The impact of coffee market liberalisation on producer price behaviour in Tanzania
Agricultural commodity price volatility in developing countries is a challenging phenomenon that has attracted attention amongst researchers and policy makers. Although this is a global issue, it has different magnitudes and impacts across countries and amongst commodities. The literature highlights a number of factors for agricultural price volatility. Some of them are driven by global circumstances whereas others are caused by domestic policies and economic settings in particular countries. A major concern about the volatility of agricultural prices is its impact of individual producers and countries' economic performance. In endeavouring to overcome the problem of producer vulnerability to price volatility, a number of measures have been in place over many years. Most of these measures, like stabilization schemes and international commodity agreements, have proved failure. Today, the emphasis seems to have shifted from the failed aggregate measures to market-related instruments, like options and commodity futures. However, producers in developing countries have limited or no access to these instruments due to some restrictions. On the other hand, whereas agricultural market liberalisation has become a global agenda as a way of improving market performance and stabilising prices, its impact and realised benefits differ across countries, and there is a debate about the outcomes of liberalisation. More importantly, as domestic policymakers and international organs like the World Bank endeavour to facilitate the use market instruments to hedge against price risk, the knowledge about the impact of market reforms on price behaviours is vital.This study is about the impact of coffee market liberalisation in Tanzania on the volatility of coffee producer prices and the relationships between producer prices and world coffee market prices. Like other developing countries, the Tanzanian coffee market has been undergoing liberalisation reforms since 1993. Some studies have been conducted on the impact of agricultural liberalisation in Tanzania, but only few of them have focused on coffee prices. Moreover, most of these previous studies produce contradicting results, making the debate about the outcomes of Tanzanian coffee liberalisation inconclusive. Particularly, whereas the link between hedging strategies and price behaviours is inseparable, there is no evidence of any study about the impact of the Tanzanian coffee market liberalisation on coffee producer price behaviours.
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