Case Study

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Extract 1: Coffee prices on the rise

Coffee prices hit a record 14-year high this month, and it's only a matter of time before coffee lovers will have to pay more in stores and coffee shops. A series of bad news has affected the market for coffee – bad weather in South America is threatening crops; Brazil and Vietnam are talking about hoarding their stocks; and US stockpiles are reportedly at 10-year lows. Moreover, the current behavior of prices reflects uncertainties concerning short-term coffee supplies. As uncertainties persist, investors are placing significant bets on where prices are headed.

Adapted from CNNMoney.com (February 2011)

Figure 1: Coffee prices (cents per pound)
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Source: Starbucks, Bloomsberg news

Extract 2: Starbucks gears up for slowing consumer traffic in the US

Premium coffee-chain Starbucks is offering promotions in stores across the US especially in areas hardest hit by the financial crisis a year before to counter the decline in domestic store traffic that led to a decision to close 600 stores. It is giving away 12-ounce iced coffees to customers who present a "iced brewed coffee card" voucher distributed in stores and newspaper inserts. It has also introduced Via, a new instant coffee product to rump up its profit level.

Lots of people still favour Starbucks coffee, but coffee selection is improving elsewhere too. McDonald’s has introduced an improved coffee blend aimed at drawing away Starbucks' customers. In addition, Dunkin' Donuts is gaining popularity over Starbucks as a coffee destination with ample seating and a tasty menu board that grows incrementally.

Adapted from USAToday.com and Forbes.com (2009)

Extract 3: Venezuela maintains strict price regimes on basic foods

Since 2003, the Venezuelan President has maintained a strict price regime on some basic foods like coffee, beans, sugar and powdered milk. But this measure designed to curb inflation has alienated Venezuela's coffee importers who say their profit margins have been reduced to nothing.

For at least a week, there has been no roasted coffee available on the shelves of Venezuelan supermarkets as wholesalers and coffee importers have been withholding their coffee from sale. The situation is so bad that authorities have successfully stepped in to seize coffee which is deliberately being withheld from sale.

Yet several food stores in Venezuela's capital city Caracas say the coffee raids are not addressing the fact that shops are also running low on sugar, maize, powdered milk and beans. Store managers insist they are not being supplied with new stock from wholesalers and importers.

Three days ago, street sellers working in the country's black market were still able to provide the roasted coffee that the supermarkets were not stocking. However, even they have since admitted defeat. Adapted from the BBC (January 2006)

[Turn over

Extract 4: Colombian government extends subsidies to the coffee sector

In South America, despite a budget deficit, the Colombian government announced a subsidy package in November 2008, aimed at controlling the escalating price of coffee. The subsidy package includes assistance to farmers by extending discounts of up to 50% on fertilizer to farmers and provision of cash credits to farmers for the replacement of old and poor-yielding coffee trees with newer and higher-yielding varieties

Adapted from USDA Foreign Agricultural Service Report (April 2009)

Questions

|(a) |(i) |From Figure 1, describe the trend in the price of coffee since 2000. |[2] | | | |...
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