DISCUSSION PAPER 06/08
COFFEE COMMODITY CHAIN
Tine S. Olsen and Brett Inder♦
To explain the value added along the coffee commodity chain we propose and
estimate a theoretical model of the coffee commodity chain. The theoretical
model consists of four markets and five agents in the coffee commodity chain
and predicts that prices in the coffee commodity chain move together but are also
influenced by income, technology and production. A vector error correction model
is used to test the theoretical predictions. In addition to the theoretical
conclusions the empirical model confirms the beneficial role of the International
Coffee Agreement and the importance of the level of production in determining
Key words: global commodity chain, vector error correction model, coffee, value
JEL classifications: O01, F02, Q110, C320, F230, F14
Monash University Department of Economics (Olsen), Monash University Department of Econometrics and
Business Statistics (Olsen and Inder). Corresponding author Tine S. Olsen, firstname.lastname@example.org.
© 2008 Tine S. Olsen and Brett Inder
All rights reserved. No part of this paper may be reproduced in any form, or stored in a retrieval system, without
the prior written permission of the author
COFFEE COMMODITY CHAIN
Between being grown and picked by a farmer in a developing country and being consumed,
most often in a developed country, coffee passes through many sets of hands. Inspired by the
global commodity chain literature we here propose a theoretical and an empirical model of the
coffee commodity chain.
We want to find out what determines the value added at each stage of the commodity
chain. The question touches upon the distribution of income among agents and countries in
the commodity chain, the prevailing market structure at each stage of the production process,
trade, bargaining power and other factors... [continues]
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