A Real Option Analysis applied to the production of Arabica and Robusta Coffee in Ecuador

Jacomé Gagñay, Andrés Renato and Garrido Colmenero, Alberto (2017). A Real Option Analysis applied to the production of Arabica and Robusta Coffee in Ecuador. "Spanish Journal of Agricultural Research", v. 15 (n. 1); pp. 1-12. ISSN 1695-971X.

Description

Title: A Real Option Analysis applied to the production of Arabica and Robusta Coffee in Ecuador
Author/s:
  • Jacomé Gagñay, Andrés Renato
  • Garrido Colmenero, Alberto
Item Type: Article
Título de Revista/Publicación: Spanish Journal of Agricultural Research
Date: 2017
ISSN: 1695-971X
Volume: 15
Subjects:
Faculty: Centro de Estudios e Investigación para la Gestión de Riesgos Agrarios y Medioambientales (CEIGRAM) (UPM)
Department: Otro
Creative Commons Licenses: Recognition - No derivative works - Non commercial

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Abstract

The coffee market is distinguished for being volatile and uncertain in terms of domestic and international prices. Arabica and Robusta coffee are produced in 23 provinces of Ecuador. A decade-long decline of coffee production prompted the Ecuadorian government to launch a public program for replanting coffee trees towards the end of 2011. A grower’s decision to enter, remain in or exit the coffee sector is based on fluctuating profits from each year’s harvest sale. We analyzed the hypothesis whereby the coffee grower’s decision to leave the sector is explained by volatile and uncertain prices. This paper aimed to evaluate the coffee sector with an application of Real Option Analysis for the period 2002-2012. We also defined entry (H) and exit (L) prices for Arabica and Robusta coffee for the analyzed period. Our findings revealed high H and L prices encourage growers to leave the sector for the most part of the analyzed period. High H and L prices resulted from high variable cost due to increasing wages for farm workers. The Ecuadorian government is developing a policy to help growers make production more efficient, encouraging them to remain in the sector in the long run.

More information

Item ID: 46470
DC Identifier: http://oa.upm.es/46470/
OAI Identifier: oai:oa.upm.es:46470
Official URL: http://revistas.inia.es/index.php/sjar/article/view/10098
Deposited by: Memoria Investigacion
Deposited on: 27 Jul 2017 14:00
Last Modified: 27 Jul 2017 14:00
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