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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