A system dynamics study of instability in the Colombian coffee market

Abstract

The coffee market in Colombia is highly unstable, being moreunstable in the last 20 years (since theremoval of the ICO agreement). During 1980 and 1990 thecoffee price was varying around 8%around a mean and over the last 20 years it has been oscillatingaround 15% to 20% around a mean.The coffee market presents an 8 to 11 years cycle in price andproduction. Coffee market is wellknown for its volatility and for the crisis that producers areconfronting, i.e., poverty, low prices, etc.The main causes for this crisis are the characteristic behaviors ofthe coffee market itself, whichpresents price instability, resource unsustainabillity, and inequityalong the commodity chain(specially for coffee growers), the same characteristics of othercommodity markets. In this paper wefocused on the first of the causes, price instability, and so wecreated a System Dynamics model ofthe Colombian coffee sector that captures the structure of thatmarket, the delays and feedbackspresent on it. With this research we intended to answer thefollowing questions: Why is theColombian coffee market so unstable in price and quantity? Andwhat can be done to reduce theinstability of that market? The model is an adaptation of thegeneric structure, created byMeadows 1970 for commodity markets. We demonstrate thatcycles in Colombia coffee sectorcan be endogenously generated and propose some policies thatmight contribute to dampen thoseoscillations.