A Stochastic Policy Simulation of the World Coffee Economy

The paper analyzes the structure of the world coffee market and suggests policies that stabilize the export earnings of coffee‐exporting countries. The major cyclical characteristics of the coffee economy may be explained by a simultaneous equation model, which considers the lagged response of supply to price. The most successful policies include the development of rapidly maturing trees and the imposition of a quota on exports, both of which are effective in modifying the long‐run cycle. A buffer stock policy is shown to be effective in eliminating short‐run fluctuations, given sufficient resources.