Plunging coffee prices probably wouldn't have had such catastrophic effects in Rwanda and elsewhere if the short run price elasticity was not so low (to use a concept from that despised Marshall). As Singer and Raffer argue (Economics of North South Divide, p. 132), prolonged troughs of coffee prices do not increase final demand strongly, because producer country shares, and thus their effects on consumer markets are small. Price reduction are usually not passed on immediately, as this would mean selling stocks below the price at which they were bought. Intermediaries holding stocks have an interest in selling these before lowering their pirces. Income terms of trade must be expected to decline like prices in the short run. A long and pronounced price decline, though, is likely to increase demand, not least from poorer countries. Reactions by companies holding stocks will thus be asymmetric. While increasing prices quickly after commodity price increases means hefty additional profits from more cheaply bought stocks, "windfall losses" due to a price decline are usually avoided.
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