Demand Analysis of Ethiopian Coffee in Japan

Abstract

     Ethiopia is the largest coffee producer in Africa. One of the major markets for Ethiopian coffee is Japan. This paper, therefore, analyzed the determinants of demand for Ethiopian coffee in the Japanese market. The Linear Approximate Almost Ideal Demand System (LA/AIDS) model was used to estimate a system of expenditure share equations for Ethiopian coffee and its competitors. Quarterly time series data from 1988 to 2009 were obtained for the analysis. Empirical results indicated that most of the slope coefficients were statistically significant and in accordance with microeconomic theory. The demand for Ethiopian coffee was determined by its price, price of substitutes, the contamination dummy variable, and total expenditure in the Japanese market. Ethiopian coffee demand was found to be elastic and this has an implication in pricing policy.