Coffee Economics: the Role of Coffee in Economic Development

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  • Topic: Coffee, Coffea arabica, Coffea
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  • Published : December 5, 2012
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Coffee Economics:
The Role of Coffee in Economic Development

Contents

INTRODUCTION
Purpose of Report
Scope of report
Definitions

Background

International Coffee Trade
Price Stabilization in the Coffee Economy
The International Coffee Organization
International Coffee Agreements

Labor & Technology in Coffee Production

Summary & Conclusions

References

Figures & Tables

Figure 1. Map of production r: cultivation of Coffea Robusta, m: cultivation of Coffea Robusta and Coffea Arabica., a: cultivation of Coffea Arabica.

Figure 2. Green coffee bean cash and future price from 1995 - 2005 Source: Leibtag et al., 2007, p. 2

Table 1. Coffee exports as a percentage of total exports. (ICO.org Statistics May 1994. International Statistics October 1994)

Coffee Economics: The Role Of Coffee In Economic Development

Introdution

Purpose of Report
The purpose of this report is to review the history of and examine the role of coffee in economics and the economic development of coffee producing countries. Scope of Report
The scope of this report is limited by the topic assigned, the period allowed for its completion, and the absence of a research budget. The report was delimited by gathering research through the Cook Library on the campus of The University of Southern Mississippi, the Internet, and the textbook used in the International Economics 436 undergraduate course. Definitions

Buffer Stocks – a type of international commodity agreement that involves the purchase of a commodity (to be added to the stock) when the commodity falls below an agreed minimum price, and the sale of a commodity out of the stock when the commodity price rises above the established maximum price. (Salvatore, 2007)

Export Controls – a type of international commodity agreement that seeks to regulate the quantity of the commodity exported by each nation. (Salvatore, 2007)

Purchase Contracts – Long-term multilateral agreements that stipulate the minimum price at which importing nations agree to purchase a specified quantity of the commodity and a maximum price at which exporting nations agree to sell specified amounts of the commodity. (Salvatore, 2007)

Background
Coffee is one of the most traded commodity in the world, second only to oil. (ICO, 2008) As such, coffee plays an extremely important role in the global economy especially in the developing economies of coffee producing countries. Coffee is both a land intensive and labor intensive good, meaning that it requires both a great deal of land to grow and requires hand harvesting. As with most developing countries whose economies rely on agricultural production and exportation, the countries that grow coffee are generally underdeveloped nations, struggling with poverty, high inflation, and unstable governments. As shown in Figure 1, Central and South America, Central Africa, and other tropical countries are the main sources of traded coffee. Figure 1 shows not only major coffee producing countries, but also the type of coffee grown in each region.

There are two main varieties of coffee grown commercially through out the world. They are Coffea Robusta, (the Robusta bean) and Coffea Arabica (the Arabica bean). The Robusta bean is a fast growing variety that provides farmers with more output per square acre of farmland. It is generally easier to grow, less prone to disease, and a generally heartier plant. For the same reason, the Robusta bean is considered an inferior quality of coffee bean and it’s major consumption lies in pre-ground and freeze-dried retail varieties like Folgers, Nescafé, and Millhouse. The Arabica bean on the other hand, is much more fragile and is prized for it’s flavor and flavor adaptability. As seen in Figure 1, Arabica beans are generally grown in Central and South America with some varieties also being grown in Ethiopia and Rwanda...
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