Impacts of the End of the Coffee Export Quota System on International-to-Retail Price Transmission

Abstract

We examine the impact of the end of the coffee export quota system (EQS) on international-to-retail price transmission in France, Germany and the United States. We take account of the existence of long-run threshold effects and short-run price transmission asymmetries (PTAs). We find evidence of threshold effects in both periods (EQS and post-EQS) in all three countries and the presence of short-run PTAs during the post-EQS period in all countries, but not during the EQS period. Our results indicate that the threshold values are smaller in the post-EQS period, suggesting that retail prices became more responsive to changes in international prices. However, the speed of adjustment towards the long-run equilibrium decreases during the post-EQS period in the three countries. In the short run, non-linear impulse response analyses indicate that a shock in international prices was more persistent during the EQS period than in the post-EQS period. Moreover, we find evidence of short-run PTAs in the post-EQS period, with differences across countries. We find support for the 'rockets and feathers' principle in the United States; in contrast, retail prices respond faster when international prices are falling in Germany and France. We explain these differences in terms of market structures. © 2012 The Agricultural Economics Society.