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A Structural Model of the International Coffee Sector

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A Structural Model of the International Coffee Sector A STRUCTURAL MODEL OF THE INTERNATIONAL COFFEE SECTOR: AN ECONOMETRIC INVESTIGATION _____________________________________ A Thesis presented to the Faculty of the Graduate School at the University of Missouri – Columbia ______________________________________ In Partial Fulfillment of the Requirements for the Degree Master of Science _______________________________________ by ROBERT DALE MALTSBARGER Dr. Abner W. Womack, Thesis Supervisor December 2011 The undersigned, appointed by the Dean of the Graduate School, have examined the thesis entitled A STRUCTURAL MODEL OF THE INTERNATIONAL COFFEE SECTOR: AN ECONOMETRIC INVESTIGATION Presented by Robert Dale Maltsbarger A candidate for the degree of Master of Science And hereby certify that in their opinion it is worthy of acceptance _______________________________________ Professor Abner W. Womack _______________________________________ Professor Michael Monson _______________________________________ John Kruse, PhD. ACKNOWLEDGMENTS I would like to express appreciation to all of the individuals that helped make the completion of this thesis possible. I would like to thank my committee members, Dr. Abner Womack, Dr. John Kruse and Dr. Mike Monson for all of their advice, comments and critiques which were necessary in the process of these efforts. I wish to thank my thesis supervisor, Dr. Abner Womack, for his interest in my understanding of the underlying theory and the application of my thesis topic to that theory. His dedication to ensuring my comprehension of model structure and behavioral relationships allowed me to follow-through the process to completion and exponentially expanded my comprehension of structural econometric relationships. Also, Dr. Womack’s positive attitude as well as his well sown seeds of encouragement helped to keep my motivation despite the overwhelming tasks of pulling all of the work together. I owe special gratitude to Dr. John Kruse, who gave me the opportunity to come back into the fold of agricultural economics. Dr. Kruse first extended me the opportunity to work under his tutelage in the private sector, where I developed my understanding of applicable econometrics mixed with endogenous industry knowledge pushing me through the steps to provide the basis to create this study. Within the context of mutual motivation to create a reasonable and working econometric model of the international coffee sector, I was introduced to a project idea that led me down the road to not only thesis completion, but to an industry and econometric theory expertise few economists ever receive. In concert with Dr. Kruse’s help I was introduced into a mentor relationship with Dr. Womack with whom the progression of this study was integral. ii TABLE OF CONTENTS ACKNOWLEDGMENTS .................................................................................................. ii LIST OF TABLES ........................................................................................................... viii LIST OF FIGURES ........................................................................................................... ix ABSTRACT ........................................................................................................................ x Chapter 1 INTRODUCTION .............................................................................................. 1 The Problem Statement ................................................................................................... 3 Objectives of the Study ................................................................................................... 4 Organization of the Thesis .............................................................................................. 6 Chapter 2 BACKGROUND ON THE COFFEE INDUSTRY ........................................... 8 The Story of Coffee ........................................................................................................ 8 Relevant Cultivated Coffees ......................................................................................... 11 Coffee Botany ............................................................................................................... 13 Arabica ...................................................................................................................... 14 Robusta ..................................................................................................................... 14 Ecology of Coffee ......................................................................................................... 16 Physical Properties of Coffee .................................................................................... 17 From the Bean to the Cup ............................................................................................. 18 Planting ..................................................................................................................... 18 Harvesting Methods .................................................................................................. 20 Field Processing ........................................................................................................ 21 The Roasting Process ................................................................................................ 24 Making Coffee .......................................................................................................... 25 iii Cup Tasting ............................................................................................................... 25 Use of Coffee- Variety Comparison ......................................................................... 26 Chapter 3 AGRICULTURE POLICY .............................................................................. 29 Chapter 4 THE DATA ...................................................................................................... 34 Supply and Utilization Data .......................................................................................... 34 Price Data ...................................................................................................................... 36 Brazil ......................................................................................................................... 37 Vietnam ..................................................................................................................... 38 Chapter 5 LITERATURE REVIEW ................................................................................. 39 Theoretical .................................................................................................................... 39 Statistical Methods .................................................................................................... 39 Supply ....................................................................................................................... 44 Demand and Consumer Behavior ............................................................................. 50 Price Transmission and Trade Policy........................................................................ 55 Stocks ........................................................................................................................ 57 Specification ................................................................................................................. 59 Other Studies and Elasticities ....................................................................................... 61 Chapter 6 THEORETICAL DEVELOPMENT ................................................................ 65 The Structural Model .................................................................................................... 65 Theoretical Development Underlying Specification of the Behavioral Equations ....... 70 Producer Supply ........................................................................................................ 70 Consumer Demand .................................................................................................... 80 Stock Holding ........................................................................................................... 82 iv Chapter 7 MODEL STRUCTURE, MODEL CLOSURE, AND ESTIMATION TECHNIQUE .................................................................................................................... 87 Model Structure ............................................................................................................ 87 Model Closure ............................................................................................................... 88 Estimation Techniques .................................................................................................. 89 Chapter 8 ESTIMATION RESULTS FOR EQUATIONS .............................................. 91 Brazil ............................................................................................................................. 92 Area Harvested .......................................................................................................... 92 Yield .......................................................................................................................... 93 Domestic Consumption ............................................................................................. 94 Ending Stocks ........................................................................................................... 95 Market Clearing Price ..............................................................................................
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