Real Exchange Rate Price and Agricultural Supply Response in Ethiopia: The Case of Perennial Crops

"In this study the relationship between RER, price and supply response of coffee is described in detail. The objective is to see if devaluation affects RER agricultural price and supply of coffee—a perennial crop that is the major source of foreign exchange of Ethiopia. After developing a model of perennial crop supply, panel data were gathered from small-scale farmers. Both descriptive statistics as well as the econometric estimates (where fixed effect model was applied) showed that there was positive response for both the short run and the long run. In the former farmers were able to increase yield through increased use of labour and fertilizer on existing stock of trees. There was also an increase in the uprooting of old trees and replacing them by new ones, as well as the use of extra acreage at the expense of other perennials and annuals."