The Ethiopian commodity exchange and the coffee market: Are local prices more integrated to global markets?

Hernandez, Manuel A.; Lemma, Solomon; and Rashid, Shahidur. 2015. The Ethiopian commodity exchange and the coffee market: Are local prices more integrated to global markets? Presented at International Association of Agricultural Economists. 2015 Conference, August 9-14, 2015, Milan, Italy. https://purl.umn.edu/211732

The Ethiopian Commodity Exchange (ECX) was established in April 2008 with the objective of improving market efficiency by better linking smallholder farmers to markets, encouraging reliable trading relationships and increasing market information. In December 2008 it became mandatory to trade all coffee through the ECX. This paper examines whether Ethiopian coffee prices have become more integrated to world prices after the implementation of the ECX. We follow a multivariate GARCH approach to evaluate the degree of correlation and volatility transmission across international, auction and producer price returns. We focus on the five major Ethiopian coffee varieties using monthly data for the period 1992 through 2013. The estimation results indicate that not all coffee regions have necessarily become more connected to world markets, at least not in the first five years after the implementation of the mandatory regulation. We also do not find a higher integration across regional coffee prices Hernandez, Manuel; Lemma, Solomon; Rashid, Shahidur