Response of Coffee Supply to Change in Export Price for Washed and Unwashed Coffee of Ethiopia

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Addis Ababa University


In this study supply response to economic variables was analyzed for the coffee industry in Ethiopia. The main economic variables studied in the supply response analysis were Production of coffee in Ethiopia and the rest of the world, coffees own price, the exchange rate and domestic consumption. Three supply response models were estimated, the first one allowing separate estimation of the effects of change in export price on supply of total coffee export (washed and unwashed coffee together) and the second and the third models were estimated to see the separate response of washed and unwashed coffee supply to change in export price. Data on production, consumption exchange rate and unit price were pooled to enable significance tests to detect differences in response between the washed and unwashed coffee. The main findings of the study are as follows 1. Total coffee (washed and unwashed) responsiveness to two time lagged price is .27 at 5% significant level and is positive which shows that coffee is fairly responsive to higher prices. 2. Response of unwashed coffee to two time lagged export price change is 0.24 which also shows that unwashed coffee is responsive to price change. 3. Despite higher price washed coffee earns over and above the unwashed coffee, its response to export price change is much lower and is found to be insignificant even at 10% significant level. This may be because of many reasons among which the major ones are, on the one hand limitedness of quantity of washed coffee produced and on the other hand washed coffee is not consumed domestically because of its higher price therefore the vi total volume of washed coffee produced is exported or sold for any price offered at the international market even if it is below the price at the local market. 4. There appears to be a lagged response of supply of coffee to price change and a two years lag of export price is found to have significant effect on supply. 5. Neither of the priori assumed factors that affect supply of coffee to the export market such as domestic consumption, world coffee supply and exchange rate are found significant.



Coffee Supply to Change in Export Price for Washed