Producer price and price transmission in a deregulated Ethiopian coffee market

Coffee producers in Ethiopia have historically received a very small share of the export price of green coffee. Reasons that are often mentioned are heavy government intervention and high marketing and processing costs. Prior to 1992, government regulation of the domestic coffee market in the form of fixed producer prices and the monopoly power of the Ethiopian Coffee Marketing Corporation put a substantial wedge between the producer price and the world price of coffee by imposing an implicit tax on producers. The domestic coffee marketing system in Ethiopia was liberalised after 1992, which was envisaged to have a positive effect on producer prices and price transmission signals from world markets to producers. This paper, with the help of Cointegration and Error-Correction Model (ECM), attempts to analyse its impact. As findings indicate, the reforms induced stronger long-run relationships among grower, wholesaler and exporter prices. The estimation of the ECM shows that the short-run transmission of price signals from world to domestic markets has improved, but has remained weak in both auction-to-world and producer-to-auction markets. This might be explained by the weak institutional arrangement coordinating the domestic coffee system and contract enforcement. In general, the domestic price adjusts more rapidly to world price changes today than it did prior to the reforms. However, there is an indication that negative price changes transmit much faster than positive ones.market deregulation, producer price, price transmission, price asymmetry,

Price Transmission and Adjustment in the Ethiopian Coffee Market

This study focused on the interrelationships among producer, auction and world prices. In so doing, it criticized previous studies and extended technique developed by Hansen (1999) to handle inferential biases occurring as a result of specification errors. The following results were found: unidirectional transmission of shocks from the world price to the auction price and then to the producer price; asymmetries in price transmissions and adjustments in the auction market; weak interrelationship between producer and world prices causing producer price to be less responsive to changes in the world prices. In general, results imply that coffee growers’ benefit little from positive changes in the world price compared with participants in the auction markets. This is true given the presence of information asymmetry in the coffee value chain characterized by increasing level of market concentration

Producer price and price transmission in a deregulated Ethiopian coffee market

Coffee producers in Ethiopia have historically received a very small share of the export price of green coffee. Reasons that are often mentioned are heavy government intervention and high marketing and processing costs. Prior to 1992, government regulation of the domestic coffee market in the form of fixed producer prices and the monopoly power of the Ethiopian Coffee Marketing Corporation put a substantial wedge between the producer price and the world price of coffee by imposing an implicit tax on producers. The domestic coffee marketing system in Ethiopia was liberalised after 1992, which was envisaged to have a positive effect on producer prices and price transmission signals from world markets to producers. This paper, with the help of Cointegration and Error-Correction Model (ECM), attempts to analyse its impact. As findings indicate, the reforms induced stronger long-run relationships among grower, wholesaler and exporter prices. The estimation of the ECM shows that the short-run transmission of price signals from world to domestic markets has improved, but has remained weak in both auction-to-world and producer-to-auction markets. This might be explained by the weak institutional arrangement coordinating the domestic coffee system and contract enforcement. In general, the domestic price adjusts more rapidly to world price changes today than it did prior to the reforms. However, there is an indication that negative price changes transmit much faster than positive ones