Abstract:
Coffee is a beverage obtained from cherry (coffee beans), which is the fruit of coffee plant. It has been widely used as a beverage but nowadays it is also used as input in some food processing industries. This study aimed to analyzing supply response of coffee to other economic variables in coffee industry in Ethiopia. The main objective of the study is to investigate the response of washed and unwashed coffee supply to the change in export prices during the study periods in Ethiopia. To achieve the objectives of the study secondary time series data for period of 1986-2022 were collected from international coffee organization, Ethiopian commodity exchange, ministry of agriculture, Ethiopia tea and coffee authority. Data obtained from different sources were analyzed using the descriptive analysis, and econometrics models of Nerolover’s supply model that show the response of agricultural output to the change in other variable by using auto regressive lag model (ARDL) in order to analyze the short run and log run relation between the variables. The main findings of the study are total coffee (washed and unwashed) responsiveness to domestic consumption is 0.103 at 5% significant level and is positive which shows that domestic coffee consumption is positively responsive to higher coffee export. Response of unwashed coffee to export price change is -0.89 which also shows that unwashed coffee is responsive to price change. Despite higher price washed coffee earns over and above the unwashed coffee, its response to export price change is much lower and is found to be significant at 5% significant level. This may be because of many reasons among which the major ones are limitedness of quantity of washed coffee produced and on the other hand washed coffee is not consumed domestically. This is because of its higher price therefore the total volume of washed coffee produced is exported or sold for any price offered at the international market even if it is below the price at the local market. The Elasticity Unwashed coffee and washed coffee is 0.087, 0.282 respectively. All are significant at 5%. Domestic consumption was significant for Total Coffee Export and washed coffee at 5%. Exchange rate is significant at 5% washed coffee, while 5% Unwashed coffee. Therefore the government has to work to stimulate washed coffee export as the elasticity of washed is higher than unwashed and properly manage the domestic coffee market since it has positive influence on export
