Booms, Busts, and Household Enterprise: Evidence from Coffee Farmers in Tanzania

Smallholder agricultural commodity suppliers in developing countries are often vulnerable to global commodity price fluctuations. Using panel data on farmers from an area of Tanzania where most farmers grow coffee, this study finds that global coffee prices matter for household outcomes, through their effects on farmgate prices, coffee sales and revenues, and household expenditures. The article documents that households cope with coffee price busts by increasing enterprise ownership, an effect that is greater for households without access to other means of coping. Comparisons of mean outcomes of enterprises operated by coper households (which operated an enterprise only in periods of low coffee price) with those of stayer households (which operated an enterprise throughout the sample period) indicate that the former are less likely to be profitable or to hire workers.