Files
Abstract
This paper examines the dynamics of real coffee prices received by growers. First, we analyse the long run trends of coffee prices to determine whether producers of coffee are relatively worse off over time as has been suggested by influential reports. Given the biological nature of production of coffee we make conjectures that coffee prices can be characterised by large swings that can last several years, and accordingly, we consider whether prices can be characterised by structural breaks that cause a change in the sign and/or magnitude of the trend. Secondly, given the variability in coffee prices, an important issue for farmers’ is whether any shock to the prices they receive is short-lived or not. To investigate both of these questions, we conduct robust econometric tests and exploit a unique data set for selected countries that grow coffee. We find no evidence of any structural breaks and therefore breaking trends, and little evidence of any significant secular trend. We find mixed results with reference to whether shocks to coffee prices are transitory. The results are informative as they dispel some of the beliefs about trends in farm-gate coffee prices. We conclude by outlining policy implications based on our empirical findings.