Impact of the US Dollar Index and Crude Oil on Prices of Arabica and Robusta Varieties of Indian Coffee

Abstract

Coffee is one of the largest traded agri-plantation commodities consumed as a popular beverage across the globe. India exports 75% of its coffee to Europe, the USA, and other developed countries; however, prices depend upon multiple factors of national and international importance. This study makes an in-depth analysis of the US dollar, crude oil, International Coffee Organisation’s (ICO) coffee spot, and futures on Indian coffee auction prices of Arabica and Robusta. The study adopting causal research method examined cointegration and relative effect by administering Johansen cointegration, vector error correction model under VAR environment, VEC-Granger causality, and block exogeneity Wald test. The study found cointegration and long-run association of the US dollar index and crude oil on Arabica than Robusta coffee. Hence, any change in the prices of ICO spot, Arabica coffee futures, crude oil, and the US $ index leads to long-term change in the Indian Arabica coffee auction prices. Coffee exporter should hedge their currency risk on Arabica export and coffee farmers may anticipate increase in domestic prices against sharp rise in US dollar.