MSc-Thesis in agricultural Economics
The 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.