Demand for coffee by class: the case of Uganda (1994-2024)

Abstract

Uganda’s coffee falls into two main classes, namely Arabic coffee (AC) and Robusta coffee (RC). Given its significant role as a major coffee producer, the local coffee market remains small; even a large increase in coffee consumption domestically will not have a significant influence on global coffee demand and consumption. This study examines the interactions between demand for coffee exports by class on one hand, coffee prices, and expenditures on the other hand, which is important for stakeholders in the coffee trade. The fact that there is a growing demand for Uganda’s coffee by consumers abroad, estimating this demand for coffee, is insightful for importers, exporters, and policymakers. To achieve the central objective of this study, an econometric method based on regression analysis is used. More precisely, it estimates the Rotterdam and Linear Approximation to the Almost Ideal Demand System (LAIDS) models, which are commonly used by most agricultural economists to analyse such interactions. The estimation of both models uses time series data from Uganda’s economy, covering the period 1994-2024. The major findings and their implications indicate that Uganda’s AC is a heterogeneous good, implying that the demand pattern for AC varies by quality, and RC is a homogeneous good, which generates less income from exports. Moreover, the demand for both coffee classes is inelastic, indicates that foreign consumers purchase similar quantities of coffee regardless of price changes, and implying that Uganda’s coffee exporters have greater control over their prices because consumers are less likely to reduce their purchases in response to a price increase. Furthermore, AC and tea are substitute goods, which implies that increased demand for AC exports appeals to niche markets. Finally, AC is an inferior good, which implies that foreign exports demand for it increases during economic depression, while RC is both a normal good and a necessity, thus benefiting from higher RC exports revenue. In this context, this study recommends that exporters should enhance coffee demand by exporting both AC and RC that are of improved quality to increase export value and that future research should be applied in both domestic, and import coffee trade dynamics.