The Determinants of the Demand for Internationally Traded Primary Commodities: the Case of Coffee in Kenya

Abstract

The objective of this paper is to develop and estimate determinants of coffee demand in the world market, by considering ways of reducing the variation in coffee exports to major coffee importing countries. The study focuses on real exchange rate as a policy variable, coffee prices and those of coffee substitutes. Real exchange rate was computed on bilateral level. Five major coffee importing countries \vere chosen on the basis of their importance as Kenya's coffee impcrters. The analysis was at a disaggregate level dealing with one commodity (coffee) and on a bilateral basis. Data used was annual data covering the period 1963 to 1991. Chapter one highlights the problem of volume of coffee export variation and its effects on the economy. Chapter ~o reviews both the empirical and theoretical literature surrounding the area of coffee and pri~ary commodities demand determinants in the world market. Based on the literature reviewed in chapter.two, an empirical model is ~ developed in chapter Three. A usual commodity demand' modecl Chapter Four highlights the data type and sources as well as presenting the regression results of the model developed In chapter three. In chapter Five, we summarize the findings and make some policy implications of the study arising from the analysis of the results in chapter four. We also discuss the limitations of the study and areas of further research.