Authors: Andrea Bastianin, Alessandro Lanza, Matteo Manera

We develop a structural Vector Autoregressive model to study the economic impacts of El Niño Southern Oscillation (ENSO) on coffee production, export and price in Colombia.
The econometric model relies on a recursive identification scheme 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 identification scheme allows to study the effects of unpredictable innovations to ENSO on the Colombian coffee industry, while controlling for shocks arising from both the supply and the demand side of the market that are also expected to drive the real price of coffee.

We show that while El Niño events (i.e. positive shocks to ENSO) might be beneficial for coffee producers and consumers, La Niña episodes (i.e. negative shocks to ENSO) tend to reduce the production of coffee and increase its price.
The overall impact of ENSO shocks is however small. In the short-run, ENSO shocks explain 0.7% of the fluctuations of coffee production and 1% of the variability of the real price of coffee. In the long-run these percentages rise to 12% and 4%, respectively. Focusing on the variability of the real price of coffee, we also show that both in the short-run and in the long-run the demand-side shocks are far more important than shocks to the supply coffee.

This seminar has been jointly organized by FEEM and IEFE, Bocconi University.