Coffee and the Relation of Economics
Coffee is much more than the hot, black liquid that millions of us drink every morning; it is a worldwide commodity that has been keeping us awake for hundreds of years. It seems that a coffee shop can be seen on every shopping center and a coffee pot in every work break room. Our lives today revolve around coffee, regardless if we drink it or not, and ironically it not only stimulates of senses but also our economy. We wouldn’t be able to imagine Bill Gates not with his cup of coffee making Microsoft in his garage, or Henry Ford waking up early to perfect the auto industry and the assembly line. The economics of coffee may not be a simple one to study, but it is one you will be kept up all night learning about.
There are three components for the coffee industry which is composed of the suppliers or the farmers, the manufactures or the producers and the consumers or the drinkers. All three of these components of the industry are fighting each other to make the most profit and salary, while also spending the least amount of money. This causes problems when the workers are demanding higher wages which will result in higher cost of production and lead to higher coffee costs. On the other side of the equation the consumers want their coffee to cost less and less for them, which is making workers work harder and for less money. All the arguing between these three aspects of the industry eventually results in a price which makes all the aspects of it happy, although each wants more the benefit them.
The market for coffee is an Oligopoly where there are four primary multinational corporations which dominate the industry which include: Kraft General Foods, Nestle, Proctor & Gamble and Sara Lee. In a...
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...ement does prove some truth due to the simple fact if people make more then they will spend more. According to Dawn Kawamoto’s article “Is Coffee the New Leading Economic Indicator?” in a Daily Finance Article, he discovered that coffee consumption outside the home has a direct correlation to unemployment and the economic status. He tracked the coffee consumption and the economic status between 2001 and 2011 and discovered that “Coffee consumption outside of the home reached its highest level in a decade between 2004 to 2006, as the nation's annual average unemployment rate improved along with a stronger economy”. A recession and bad economic times leads to a lower percent of coffee consumption, while an improving economy leads to increased coffee consumption. This trend is due to people are feeling more comfortable with their finances and they consume more coffee.
Coffee is grown all over the world and is a product that brings hedonic value to the customer. Since this product is consumed on a regular basis by many individuals seeking to meet their hedonic needs, price is very important. Consumers want to feel that they are purchasing a brand of coffee that they enjoy at the lowest price possible. Price harmonization has become a very important concept with the increase of technology, specifically the internet. The internet has allowed consumers the power to easily purchase from varies sellers and producers, both nationally and globally. Consumers have the power to check prices on products or goods
The Wall Street Journal, Boston Globe , and the Economist as well as many other media outlets of record were all in consensus when they declared the onset of coffee crisis in October 2001; farmgate prices had sharply dropped reaching a thirty-year low of $0.39 per pound in This price was below the cost of coffee production at the time, listed at USD 0.60 per pound.(Economist 2001) Price declines are not such an uncommon occurrence, but what is more troubling is that the cash market for coffee suffers from high price volatility. For a more detailed look please see Appendix 1: Cash Price Variation. Coffee producers , who are mainly located in developing countries , are highly vulnerable to price risk in the cash market , yet their profits in relation to their risk exposure has been steadily declining. In a 2001 study conducted by the European Fair Trade Association (EFTA)- an organization that promotes the sale of products that ensure price security for marginalized commodity producers- the general finding was a declining share of trade revenues from coffee remained in the coffee producing countries. Although the international coffee market has grown from $30 billion annually in the 1980s to $55 billion in 2001, in aggregate coffee producers have seen their share drop from $10 billion to $7 billion in 2001 (Renkema 59).
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).
"Researchers have attempted to find out how much caffeine people consume every day. It was estimated that in the United States, coffee drinkers drink an average of 2.6 cups per day. Total caffeine intake for coffee drinkers was 363.5 mg per day - this includes caffeine from coffee AND other sources like soft drinks, food and drugs. Non-coffee drinkers even get plenty of caffeine: former coffee drinkers get about 107 mg per day and people who have never had coffee get about 91 mg per day." (Schreiber et. Al) It is ironic that with such a large caffeine byproduct industry, ...
...tion and has left a wound that Central America has never fully overcome. The villain of the coffee crisis is undoubtedly colonialism and its exploitation. Dutch disease has crippled Central America’s economy today that the majority of Central American states are considered third world and undeveloped. Globalization is not off the hook however for globalization was of the original catalyst that started the wildfire of Dutch disease. There is no way to be certain but it is likely that Central America economy and the coffee production industry more specifically have been so crippled by Dutch disease that ending exploitation may not be enough. The crippled coffee producing industry remains in a coffee crisis long after decolonization and the efforts of international organization and fair-trade policies are make a deep impact. What will it take to end the coffee crisis?
Starbucks achieved the first principle by purchasing “coffee from small farmers in 29 different countries … [and buying] coffee at a higher than market price and guarantees future purchases” (Alter). With this, Starbucks has greatly impacted these small-scale farmer’s lives by insuring they have good long-term stability and financial security, farmers who aren’t otherwise noticed in the conventional market options. And “globally, Starbucks contributed over $3.5 million in Fairtrade premiums for coffee-growing communities” (Alter).
Starbucks. Seattle’s Best. Dutch Brothers. These three are only a few of the many major coffee marketers in the United States. We have turned into a nation obsessed with coffee. As each day dawns, the rising sun meets the rising aroma of brewing coffee. And it does not stop there either: though Americans do drink 65% of their coffee during the morning breakfast time, 30% is consumed away from the mealtable (Huffington Post). But how many of the 100 million Americans who help to drink the 146 million cups of coffee consumed by the United States each year (Huffington Post) actually understand where their coffee comes from? Awareness has risen in recent decades, leading to concern for the living conditions of coffee farmers and those living in third-world countries in general. In turn this has led to the creation of the Fair Trade vision, supposedly an system to ensure that coffee farmers earn a living wage and that they have access to the opportunity for a better life. This eases the conscience of the average American, who thinks, “Good. Now I don’t have to feel bad about those coffee farmers anymore. I can have my morning coffee and know that I’m doing my part to help those who have less than we do.” But does Fair Trade accomplish its goal? Does it really provide maximum benefit to the farmer? Fair Trade coffee is not as simple a concept as it may seem: some aspects benefit farmers while others hinder them. Rules for Fair Trade Coffee as they stand today require some revision in order for Fair Trade agreements to truly live up to their full potential to help famers.
It is the US’s largest food import. Although the coffee business is on the rise in developed countries, current rock bottom prices are leading major difficulties to countries where coffee is abundant in economic activity. The dramatic fall in prices over the past five years is a major crisis in the coffee business. This situation is caused by a current imbalance between supply and demand. Coffee production has been rising at 3.6% whereas the demand has only been increasing at 1.6 (Sustainable Coffee Environment). The Fair Trade is a set of guidelines that the producers follow. This was the best way to drive the development of the world’s largest commodity. Coffee is an inelastic good, meaning if coffee prices increase the quantity demanded will not decrease by much. Growers will produce more coffee than consumers want. Child labor is an issue brought up by the fair trade organization in the production of coffee (The Problem with Fair Trade). Research is being done to see if the fair trade organization is actually helping the poverty as it should be and if it harming the non- trade farmers.
As it is demonstrated in the previous factor, the coffee purchasing strategy is quite important for the company’s development due to they must do big efforts in factors such as marketing with the objective to attract new customers, and the company must investigate carefully the market where it is operating to analyze their competitors and their different
Coffee has been a part of many cultures since the 1400’s. It has been universally known as a drink of social, and one of the few entities that have lasted for centuries. Coffee was first significantly recognized in America by the mid 1600’s. In 1971, the first
In this essay, I will conduct an economic analysis of the coffee bean market to explain how the short and long run affects price fluctuations, and whether or not government intervention should be used to stabilise prices to benefit the growers. The assumption of demand and supply is that as demand is increased, supply will need to increase to maintain the market equilibrium. Arguably the consumer has very little influence on the levels at which demand and supply operate at, though this is contested due to the fact that a product cannot be sold unless it is demanded(desired) by a consumer. Although increasing and/or decreasing either the demand or supply of a product creates a new market equilibrium, it is usually short lived and we expect
The primary assumption underlying the ad’s success is that society is dependent on coffee. This deceptively minimalistic ad is constructed to draw the viewer’s eye to certain key features,
In the developing countries, agriculture is the backbone of the economy, and that is the case in Colombia. Coffee growing is a principal economic activity in Colombia, coffee farming supports other economies, and they include Kenya, Brazil, and Indonesia, among others. Just like other agricultural activities, coffee farming faces many challenges that include the attack by market speculators, fluctuating prices, natural calamities, unfavorable weather, and climate change, to name just but a few. Despite the challenges, coffee has been a key driver for economic development and social change in many economies. The International Coffee Organization, which was established in 1963 controls the global coffee prices and the liberalization of the global
When comes to Economic aspect, coffee is the second most traded product in the world after petroleum. As the country’s economy is dependent on agriculture, which accounts for about 45 percent of the GDP, 90 percent of exports and 80 percent of total employment, coffee is one of the most important commodities to the Ethiopian economy. It has always been the country’s most important cash crop and largest export commodity. (Zelalem Tesera p
Coffee is an incredible trade commodity and fuels many countries called coffee countries. (Francis) It is so valuable that around the world coffee is only sold less than Arabian oil. (Avey) The International Coffee Organization or ICO regulates coffee prices for inclines and declines and the world supply. It has operated since 1963 when it started. It also controls imports and exports. It was the united nations that created the ICO. Some “coffee countries” economies are half coffee exports. Before the ICO was created coffee producers set the prices. When the farmers tried to sell at one price the producer could change it in any way he wants because no one else would buy their beans. Coffee shops sold their coffee at much lower prices. some of the coffee countries started to lose money. These countries economies were crashing. The prices of coffee in 2001 were one third of the 1960’s prices. (Francis) New yorkers are rumored to drink seven times more coffee than every other city. Famed French writer Voltaire drank forty to fifty small French cups a day. Teddy Roosevelt drank one gallon a day. He was also rumored to have made up the “Good To The Last Drop” slogan. Without coffee financially the world would be very different.