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The standard approach to modelling the relationship between world and producer prices of coffee does not incorporate the effects of changing government policies and market structures. These changes have led to large structural breaks in the relationship between the prices implying the standard estimates are biased. We model coffee prices in Brazil, Guatemala and India allowing for the structural breaks and show that the liberalisation of coffee markets has benefited producers substantially both in terms of a higher share of the world price of coffee and higher real prices. This suggests that calls to re-regulate coffee markets may be misplaced. Copyright 2012, Oxford University Press.

The Central America region is a small market. The region contains around 43 million inhabitants (0.6 percent of total world population) who generate around 0.25 percent of the world's Gross Domestic Product (GDP). While the region has successfully embarked on a regional integration agenda and has strong commercial links with the US, extra-regional trade-mainly with large fast-growing emerging economies-remains a challenge. Export performance is analyzed along three dimensions that, together, give a fairly comprehensive picture of competitiveness: 1) the composition, orientation and growth of the export basket; 2) the degree of export diversification across products and markets; and 3) the level of sophistication and quality of their main exports. This analysis allows exports dynamics at the different margins of trade (intensive, extensive, and quality) to be evaluated and individual countries' to be benchmarked with peers in the Central American region. The results of this report allow policy makers to identify key areas to explore in the overall discussion of export competitiveness in the Central American region. This paper relates to the literature on challenges and opportunities that trade liberalization can bring to the Central American region. Much of the recent literature focuses on the role of the free trade agreement negotiated by Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua, with the US.

All ACP Agricultural Commodities Program, European Commission, ACP Group of States Despite losing global market share over the last 20 years, Uganda remains a major coffee producer, accounting for approximately 2.5 percent of global coffee production. In 2008-2009, coffee exports accounted for almost a quarter of Uganda's formal export earnings and were estimated to generate income and employment for up to 1.3 million Ugandan households. As such, the coffee industry is extremely important to both the rural population and the Ugandan economy. However, the sector exhibits significant levels of production volatility, caused in part by unmanaged risks. Despite the occurrence of numerous risks, the sector has always managed to produce significant, albeit variable, volumes of coffee for export, but the historic resilience of the sector does not automatically imply that the industry will avoid longer-term decline if it fails to proactively manage potential risks going forward. The government of Uganda and the Uganda Coffee Development Authority (UCDA) has already implemented a number of initiatives and programs to mitigate some of the above-mentioned risks. However, many of the existing initiatives need to be strengthened, and some new activities added, to ensure insofar as possible the comprehensive management of all key risks facing the coffee supply chain. An in-depth evaluation of individual solutions was beyond the scope of this exercise; an exhaustive listing of potential risk management solutions, and an assessment of the cost-benefit ratio of different risk management options, needs to be undertaken by the government of Uganda and UCDA.

Price is the most critical factor in determining the way markets function. In a perfect market a price shock is transmitted to other vertically or horizontally connected markets within a given period of time. However, when markets do not function perfectly the speed and the magnitude of price transmission may be hampered. State controlled agricultural commodity markets prevent efficient price transmission, as a result, producer prices cannot not reflect world prices. Many developing countries have implemented measures to improve price transmission through agricultural market liberalisation policies and providing incentives for farmers. However, instead of prices being transmitted symmetrically, monopoly or oligopoly markets,government policies and high transaction costs may lead to asymmetric price transmission. The lead firms in commodity value chains tend to become reluctant to pass on prices that squeeze their margins. As a result, producers may not benefit from consumer price increases and similarly, consumers may not benefit from producer price decreases. This study takes a look at these issues in the analysis of coffee producer prices for Zambia and Tanzania. Coffee is an important export commodity in both of these countries and contributes significantly to the creation of foreign exchange and employment even if the total production is relatively low. Both countries have liberalised their coffee markets during the economic reforms of the late 1990s to differing extents. The effects of these reforms on coffee price transmission, price volatility and on coffee supply response are examined in this study.This dissertation consists of four papers that investigate various aspects of coffee markets for Zambia and Tanzania. First, the study investigates coffee value chains in both countries, paying attention to the governance structure and its implications for producer prices. Second, price transmission between coffee world prices and producers’ prices in Tanzania and Zambia is examined. The third paper examines price volatility in both countries and assesses the impacts of trade liberalisation policies on price volatility. The fourth paper analyses coffee supply response to coffee prices in Zambia.Results for Zambia indicate improved price transmission after the implementation of economic reforms. As expected, the transmission is asymmetric where price decreases are passed on quicker than price increases. In the case of Tanzania, results do not show any improvements after the economic reforms. Similar results are obtained from the volatility study where economic reforms led to an increase in coffee price volatility in Zambia, with negative shocks inducing more volatile prices than positive shocks. However, in Tanzania the inconsistent market reforms have had no significant effects on coffee price volatility. The study of coffee supply response for Zambia shows that in the long-run, coffee prices have negative although insignificant impacts on supply. This could be related to the fact that as a perennial crop supply tends to reach the market when prices are on the decline. However, in the short-run,coffee supply response changes are only significant for price decreases, indicating that coffee supply falls faster than it rises with respect to price changes. On the other hand, supply responds negatively to a stronger local currency and to price of maize,the main competing crop. However, the 1990s economic reforms in Zambia have had positive effect on coffee supply.These findings have important policy implications as they reveal a short and efficient value chain and governance structure that enables the producers to receive larger shares of the final coffee price. In addition, the results discuss favourable policies for improving transmission from world markets to producer prices over the post economic reform period although the transmission remains asymmetric. An efficient price transmission may work to the disadvantage of the growers in the short-run as prices become exposed to volatile world prices, but in the long-run, it may yield the desired outcome. The findings also show the importance of a liberalised currency for increased coffee supply.