The role of Sale Option Contracts in the coffee crisis of 2002 and 2003

Abstract

The objective of this paper is to verify the efficacy of the Sales Option Contracts (COV) implemented by the Brazilian Government during the coffee crisis of 2002 and 2003. Besides, this study seeks to determine the influence of the exchange rate and the international price of arabic coffee over its domestic price. The applied methodology is based on the decomposition of the causes of growth rates. The results show that the international price has greater influence than the exchange rate and the internal conjuncture over the domestic price fluctuation, from January of 2001 to December of 2003. The international price effect prevailed in 24 months, while the exchange rate effect was dominant in 8 months and the internal effect in 3. The COV launched in 2002 achieved positive results, raising the domestic price. On the other hand, the COV launched in 2003 did not have the expected positive effect, acting just as a protection against sudden price falls.