Coffee Industry

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Coffee Industry
Industry Introduction
From the discovery of small, brightly colored red berries on trees in Ethiopia came the largest imported commodity in the world, second only to oil. The coffee bean provides a livelihood for over 20 million people worldwide with an estimated worldwide retail sales expected to grow by a compounded rate of 6.9% from 2005-2010, reaching $48.2 billion by 2010, according to The U.S. Market for Coffee and Ready-to-Drink Coffee. [1] The two main species of coffee beans are Arabica and Robusta. Arabica is a high-quality coffee typically grown at higher elevations where the optimal climatic conditions necessary to grow this specialty grade of coffee are found. Arabica coffee is traded in two ways: • On the highly volatile New York "C" market where the "C" price is affected by the global supply as it rises and falls. The average "C" price for a pound of coffee during fiscal 2005 was $1.04. • Higher-quality Arabica beans are used in specialty coffee. Specialty coffee represents 10 percent of the total worldwide coffee market. Prices for specialty coffee are higher than the "C" offers in order to provide better rates payable to producing farmers for quality. [2] According to the National Coffee Association in Volume 2005.4 of Coffee Trax, as of December 2005, forecasts for the world coffee production for 2005-2006 will be 113.1 million bags. Production is down 5.5% over the actual 2004-2005 yields of 119.8 million bags. Domestic consumption in producing countries in 2005-2006 is forecast to increase to 31.2 million bags, indicating domestic use should be 9.9% higher in 2005/06 than in 2004/05. Using the most current data, world coffee consumption for 2003/04 was 96.5 million bags, up by 1.8% over 2002/03's production. "In 1999 there were 108,000,000 coffee consumers in the United States spending an approximated 9.2 billion dollars in the retail sector and 8.7 billion dollars in the foodservice sector every year (SCAA 1999 Market Report). It can be inferred, therefore, that coffee drinkers spend on average $164.71 per year on coffee. The National Coffee Association found in 2000 that 54% of the adult population of the United States drinks coffee daily (NCA Coffee Drinking Trends Survey, 2000). They also reported that 18.12% of the coffee drinkers in the United States drink gourmet coffee beverages daily (NCA). In addition to the 54% who drink coffee everyday, 25% of Americans drink coffee occasionally (NCA). The average consumption per capita in the United States is around 4.4 Kg. Among coffee drinkers (i.e. not per capita) the average consumption in the United States is 3.1 cups of coffee per day (NCA). Per capita men drink approximately 1.9 cups per day, whereas women drink an average of 1.4 cups of coffee a day (NCA). The USDA's 2005/2006 December estimate for world exportable production is 82.0 million bags which is 10.2% lower than 2004/05. Total U.S. imports were down 15% for the second to third quarter of 2005. Estimated roastings for the third quarter of 2005 were up to 4.7 million bags compared to the second quarter but down by 5.8% for the year-ago quarter. [3] Retail prices were up from $3.33 to $3.40 for the average quarterly retail price of a pound of roast-and-ground coffee or 2.1% after comparing the third-quarter 2005 to the second quarter. Compared to the year-ago quarter, average retail prices were up by 18.1%, moving to $3.40 from $2.88. The average monthly retail price continues to be 20.8% below its seven-year high of $4.67 in August 1997. [1] Fair Trade coffee is beginning to affect the economics of the coffee industry. Coffee retailers to help maintain a sustainable supply of coffee are increasingly adopting the Fair Trade movement. Over the years a coffee crisis has developed as supply has greatly exceeded demand. This paradox of continued growth of retail pricing at the expense of the small coffee farmers has driven retailers like Starbucks to create...
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