The Pass-Through of International Commodity Price Shocks to Producers' Welfare - Evidence from Ethiopian Coffee Farmers - Research findings and welfare effects

Jul 19, 2026

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International commodity price shocks can substantially affect producers in developing economies, especially where formal consumption-smoothing tools are limited. Using unique household panel data from Ethiopia, the study shows that declines in international coffee prices transmit strongly to consumption for households relying on coffee as a main livelihood source. Price declines also reduce on-farm labor supply, particularly male labor, and shift labor toward non-coffee fields, while off-farm labor is largely unaffected. The consumption decline has significant child-health consequences, lowering children’s weight-for-age and weight-for-height z-scores.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages24

Reading Time1 h 0 min

Introduction

Commodity price volatility and producers in developing countries

Consumption smoothing and risk-sharing

Research approach and novelty: household exposure and panel data

Pub lic Disclosure Authorized Pub lic Disclosure Authorized The World Bank Economic Review, 36(2), 2022, 305–328 [https://doi.org10.1093/wber/lhab020](https://doi.org10.1093/wber/lhab020) Article The Pass-Through of International Commodity Price Shocks to Producers’Welfare: Evidence from Ethiopian Coffee Farmers Hundanol A. Kebede Abstract International commodity price shocks may have large impacts on producers in developing countries. In this paper, a unique household panel data from Ethiopia is utilized to show that a decrease in international coffee price has strong pass-through to the consumption of households that rely on coffee production as a main source of livelihood. It also results in decreases in on-farm labor supply (particularly male labor supply) and induces reallocation of labor towards non-coffee fields, but has negligible effect on off-farm labor supply. The decline in consumption has significant consequences on child malnutrition: children born in coffee-producing households during low coffee price periods have lower weight-for-age and weight-for-height z-scores than their peers born in non-coffee households. JEL classification: O12, O15, I15, I38 Keywords: child health, commodity price shocks, consumption smoothing, Ethiopia, income shocks 1. Introduction What is the effect of frequent booms and busts in international commodity prices on smallholder farmers in developing countries who rely on production of these commodities for their livelihood? This is a particularly relevant question because conventional consumption smoothing options such as bank loans or personal savings are likely to be meagre in these parts of the world. A number of studies show that informal risk-sharing arrangements among members of relatives or communities insure (perhaps imperfectly) household consumption against income shocks (see, for instance, Townsend 1995; Jacoby and Skoufias 1997; Gertler and Gruber 2002; and Fafchamps and Lund 2003), so that temporary income shocks may not necessarily have severe consequences on household consumption. However, some of the shocks that are discussed in these studies are idiosyncratic income shocks, such health or unemployment shocks to Hundanol A. Kebede is Assistant Professor at the Department of Economics, Southern Illinois University, Carbondale, IL, USA. Email: [hundanol.kebede@siu.edu. The](hundanol.kebede@siu.edu. The) author would like to thank the editor and three anonymous referees for their helpful comments. The author would also like to thank Kerem Cosar, James Harrigan, John McLaren, Caglar Ozden, Sheetal Sekhri, and Sandip Sukhtankar for their comments and encouragements. This paper has also benefited from comments received from participants in UVA’s Development workshops. The data underlying this article are available in the article and its online supplementary material. A supplementary online appendix for this article can be found at The World Bank Economic Review website. © The Author(s) 2021 . Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: [journals.permissions@oup.com](journals.permissions@oup.com) Downloaded from [https://academic.oup.com/wber/article/36/2/305/6371000 by LEGVP Law Library user on 08 December 2023](https://academic.oup.com/wber/article/36/2/305/6371000 by LEGVP Law Library user on 08 December 2023) 306 Kebede the household head. The effectiveness of informal risk-sharing against commodity price shocks that are correlated across households in a village is not clear, and is an empirical question. In this paper, unique household level panel data are used to estimate the pass-through of international coffee price shocks on household consumption, labor supply, and welfare in Ethiopia. A number of studies have looked at the effect of commodity price shocks on different outcomes such as child labor and

FAQs

How do international coffee price declines affect household consumption in Ethiopia?

A decrease in international coffee prices shows strong pass-through to the consumption of households that rely on coffee production as their main livelihood.

What happens to labor supply when international coffee prices fall?

Coffee price declines decrease on-farm labor supply, especially male labor, and induce labor reallocation toward non-coffee fields, while off-farm labor supply has negligible effects.

How do commodity price shocks influence child nutrition outcomes?

The decline in consumption has significant consequences for child malnutrition; children born in coffee-producing households during low coffee price periods have lower weight-for-age and weight-for-height z-scores than peers from non-coffee households.

Jul 19, 2026

Upload by Asher