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Unravelling the underlying causes of price volatility in world coffee and cocoa commodity markets

Author

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  • Maurice, Noemie
  • Davis, Junior

Abstract

In recent years, Commodity Dependent Developing Countries (CDDCs) have faced multiple global food, energy and climate crises, compounded by the recent financial and economic crises, which have increased their vulnerability to excessive price volatility in commodity markets. Moreover, structural vulnerabilities in most CDDCs render their economies more vulnerable to increased commodity market turbulence than developed countries, given their comparatively lower income and high dependence on commodity exports. This paper aims to empirically examine the patterns and underlying causes of excessive price volatility for two major soft commodities of critical importance to many of the poorest CDDCs: coffee and cocoa. It aims to identify interactions, similarities and causalities between coffee and cocoa prices on the one hand and, oil and futures prices on the other hand. Our analysis of coffee and cocoa historical prices shows that, coffee price volatility has uneven or varied impact depending on the nature of the market shock. Oil price spillover effects on coffee and cocoa markets are also assessed using cointegration and error-correction models. Long-run causality is found between oil prices, and coffee and cocoa prices but, only cocoa has an equilibrium relationship with oil in the long-term. Given the results, this study proposes some policy recommendations for managing price risk and addressing regulation in cocoa and coffee exporting countries.

Suggested Citation

  • Maurice, Noemie & Davis, Junior, 2011. "Unravelling the underlying causes of price volatility in world coffee and cocoa commodity markets," MPRA Paper 43813, University Library of Munich, Germany, revised 2012.
    • Handle: RePEc:pra:mprapa:43813
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    References listed on IDEAS

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    Cited by:

    1. Saralees Nadarajah & Emmanuel Afuecheta & Stephen Chan, 2015. "GARCH modeling of five popular commodities," Empirical Economics, Springer, vol. 48(4), pages 1691-1712, June.
    2. To Thi Kim Hong, 2015. "Effect of exchange rates and gasoline price on export price of Vietnamese coffee," HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE - ECONOMICS AND BUSINESS ADMINISTRATION, HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE, HO CHI MINH CITY OPEN UNIVERSITY, vol. 5(2), pages 29-36.
    3. Blake, Daniella & Dawson, Carolina & Loeillet, Denis & Staver, Charles, 2018. "Can Global Climate Change affect Prices in the World Banana Market?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 67(01), March.
    4. Bruno G. Rüttimann, 2016. "Modelling financial type 2b globalisation and its effects on trade, investments and unemployment," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 6(2), pages 176-191.
    5. Tadahiro Nakajima, 2014. "Price Formation of Coffee Beans: New Evidence from the Japanese Market," Research in World Economy, Research in World Economy, Sciedu Press, vol. 5(2), pages 23-30, September.
    6. Tiziano Distefano & Guido Chiarotti & Francesco Laio & Luca Ridolfi, 2018. "Spatial distribution of the international food prices: unexpected randomness and heterogeneity," SEEDS Working Papers 0118, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Jan 2018.
    7. Sephton, Peter S., 2019. "El Niño, La Niña, and a cup of Joe," Energy Economics, Elsevier, vol. 84(C).
    8. Benoit Beila MALAN, 2013. "Volatility and stabilization of the price of coffee and cocoa in Côte d'Ivoire," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 59(7), pages 333-340.

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    More about this item

    Keywords

    Commodity price volatility; financialization; error correction modelling; cointegration theory; commodity dependent developing countries; least developed countries;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances

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