Price Transmission and Adjustment in the Ethiopian Coffee Market

This study focused on the interrelationships among producer, auction and world prices. In so doing, it criticized previous studies and extended technique developed by Hansen (1999) to handle inferential biases occurring as a result of specification errors. The following results were found: unidirectional transmission of shocks from the world price to the auction price and then to the producer price; asymmetries in price transmissions and adjustments in the auction market; weak interrelationship between producer and world prices causing producer price to be less responsive to changes in the world prices. In general, results imply that coffee growers’ benefit little from positive changes in the world price compared with participants in the auction markets. This is true given the presence of information asymmetry in the coffee value chain characterized by increasing level of market concentration.