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.
