Economic impacts of El Niño Southern Oscillation: evidence from the Colombian coffee market

Bastianin, Andrea and Lanza, Alessandro and Manera, Matteo (2018): Economic impacts of El Niño Southern Oscillation: evidence from the Colombian coffee market. Published in: Agricultural Economics , Vol. 49, No. 5 (2018): pp. 623-633.

Abstract

El Niño Southern Oscillation (ENSO) is a naturally occurring phenomenon that affects weather around the world. Past ENSO episodes have had severe impacts on the economy of Colombia. We study the influence of ENSO on Colombian coffee production, exports, and price. Our structural econometric specification is consistent with an economic model of the market for Colombian coffee which, in the short run, is characterized by a downward-sloping demand curve and by a vertical supply curve. We show that El Niño (i.e., positive shocks to ENSO) is beneficial for Colombian production and exports and decreases the real price of Colombian coffee. On the contrary, La Niña (i.e., negative shocks to ENSO) depresses Colombian coffee production and exports and increases price. However, the overall impact of ENSO shocks is small. Both in the short run and in the long run, shocks to international demand for Colombian coffee are more relevant than supply-side shocks in Colombia in explaining the dynamics of the price of Colombian coffee. Our results suggest that a given coffee price shock can have beneficial, detrimental, or negligible effects on the Colombian economy, depending on its underlying cause. As a consequence, policy responses to coffee price shocks should be designed by looking at the causes of the shocks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Coffee; Colombia; El Niño; ENSO; La Niña; Structural VAR
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q02 - Commodity Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q11 - Aggregate Supply and Demand Analysis ; Prices; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming

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