An Analysis of the World Coffee Market

Fluctuations in the prices of primary commodities have caused variations in the" export earnings of many developing economies. Because their economies have depended heavily on the earnings from those commodities, it is important to understand how prices of primary commodities are determined. This paper offers a theoretical model to explain the behavior of the world coffee market which makes a clear distinction between the inventory market and the flow market for commodities in affecting price. Then, the model is tested empirically to determine its ability to predict market results and to estimate the impacts on the world coffee market of a change in income and prices in the major importing economies