Modelling Thirty Five Years of Coffee Prices in Brazil, Guatemala and India and the Law of One Price

The standard approach to modelling coffee prices ignores the impact that changes in government policies and market structures has on coffee prices. These changes have led to large structural breaks in coffee prices implying the standard estimates are biased. This paper models coffee princes in Brazil, Guatemala and India allowing for the structural breaks. The estimated model provides a consistent description of coffee prices and shows that liberalisation has benefited producers substantially in terms of a higher share of the world price of coffee. We also show that producers have benefited from higher real coffee prices following liberalisation.