Price Formation of Coffee Beans: New Evidence from the Japanese Market

Abstract

This study tested for Granger causality among international market prices of coffee beans, import prices, retail prices, and other luxury beverage retail prices in Japan. Granger causality was found from the international market price series to the import price series. This indicates that Japan procures coffee beans at a price consistent with the international market price. Granger causality between import prices and retail prices was not observed. This reveals that the import price is not easily passed through to the retail price. In the retail market, Granger causality was detected from instant coffee prices to both coffee bean prices and green tea prices. Green tea prices were observed to Granger-cause black tea prices. This demonstrates that instant coffee is the only substitute good for coffee beans and the price maker in the luxury beverage market.