Coffee prices stabilization in Kenya as a policy option
The volatility of agricultural commodity prices has been a major concern in most developing countries whose economies depend heavily on agriculture. Volatility of commodity prices exposes producers, traders and consumers to price risks which if not mitigated upon can adversely affect their incomes, trade margins and costs. At macro-economic level, commodity price volatility can cause fluctuations in macro-economic variables (such as exchange rate) and overall balance of payment position. This paper makes an analysis of international and Kenyan coffee prices determination and evolution with a view of discerning past trends and their implications on formulation of a coffee price risk management strategy in Kenya. Using historical volatility analysis, coffee prices world-wide are shown to exhibit high volatility especially after the withdrawal of the quota system under the International Coffee Agreement in 1989. The coffee prices prevailing at the Nairobi Coffee Auction have been shown to exhibit even higher volatility as compared to international prices. The volatility of auction prices increased by 63 percent after the liberalization of the economy and the coffee industry. This high volatility of prices calls for a coffee price risk management strategy. The paper reviews various coffee price risk management strategies. Initiation of a price stabilization fund and trading in coffee futures have been identified as possible risk management strategies which the coffee industry in Kenya can use. Development of agricultural credit to enable coffee farmers smooth their consumption expenditure together with the establishment of an effective price information service have also been identified as crucial complementary mechanisms. Finally, the paper identifies the need to quantify the costs and benefits of each of the possible risk management strategies to ensure maximum benefits of various stakeholders in the coffee industry.
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| Format: | biblioteca |
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| Subjects: | CAFE, PRECIOS, POLITICA DE PRECIOS, KENIA, |
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