FEEM working papers "Note di lavoro"
2016.073
Date: 18/11/2016

Economic Impacts of El Niño Southern Oscillation: Evidence from the Colombian Coffee Market


Authors:
Andrea Bastianin (University of Milan); Alessandro Lanza (Euro-Mediterranean Center on Climate Change); Matteo Manera (University of Milan-Bicocca, Fondazione Eni Enrico Mattei)
JEL n.: C32, O13, Q02, Q11, Q54
Keywords: Coffee, Colombia, El Niño, ENSO, La Niña, Structural VAR

Abstract

We develop a structural econometric model to study the impacts of El Niño Southern  Oscillation (ENSO) on Colombian coffee production, exports and price. Our empirical specification is consistent with an economic model of the coffee market that, in the short-run, is characterized by a downward-sloping demand curve and by a vertical supply curve. This allows the study of the effects of unpredictable innovations to ENSO on the Colombian coffee price, while controlling for shocks arising from both the supply and the demand-side of the market. We show that El Niño events (i.e. positive shocks to ENSO) might be beneficial for production and exports and tend to decrease the price of coffee. On the contrary, La Niña conditions (i.e. negative shocks to ENSO) depress coffee production and exports and increase price. However, the overall impact of ENSO shocks is small. In the short-run, ENSO shocks explain 2% of the fluctuations of coffee production and 0.2% of the variability of the price of coffee. In the long-run, these percentages rise to 8% and 6%, respectively. Both in the short-run and in the long-run, demand-side shocks are more relevant than supply-side shocks in explaining the dynamics of the price of coffee.

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Suggested citation: Bastianin, A., A. Lanza, M. Manera, (2016), 'Economic Impacts of El Niño Southern Oscillation: Evidence from the Colombian Coffee Market', Nota di Lavoro 73.2016, Milan, Italy: Fondazione Eni Enrico Mattei

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