Liberalization Measures in India’s Coffee Sector: Analytical Implications for Market Structure and Consumer Welfare Analyses in Developing Countries

Abstract

This article develops a simple economic model to explain the observed market structure, nature of production and behaviour of coffee consumers before 1993, and analyses these changes, since 1993, as a consequence of liberalization and globalization measures. Market equilibrium conditions under controlled (and free) domestic and export trade during pre- (and post-) liberalization period are derived and analyzed. For a comparison of the welfare levels between the equilibria, an applied welfare economic framework is suggested. An empirical implementation of this framework will resolve current policy debates, such as ( a) continuation of liberalization and globalization measures in the coffee sector and ( b) it will test whether or not the consensus in favour of new orthodoxy of economic liberalization and globalization in the coffee sector is sound on both theoretical and empirical grounds. The results of this article are of relevance for other coffee-producing, developing countries for two reasons. First, if liberalization and globalization measures in their coffee sectors are yet to be started, India’s experience may serve as a useful guideline. Second, if liberalization and globalization measures are under implementation in their coffee sector, the welfare framework in this article may be helpful to undertake policy useful impact analysis.