Long Black: Export Controls as a Means of Addressing Coffee Price Instability

Long Black: Export Controls as a Means of Addressing Coffee Price Instability

The global coffee market is characterised by repeated long term price declines interspersed with positive spikes. Numerous solutions to the coffee price instability have been suggested. Ultimately, diversification away from coffee production is likely to be necessary, but some form of supply constraint has been proposed as a means of raising incomes for many poor producers in times of significant price falls. Given the demand for coffee is fairly unresponsive to changes in retail prices, limiting production of raw coffee is likely to raise revenues to producers globally and perhaps even to those limiting their production. Without necessarily advocating this approach, in this paper we estimate the likely changes in coffee prices and export revenues under various supply reduction scenarios to provide policy makers with an illustration of the order of magnitude of the benefits that might accrue to coffee exporting countries. Results indicate that, assuming export controls could be implemented as envisaged, a 10 per cent reduction of exports in the four major producing countries is likely to increase world prices by 17 per cent and increase these countries` export revenues by 6 per cent in the long run. Other coffee exporters would increase their exports and therefore would gain proportionally more. Further gains would result from the additional production of alternative crops.