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Coffe Markets- Big questions
Coffee Markets- Big Questions
1. Coffee is produced competitively because:
· It is the world’s second most valuable commodity.
· Producers are in the developing world- many producers- perfect competition.
· Lucrative market: easy way of obtaining foreign currency.
2. Coffee Growers can add value by:
· Growing different types of Coffee, such as green coffee, Columbian and Costa Rican
· Sell their coffee as fair trade coffee, adds value because consumers see it as ethically friendly e.g. Café Direct, Oxfam, Starbucks brewing fair trade coffee.
· Coffee farmers have little influence on the price of Coffee. They have no choice but to accept the price on offer. This will mean that their livelihoods are very dependent on the behaviour of demand and supply in worlds markets, which in turn may depend on the expectations of dealers in world commodity markets.
3. The profitability of Coffee has fallen due to:
· Oversupply Caused by new producers entering market.
Bumper harvests e.g. Brazil and Vietnam.
· Producers breaking ranks with others on policy e.g. Vietnam with government subsidies and World Bank support.
· Consumer move from low grade commercial Coffee- rising income
Changing tastes
· Coffee is a mature market – little growth in demand, thus greater effect on price.
· Breaking of International Coffee Agreement in 1989. This was a cartel that kept the
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. Impact of falling Coffee Prices on Stakeholders:
· Growers switch to more lucrative products e.g. Illegal substances (Cocaine, Marijuana.)
· Countries receive less foreign currency- needed to pay off debts and invest in infrastructure. May turn to new commodity such as Tobacco and Sugar cane.
Both points can cause the Cobweb theory- prices of these products will fall in the long term. The diagram below shows this (P.T.O):
· Holders of Coffee futures: buy more because of low prices and hope for price stimulation. This is a real gamble
5. Ways of overcoming Low profitability
· Establish a cartel = all producers together in organisation e.g. the Association of Coffee Producing Countries. Try and establish a minimum price for the commodity
· Restrict supply or even destroy low quality beans e.g. Brazil throwing beans into Atlantic. These will force the price into an increase.
· Allow coffee to be sold as fair trade coffee e.g. Café direct so that farmers get a more substantial % of price the roasted coffee is sold for.