Modeling and Forecasting the Export Price of Coffee in Ethiopia

Abstract

Coffee is great significant in world economy as the largest single commodity entering the international trade after petroleum and petroleum products. Coffee has been and remains the leading cash crop and export commodity of Ethiopia. The main objective of this study is to model and forecast export price of coffee in Ethiopia based on the past historical data from July, 2002 to January, 2019 using ARIMAX model.In this study used only secondary data and the data obtained from National bank of Ethiopia (NBE).The variables of interest in this study are export price of coffee, Real exchange rate, food price Index and non food price Index. Unit root test results indicate that the series become stationary at first difference. Among all candidate ARIMAX models, the best model for the series under consideration is ARIMAX (4, 1, 4) for export price of coffee in Ethiopia. Furthermore, Breusch-Godfrey Serial Correlation Lagrange multiplier (LM) test and Jarque-Bera statistic tests are showed that the disturbance terms are white noise and a series is normally distributed. Among the selected variable exchange rate and food price index has significant effect on export price of coffee in Ethiopia. Finally, out of sample forecasts are made using ARIMAX (4, 1, 4) model the result indicates that the export price of coffee has decreasing trend in the future. The government supports to increase the exchange rate and reduced food price inflation of the country in order to increase the export price of coffee in Ethiopia and the export performance of the country.