Coffee Producers Cartel

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Coffee Producers Cartel

A cartel explained by economists is a method of controlling the supply

and demand effect and restricting prices from continual decrease. A

cartel is an unlawful association or group of manufacturers or

suppliers who get together to maintain high prices and restrict

competition. In its simplest terms, a cartel is an agreement between

businesses not to compete with each other. The agreement is usually

verbal and often informal. Typically, cartel members may agree on:

· prices

· output levels

· discounts

· credit terms

· which customers they will supply

· which areas they will supply

Cartels are most successful in areas where there is little

competition, the product has no commodities, communication channels

between competitors are already established and the industry is

suffering from excess capacity or there is general recession. Although

they can be helpful if you are a member of a cartel, you could be

fined up to 10 per cent of your UK turnover for up to three years.

Most producers are better off agreeing to a tacit agreement where by

there is an agreement between firms on an informal basis where nothing

is recorded officially.

Coffee is currently the second largest commodity market in the world

behind oil. The market expands across the entire globe and its effects

reach the developed and developing countries alike. Most cocoa beans

are grown in the developing countries and have been done so for the

past century but in recent times the cost of cocoa has rapidly

decreased. As the price of the cocoa beans decrease it has caused

large-scale problems in the market and over...

... middle of paper ...

...ers will have no choice to agree and thus

cause problems on a price basis for consumers.

The effect of a cartel from the coffee producers on consumers may also

mean that the quality of cocoa from the countries that produce high

quality cocoa will decrease. This is because as the retailers give in

to the demands of the coffee producers it will mean that the countries

that develop high quality cocoa will see the fact that retailers will

have no choice apart from buying there cocoa. Thus the producers will

start to decrease their work effort, as they will notice that whatever

happens they will get a continual amount of profit. As work effort

decrease it will mean that the producers will care less about the

cocoa and thus the quality of the beans will decrease and thus

directly effect the interest of the consumers.

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