Institutions in the Mexican coffee sector : changes and responses

Keywords: Cooperation, contract arrangements, traders´ performance, market uncertainty, diversification, coffee, Mexico.

The main aim of this thesis is to investigate the institutional environment prevailing in the Mexican coffee sector and its effect on the producers, traders and households. Specific topics we examine are the contract arrangements and trade performance, the factors influencing the growers´ willingness to join a cooperative, the effects of cooperation on price variability, the influence of cooperation on the growers’ welfare, and coffee producers’ response to the falling coffee price through their engagement in diversification activities. To accomplish the main objectives we have used primary and secondary data. We applied ordinarily least squares, logistic, probit and multivariate probit regressions in the analysis. The main findings indicate that farmers were better off under the quota system than they are under the free market. Results also indicate that being a roaster and selling cherry coffee negatively affects traders’ use of contracts, whereas being vertically integrated has a positive effect on contracting. On the other hand, selling cherry coffee, participating in a competitive environment and having contracts positively influence intermediaries’ performance. Other results show that some individual, family and farm factors, as well as variability of the coffee price at the municipal level favour cooperative affiliation; whereas housing conditions, the proportion of farmers in the municipality and the level of producers selling to intermediaries at the municipal level negatively affect prospects for cooperative membership. We discovered overall positive effects of cooperative participation on household welfare through an increase in the price and total coffee income; results also indicate that households responded to the low coffee price periods with an increase in diversification.