Empirical Study on Interdependence of Coffee Futures Prices and Farm Gate Prices in Major Coffee Producing Countries

Abstract

Coffee is an export-oriented commodity for producing countries, and it is actively traded at international commodity exchange platforms viz., Intercontinental Exchange (ICE), New York and ICE Europe. This study examined the interrelationship between futures and farm gate coffee prices in major coffee producing countries. The study substantiates the presence of a stable long-run relationship between ICE coffee futures prices and farm gate prices (spot prices) in top coffee producing countries, inferring that both futures and spot prices react to the same set of market information. While, there is an indication of equilibrium between ICE Coffee futures (New York) and Arabica producer prices (at farm gate level) & ICE Coffee futures (Europe) and Robusta producer prices (at farm gate level). According to the study results, farm gate prices in Honduras, India and Uganda were dependent on ICE Futures prices, while Arabica farm gate prices in Brazil have substantial influence on the ICE New York futures price. The study results reveals that, Brazil with the lion share in global arabica coffee production, is the price maker in the international market. While, India and Uganda with the low share in global coffee production are basically ‘price takers’ rather than ‘price makers’ in the international market.