2024, Volume 32, Paper 2
ISSN: 1883-5675
Price Transmission in the Papua New Guinea Coffee Market: A Vector Autoregression Approach
Meizal Popat – Lecturer in Agricultural Economics, Universidade Eduardo Mondlane, Maputo, Mozambique, and former postgraduate student, UNE Business School, University of New England, Armidale
Charles Dambui – Chief Executive Officer, Coffee Industry Corporation Ltd, Goroka, Papua New Guinea, and former postgraduate student, UNE Business School, University of New England, Armidale
Garry Griffith – School of Agriculture, Food and Ecosystem Sciences, University of Melbourne, Parkville, and UNE Business School, University of New England, Armidale
Stuart Mounter – UNE Business School, University of New England, Armidale
Abstract
The coffee sector plays a key role to the Papua New Guinea (PNG) economy, employing over 30 per cent of the population. Crucially, the sector is dominated by smallholder farmers that contribute to more than three-quarters of the country’s total coffee production. Almost all the coffee produced is exported, mainly to countries like Australia, Germany, the United Kingdom and the United States. In recent periods the coffee sector has been struggling, with production reported to be in a steady decline. One the major reasons for this is thought to be poor price transmission from world markets to farmers. In this study, a Vector Error Correction model is used to assess the price transmission between world markets and PNG’s exporters, processors and farmers. Past studies have also analysed the same issue, though relying on different methodologies. The methodology used here can be regarded as an intermediate approach between the previous studies. The same monthly datasets used in past studies, covering the period January 1999 and December 2017, were used here. Although the results reported here essentially corroborate those found in previous studies, two main differences can be highlighted. First, evidence was found in favour of price transmission from world markets to exporters. Due to market integration between exporters and processors and farmers, such price transmission from world markets is also spread through to the upstream actors in the coffee supply chain in PNG. Second, the results point to exporters as the main agents practicing price levelling domestically. That can be perceived as a strategy from exporters to remain competitive in the global coffee market.
Keywords: PNG, coffee, price transmission, VEC
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