Tuesday, September 24, 2013

Economics Of the Coffee Industry

Economics Of the Coffee Industry

Written By Annika Schulz 

      
                It's the taste of peace and of excitement mixed into one drink. There is an odd feeling that goes along with the dark drink, lightened to the flavor our taste buds enjoy the most.  Coffee.  It's all about that coffee that wakes up most of America in the morning, brings people together for a conversation, lightens a person's day with that taste of adventure and readiness for the day to come, or the sip of caffeine to stretch the students strength for a long night of papers and studies. Either way, coffee is a major part of our society! It is a staple! It is also not a product made in the USA, but made overseas and imported into our nation.  America must take action and work with the people of these foreign nations in an effort to come to an agreement agreeable for all, or we may lose the import of quality coffee into our nation.




We bring in and import our precious beans from Brazil, Ethiopia, Columbia, Kenya, Guatemala, and other countries not listed here, and that is how we have running and thriving businesses like Starbucks.  Not only do we have Starbucks, but we must not forget about the small, and sweet coffee shops, and they use these imports because we cannot grow coffee very well here in the United States.  In these other countries of Central and South America, there are prime conditions for producing and growing these coffee beans.  In fact, this plant is very, very particular about where it grows -- and I didn't understand that before.  Also, each of the beans must be handpicked.  Only the ripe and best beans are used and picked for roasting and producing, and no machine could do that. This summer I went to Honduras and visited a coffee farm, and it became very real to me just how much work goes into making such a simple drink.

                There is much that could be said about how coffee is produced, and how much effort must actually be put into making it, but I will not bore you.  Simply though, understand that it is a big process.  All of this effort though, is not rewarded with very big bucks though.  That's the problem, and farmers are complaining.  A solution must be find, or America’s favorite drink will be at risk. And not only that, but people of these other countries will be at risk because they will not have enough compensation for their work to support their family.

                So, in Brazil for example, they are producing a larger amount of coffee than was expected because the conditions were absolutely prime. Now, they have over-production, and there is not a growth in demand.  The result is that there is more supply than demand, and therefore the price goes down.   Such decrease in price and increase in production is  shown in the graph below.  In September now of this year,  it is all the way down to just over 110 cents/lb of coffee beans.  A little less than a year ago in October of 2012 the prices were up to 160 cents/lb.  Simply, this graph shows that the prices are steadily going down.  The beans must still be produced in the same fashion they were before, with the same amount of labor.  Now, the laborers are getting paid less, and there are strikes going up.

Over in these coffee growing countries, laborers are going on strikes! They are burning up these bags of coffee, and are demanding a change in the compensation they get for their work.  In the past, they were receiving much more money than now, and they would like to go back to how things were.  The price of coffee has gone down by a whole 70% in these past five years.   Yet perhaps though, not really how things were -- because the economy cannot really go backwards -- but rather, it is hopeful that a new arrangement will be made between the buyers in America, and the producers in these other countries.  But also, although we want to be fair to those workers in Central and South America, it would be rough if prices increased to produce coffee because that would mean that prices here in our local coffee shops would increase as well.  If prices increase, some people may not be able to afford it as much -- but, I do not think that the popularity of the drink will ever decrease.

                What will be the solution? Must America then buy all of that coffee that was produced so that the people of these countries will not be left stranded with too much coffee and not enough income for their work? Well, I don't know.  Perhaps you as readers could come up with a solution, or at least some ideas. 

11 comments:

  1. The popularity and the use of coffee and the coffee beans itself is a great example of how other countries, especially America, work with trade-offs. Because it is almost impossible to grow coffee beans here in the U.S, we create a relationship with foreign countries so we can benefit from their goods, as well as the other way around. The problem is, as the prices go down in coffee, the amount of money these countries receive will also decrease. Clearly, the people of the United States will want lower prices and the people of Brazil want to receive more money. This situation doesn’t go hand in hand. Even if the prices do rise in price, like said, the demand will still remain the same as the caffeine of coffee is as addictive as a drug.

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  2. I love how you took something totally random, like coffee, and related it to economics. I also liked how you linked a personal connection and experience, like your trip to Honduras, with your topic. This is an interesting issue because it almost comes down to morals. Is coffee important enough to us Americans that coffee sellers will pay more so that the laborers overseas will continue to work and provide for their families? Personally, I don't think America could go without coffee; so there lies our answer. It also has a lot to do with trade-offs like Brittney mentioned above. We also are dependent on these other countries to produce these goods because it is nearly impossible to grow coffee beans in the US.

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  3. It's funny how in a year the price of coffee dropped down by 30% but Starbucks is still expensive as ever. Though I don't drink coffee, I still can understand the importance of it to some people. This article just goes to show how such a small thing in everyone's life can have such a large impact and cause all of this commotion. Anything that even regards the flow of resources can have a substantial impact on the overall economy, even coffee.

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  4. Its truly insane 110 cents/lb?! Not only is the drop of the price of coffee astonishing but the crazy part about it is Starbucks and other common coffee shops upcharge us as much as 10x that amount for a lb of coffee beans. The supply and demand of coffee is truly insane! People are willing to buy brand name types of coffee just for the mere name of it and we the people demand it so much that they can easily supply it and make A LOT of money off of it. It just doesn't seem like it is totally worth it when you think about it. The amount of money you pay for an average cup of coffee is around $3-$4 it costs that coffee shop roughly $0.03 of coffee to make that 6 fl oz cup of coffee... Hello 100x markup... Seems fair doesn't it...

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  5. Annika—You picked a really interesting topic! I was surprised to find out how much work went into getting such a simple good into the United States. I think that since we consume so much coffee here in America that we could afford to pay those in foreign countries producing the coffee. It seems like they’re getting jipped because companies like Starbucks make so much money off of coffee and coffee bean farmers make hardly anything in comparison. Hopefully these strikes won’t last long, though, because I love coffee and can’t imagine it not being available!

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  6. Couldn't they burn the extra coffee beans like the Agricultural Adjustment Act? There could be profit loss due to the burning of crop that could be sold for cash, but at the same time if you can't sell it you aren't getting a profit. By burning the crops couldn't they readjust the price of coffee?

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  7. I really like the topic you chose! I feel like us Americans or some other country should find a solution to this problem, because everyone knows that America loves its coffee! Knowing that all the beans have to be hand picked, I would be mad if I were those workers too and barely received anything in return for all the hard work. Overall, I agree that a solution needs to be found before America loses all their coffee!

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  8. I think you're topic was awesome and totally out of the blue! I do feel like these companies/countries are milking out as many resources as possible at a cheap price. Which that makes workers pay less which is so unfair. The last time I had a coffee drink of some sort at Starbucks or some other coffee shop. I think I paid six dollars to maybe eight dollars which is just crazy. This is a perfect example of a demand curve and the businesses using it as an advantage to peoples needs.

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  9. I loved your topic because it was so unexpected! I always believe coffee to be a very expensive import due to the ridiculously high prices at franchises like Starbucks. It seems as though the only profit-making part of this market would be the business, both the labor and consumers are being completely jipped by these prices. For the laborers, there isn't enough revenue, and for the consumers, there's a huge price being asked for for this addictive drink. So, either the business side needs to pay the resource side more for coffee bean product, or reduce their own prices to not rip-off its consumers.

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  10. Although I, personally, am not a huge coffee drinker, this post was eye-opening. I agree that we should try to find a solution for this problem one way or another, but I don't think the world is going to end if the coffee industry shuts down. I know it's unlikely that anything like that will actually happen. Worldwide, we're not even the biggest coffee drinkers. Sweden's got us outnumbered 23:7 cups of coffee per person per week! Anyways, I think the coffee industry will be alright for now, but hopefully we can come up with a more efficient trade.

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  11. I go to Starbucks very often. It is sad that they feel the need to increase the prices so much compared to the price of coffee beans. Although our country doesn't drink the most coffee, it sure drinks a lot. It would be beneficial if we could do something about the coffee industry. However, I don't think that anything can easily will be done.

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