“The Coffee Crisis”
By Stephen Quinlan & Jose Gomez-Ibanez
Michael G. Castro
MBA6008 – Global Economic Environment
February 13, 2013
Stephen Quinlan and Jose Gomez-Ibanez describes, in “The Coffee Crisis”, that in 2004 the governments of coffee producing countries were considering how to respond to rapid decline to coffee prices. In 2001, coffee prices hit a forty-year low, which resulted in extreme hardships for the local farming communities. On that note, this decline in coffee prices was considered “the coffee crisis.” The coffee crisis came to be thanks in part to coffees: overproduction, under-consumption and oligopoly market structure.
International Nature and Structure
At best, coffee should be grown in an area with a warm climate and an abundance of rain. Coffee is centrally grown near the equator; however, it is primarily consumed in the northern hemisphere. It is traded in 60-kilo bags and the annual crop exceeded 100 million bags in recent years. “In 2003, for example, 101 million bags were produced of which roughly 95 million bags were consumed and the remaining 6 million added to storage in the hopes of fetching higher prices in later years”(Quinlan & Gomez-Ibanez, p. 1, 2004). Coffee is comes in two types: Arabica, which is milder in flavor, and Robusta, which is acidic. Robusta, which is grown in Asia and some countries in Africa, is easier to grow and is primarily used to make instant coffee, espresso and local consumption in the producing countries (Quinlan & Gomez-Ibanez, p. 2, 2004). Arabica, which is grown primarily Latin America makes up, historically, two-thirds of the coffee produced and is the longest to produce. The long production time begins with a two year period before the coffee seedling can bear fruit followed by several more years before reaching full production (Quinlan & Gomez-Ibanez, p. 2, 2004)....