Three Essays on Coffee Markets

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Krivonos González, Ekaterina
Gardner, Bruce
Among the most prominent contributions of agricultural economists to the development field is the analysis of issues in commodity marketing. The topics include the role of competition among market intermediaries in determining marketing margins, analysis of price risks and the theory of commodity price stabilization. This dissertation consists of three essays on coffee markets that provide empirical evidence on three marketing issues widely debated by development practitioners: the impact of domestic policy on producer prices, the relationship between producer prices and competition among traders, and the use of informal risk management tools by farmers. The first essay evaluates the impact of coffee sector reforms on producer prices in a number of coffee producing countries. With the help of cointegration analysis the essay establishes that the reforms produced a closer relationship between the domestic and world prices. Estimation of an error-correction model reveals that transmission of price signals from the world market to domestic producers has also improved. However, in some countries there is evidence of asymmetry in the way positive and negative world price changes are transmitted to domestic markets. The second paper investigates the role of competition in the marketing sector for prices received by growers in India. In the case of Robusta, the empirical evidence is that competition among traders plays an important role in determining prices to growers, while there is no such evidence for Arabica. Membership in a cooperative has a significant impact on prices in some cases. The analysis also points towards the value of education since those with university education receive higher prices. The choice of marketing intermediary has different implications for prices depending on the type of coffee traded. The third essay concludes that in absence of formal risk hedging instruments risk averse farmers do take actions to reduce income uncertainty: growers that are risk averse are more likely to be members of cooperatives, are less likely to carry over stocks are more likely to default on their loans when prices drop.