Measuring and Assessing Distortions in Coffee Commodity System: The Case of Jimma, Ethiopia
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Date
1997-06
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A.A.U
Abstract
The main objective of this study is to measure and assess distortions in coffee commodity
system. To meet this end, both cross-sectional and time series data were collected and
analyzed. Both dynamic and static analysis indicated that there have been some distortions
in coffee commodity system which inhibit coffee producers from maximizing profit from coffee
production. The time series analysis revealed that although there is a tendency for farmgate
prices to move toward its border prices, the speed of adjustment is very low. High share of
coffee in agricultural GDP contributed to this slow adjustment rate by inviting extensive
government intervention into the sector. on the other hand overvaluation of the exchange rate
and high share of coffee in total export adversely affected the short run transmission of the
border price to farmgate price and long run rate of price protection respectively. PAM as
a method of quantifying distortions and their effects on private and social profitability
uncovered that coffee producers were making a meagre profit in 1988189 while exporters
were receiving high profit. These situations were reversed in 1995196 owing to the policy
reform. Coffee farmers have responded to the increased price (coffee) by planting more
coffee, more use of hired labour etc. on the other hand devaluation and removal of subsidies
caused the price of imported inputs to increase to unaffordable level. As the result farmers
stopped spraying against CBD which might be the cause for insignificant coffee yield
difference between the periods before and after there form . land, labour, extension services.
and education were investigated to be the important determinants of coffee production in our
study area. As to the allocation of these inputs are concerned the farmers of the study area
have allocated their land efficiently while labor was not. Shortage of labor and risk aversion
behavior of the farmers may result in sub-optimal use this input. Lastly based on the
empirical result of the study , we recommend that the government should make a necessary
effort to reduce direct tax from coffee, diversify export, reduce cost of fungicides, improve
labor market and give premium for good quality coffee.
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Keywords
Assessing Distortions, Coffee Commodity System