The impact of market reform programmes on coffee prices in Tanzania

MSc-Thesis in agricultural EconomicsThe Research investigates the effect of collapse of international coffee agreement (ICA) and liberalization of coffee marketing in Tanzania on coffee prices. The motivation for this analysis is that the ICA regulatory system reduced price volatility by encouraging the build-up of stocks during surplus years and its demise meant allowing coffee prices to vary based on the market forces of supply and demand. Also the purpose of liberalizing coffee marketing in Tanzania was to enhance market efficiency and increase prices paid to domestic producers. Since the liberalization of coffee markets occurred after the collapse of the ICA there is a possibility that prices paid to domestic producers were higher but more volatile after the reform. This hypothesis is tested using descriptive and inferential statistics in conjunction with an ARCH-M model. Data used are time series for producers’ prices in Tanzania and were obtained from the International Coffee Organization. Results show that there was a significant decline in coffee prices after the collapse of the ICA and market liberalization. Results also show that the volatility did not persist over the entire post-liberalization period. To mitigate these problems there is a need to: improve coffee quality through harnessing the support in training and knowledge transfer provided by certified exporters, the public sector and international co-operation