Coffee Suply and Demand

In: Business and Management

Submitted By AGibson
Words 452
Pages 2
Matthew Giebel
ECO-102-AC01
M,W,F 11-11:50 a.m.

The documentary “Cappuccino Trail – Tales from Global Economy in a Cup” is an example of supply and demand. The demand for coffee today is huge. So huge that it is second only to oil as the most globally traded commodity on the market. A chain like Starbucks sells to about 14 million customers a day for cups that are 99% water making for a 2000% mark-up. This being said the locations with the perfect climate and elevation are limited. The “coffee belt” as it is called is 15-16,000 feet above sea level with plenty of sun and rain providing for over 200 brands. The people who live in these conditions have embraced the opportunity to farm the land as much as possible to make a descent living in a place that would otherwise have little option. When the supply of coffee is abundant all is well. However if too much coffee is available the shelf price stays the same but the farmers have to sell for much less. When this happened in Brazil they opted to fix the saturation of supply by burning a bunch of beans. On the other hand when there is a cut in supply from a natural disaster, like the one that happened in Peru from the effects of El Nino that wiped out a train that carried the supply the market price shot up. Sometimes the market will go up just because a renowned analyst scouting the commodities market gives a positive projection, as was the case in 1997 the cost went from $1.20 to $3.18. This makes the producers very happy but not the suppliers since they have to pay more but sell for the same price to the sellers. Because of “free trade economics” the price a farmer gets is $50 for a bag of beans despite the fact that by the time it is turned into 10,000 cups of coffee it is worth $20,000. That’s because buyers have a choice as to who to buy from. The competition on the sales floor is difficult for brands as well.…...

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