The Changes Of The Coffee Market Economics Essay

1246 word (5 pages) essay in Economics

5/12/16 Economics Reference this

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Since 1995, the changes of coffee market, along with changes in the world economies are also changing. However in this diversity commodities market, a price change caused by the reasons for the coffee market is definitely not single. Instead, many of the common cross-cutting factors together. Changes in coffee market have two main aspects. One is the demand market, and the other is supply market. Changing of demand market is affected by personal income and tastes. Also changes in supply market are affected by input prices and technology. While the coffee market is changing every day, we feel like less. This is because the oligopoly.

The demands for a good will rise or fall if there are changes in factors such as, income, the price of substitute goods and complementary goods, and tastes (123HelpMe, 2011). People’s incomes increase, their demand for most normal goods will rise. (John Sloman, Keith Norris, Dean Garratt, 2010). Today the coffee has become increasingly common in the world, so there are great new coffee demand markets in Asian countries which originally drink tea. However, the 1997 Asian Financial Crisis hindered economic growth. The unequal international monetary relations has brought the world debt problem in most countries, and caused numerous international economic issues. One year later Russian Financial Crisis. Then in 2001, Bursting of dot-com bubble made the economy of the whole world crash. Changes in the world economy will affect people’s income, thus affecting the purchasing power of people on the coffee. Financial crisis reduce people’s purchasing power, so demand market decrease, and supply more than demand. At this time the manufacturers to cut prices to attract customers to buy coffee. So between 1997 and 2001, the price of coffee steep dropped from US $135 per bag to US $45. As people’s income is limited, when customers buy the coffee, people will choose to purchase their favorite one. The choosing is also affecting the change of coffee market.

Tastes are affected by advertising, fashion, observing other consumers, considerations of health and experiences of consuming the good on previous occasions (John Sloman, Keith Norris, Dean Garratt, 2010). There are two basic categories of coffee in the world. One is Arabica, the other one is Robusta. There are some differences between these two coffee beans. Arabica beans with 100% high quality blends, and produce a superior taste in the cup, being more flavorful and complex. On the contrary, Robusta beans with lower quality and cheaper blends, and it produce a bitterer brew, with a musty flavor and less body (kaffee.netfirms). Because, more people find the Arabica coffee good, the more they were demand from 2007 to 2009/2010 than Robusta. In the economic market, demand market and supply market exist simultaneously. Both of them are interdependent. Therefore, the fctors causing changes in the coffee market, not only in demand market, but also exist in the supply market.

The change in supply can be caused by a change in production costs, technology and the price of other goods (123helpme, 2011). Costs of production will rise if wages, raw material prices, rents interest rate or any other input prices rise. (John Sloman, Keith Norris, Dean Garratt, 2010). In previous two years, the world’s NO.3 coffee exporter, Colombia was hit by bad weather, and cutting production by about a third its norm (Jack Kimball, 2011). Because of climatic reasons, the Colombian coffee growers fail to achieve the target goal, and not be able to meet the demands of the current coffee market. So the cost of production increases. From the Table of ICO, we can see that the price of Colombia Milds goes up from $205.71in March 2010 to 300.68 in March 2011.

Furthermore, Technological advances can fundamentally alter the costs of production (John Sloman, Keith Norris, Dean Garratt, 2010). With the global technology advances, more and more new technology is introduced into the production of coffee. For example, there are two ways to removing and dry the coffee beans from the fruit before roasted them, namely dry and wet methods. Comparing these two methods, the wet method requires the use of specific equipment and substantial quantities of water. It ensures the intrinsic qualities of the coffee beans are better preserved. Hence, the coffee produced by this method is usually regarded as being of better quality and commands higher prices (, 2011). The high technology makes the goods with a better quality than before, so the price of coffee which produces by equipment has higher price. Although many financial reports have shown that the price of the coffee market in recent years varies widely. People seemed to feel less of this change. This is because oligopoly.

Oligopoly occurs when just a few firms between them share large proportion of the industry (John Sloman, Keith Norris, Dean Garratt, 2010). Firms under oligopoly engage in collusion, and a formal collusion agreement is called a cartel. Firms may agree on prices, market share, and advertising expenditure and so on. (John Sloman, Keith Norris, Dean Garratt, 2010). Firms under cartel, they agree to influence prices by regulating production and marketing of a product ( allbusiness). There are two largest coffee exporters, Brazil and Colombia (Larry S. Karp, Jeffrey M. Perloff, 1993). Although the bad weather influence the production of coffee, Brazil and Colombian act like large firm in that each centrally controls exports. The Brazilian Coffee Institute and Colombian Federation of Coffee Growers control supply and price, and set quotas within the coffee market. So the costs of production are relatively stable. Moreover, in the trading market, about 50 percent of the world production of coffee is bought by only four huge companies, namely, Kraft, Nestle, Procter and Gamble, and Sara Lee. These four companies formed the oligopoly in the trading market. They will collude and control the price of coffee in trading market.

In conclusion, cause the coffee market is due to the changing in demand market, and the other is production market. Changing of demand market is affected by personal income and tastes. Also changes in supply market are affected by input prices and technology. In addition to these two main reasons, oligopoly is another major reason to affect coffee market. That is reason, why while the coffee market is changing every day, we feel like less. Although since 1995, the changes of coffee market, along with changes in the world economies are also changing and these changes was to make the coffee market crisis. Through the use of professional knowledge of economic analysis the coffee market and the whole market, we can find reasons that led to crisis, and then using scientific methods to help get rid of coffee market crisis and take measures to prevent the same situation from happening again in the future.

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