Conclusion
This paper shows the demand system analysis of coffees from Ethiopia, Brazil,
Colombia and others group in the Japanese coffee market, especially focusing on the
impact of prices, expenditure and contamination concern on the budget shares of
Ethiopian, Brazilian and Colombian coffee. The Linear Approximate Almost Ideal
Demand System (LA/AIDS) was applied using the SUR method. The quarterly data
from 1988 to 2009 were collected to estimate the model.
Furthermore, Porter‘s diamond model was also employed to assess the
competitiveness of Ethiopia in the international market. When applying this model,
data related to the four determinants of national competitiveness of a country: factor
conditions, demand conditions, related and supporting industries, and firm strategy,
structure and rivalry, have been used. In most cases, proxy variables were employed as
some data that are directly related to coffee production and marketing could not be
obtained.
The estimated elasticities from the LA/AIDS model show that the Japanese
import demand of coffee from Ethiopia, Brazil and Colombia is generally affected
more by their own prices than by cross prices. The own-price elasticities of demand
for coffee from the three countries are close to unity. Moreover, coffee from these
countries is found to be complementary. The expenditure elasticity of Ethiopian coffee
demand is elastic, while those of Brazil and Colombia are inelastic. Generally, the
results from estimating expenditure elasticities show an advantage of Ethiopian coffee
over Brazilian and Colombian coffee in Japan market. As expenditure on coffee
import increases by one percent, the demand for Ethiopian coffee will increase by 1.46 percent, while demands for Brazilian and Colombian coffee will increase by less than
one percent.
Results of the diamond model indicated evidence of highly distorted diamond
for Ethiopia, as compared to that of the competitors, implying that the country‘s future
competitiveness level depends mainly upon the improvement or changes in the
country‘s two determinants of the national competitive advantage: the factor
conditions and the related and supporting industries part of the diamond. This also has
policy implications in the endeavor that the country makes so as to improve its
competitiveness in the world market.