Coffee Supply And Demand
Length: 927 words (2.6 double-spaced pages)
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Besides the high demand and cost for gasoline these days, coffee is considered the second most traded commodity on worldwide markets next to oil. "Coffee is grown in more than 50 countries in a band around the equator and provides a living for more than 20 million farmers. Altogether, up to 100 million people worldwide are involved in the growing, processing, trading and retailing of the product" (Spilling the Beans , ). In 2001, coffee farmers and plantations produced over 15 billion pounds of coffee while the world market only bought 13 billion pounds. The overproduction in the coffee industry is not a usual thing and is one of the major reasons why prices vary throughout the industry.
One of the major corporations today that is trying to control a large portion of the supply of coffee is Starbuck. Starbucks Corporation is the leading retailer, roaster and brand of specialty coffee in the world. Starbucks purchases, roasts, and sells whole bean and rich-brewed coffees, espresso beverages, cold blended beverages, an assortment of food items, coffee-related
accessories and equipment, a selection of quality teas and a line of compact discs. Starbucks has over 8,700 retail locations in North America, Latin America, Europe, the Middle East, the Pacific Rim and is continuing to grow. When coffee is considered Starbucks has developed a worldwide name for itself and has become a huge success.
An article in the Seattle Post, describes the alliance that Starbucks is making to ensure that a sustainable supply of high quality of coffee is produce in Latin America. "Starbucks President and CEO Orin Smith said the alliance is partly his company's effort to pass on the "high price" of a cup of coffee to farmers." (Lee, 2004). He states that the high price enables them to pay the highest price to the farmers. Though the high prices to suppliers can demonstrate that money get to farmers with being diverted. Starbucks overall goal with this alliance is to buy 60 percent of its coffee under the standards agreed upon by 2007. "The agreement reflects the growing power of the premium coffee market and efforts to exploit it for the benefit of small farmers" (Lee, 2004).
When it comes to the supply, demand and price of coffee there are certain factors that can fluctuate these characters to rise or fall. Weather is one example that affects the consumption of coffee.
People tend to drink more coffee in the winter rather than the summer due to the cold temperature, shorter days and the fact that it is harder to get going without a cup of coffee during the holidays. Starbucks has tried to avoid these dramatic drops in the summer by offering a variety of cold drinks and desserts however; during the summer these factors are considered more of a "want" compared to almost a "need" during the wintertime.
Another factor that directly affects coffee prices is the taxes and tariffs that the government imposes. In the same boat as cigarettes and alcohol, coffee is one of the highest taxed products in the United States. Just recently the tax on coffee went up to about 10 cents per cup, on top of all the tariffs that already are paid. In response to the increase, coffee drinkers all over the country reacted by protesting but coffee still remains highly taxed.
The amount of coffee drinkers during the last decade has gone up from 71 to 76 percent and the average cups of coffee per day have increased from 3 to 3.5 cups. Another factor to this increase in consumption is the aging of the baby boomers and their increasing spending power, creating a good customer base for the coffee shops. This of course, has a very positive effect of the demand on the coffee industry.
Supply and demand are the key words to economics and is the answer to many questions that pertain the shift in prices. Demand is all about the willingness and ability an individual will pay for a particular product or service. "Prices are the tool by which the market coordinates individuals' desires and limits how much people are willing to buyhow much they demand" (Colander, 2004). There is an invisible hand in economics that sees to it that what people demand matches what is available. When goods are limited the market reduces the quantity, as prices go up, people buy fewer goods and as goods become abundant, prices go down and people want more. Some factors that affect the demand curve are society's income, the price of the goods, tastes, expectations and taxes.
Supply the other the hand refers to a schedule of quantities a seller is willing to sell per unit of time at various prices. It is considered a mirror image of demand. Individuals again control the factors of production, inputs or resources necessary to produce goods. "Individuals' supply of
these factors to the market mirrors other individuals' demand for those factors" (Colander, 2004). Just as demand, supply is fundamental to the invisible hand's ability to coordinate an individual's actions in the market. The main bases for the law of supply is on the firm's ability to substitute production of one good for another or vice versa.
Despite the many factors that affect supply and demand, Starbucks is in no way going to do any worse than its competitors in the coffee industry. Starbucks has turned itself into the Microsoft of coffee and as long as nothing too severe happens to our economy Starbucks can look forward to a prosperous future.