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  8. Varangis, Panos & Siegel, Paul & Giovannucci, Daniele & Lewin, Bryan, 2003. "Dealing with the coffee crisis in Central America - impacts and strategies," Policy Research Working Paper Series 2993, The World Bank.
  9. Takamasa Akiyama & John Baffes & Donald Larson & Panos Varangis, 2001. "Commodity Market Reforms : Lessons of Two Decades," World Bank Publications, The World Bank, number 13852, September.
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  13. Bettendorf, L & Verboven, F, 2000. "Incomplete Transmission of Coffee Bean Prices: Evidence from the Netherlands," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 27(1), pages 1-16, March.
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  15. Gilbert, Christopher L., 1987. "International commodity agreements: Design and performance," World Development, Elsevier, vol. 15(5), pages 591-616, May.
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