The welfare gain from eliminating coffee price volatility: the case of Indian coffee producers

Sushil Mohan, Firdawek Gemech, Alan Reeves, John Struthers

Research output: Contribution to journalArticlepeer-review

Abstract

It is commonly felt that the liberalisation of commodity markets has increased the exposure of commodity producers to price volatility. Using a generalized autoregressive conditional heteroskedasticity framework, we make a distinction between the predictable and unpredictable components of volatility, the latter exposing producers to price risk. By using empirical estimates of the coefficient of relative risk aversion drawn from the literature, we show that the welfare gain from eliminating this price risk for Indian coffee producers is on average 4.8 percent of their revenue from coffee sales, which for a poor producer may be more than a month’s income. This underlines the need for providing producers access to suitable price-risk management or hedging mechanisms.
Original languageEnglish
Pages (from-to)57-72
Number of pages16
JournalThe Journal of Developing Areas
Volume48
Issue number4
DOIs
Publication statusPublished - 14 May 2014

Keywords

  • India
  • coffee producers
  • price volatility
  • risk aversion
  • welfare loss
  • GARCH

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