Testing vertical price transmission for Vietnam's Robusta coffee

Abstract

Vietnam has undergone market reforms over the last three decades; and as a consequence, the coffee sector has become increasingly market-driven. The success of the government's liberalisation policies in terms of market efficiency is investigated by examining the transmission of both positive and negative price changes for Robusta coffee between export and farmgate prices. We used a threshold vector error correction model and high-frequency daily data. The primary result here is that of a symmetric price transmission between export and farm-level prices. This result holds when tested with weekly price data, derived from the daily data. Farmgate prices respond faster to decreases than increases in export prices when the long-run deviation exceeds a certain threshold. These price changes are transmitted within several days. This research also confirms the importance of transaction costs, and other price frictions mostly ignored in prior analyses for coffee.