May 29, 2011
What is a commodity? A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are used as inputs in the production of other goods or services. There are different commodities that are used such as sugar, gas,oil,wheat,diamonds, gold, corn, copper, silk and coffee. Coffee has a long history of operating within a market economy since the 1800’s (Unknown, 2011).
Coffee – a Global Commodity
“Coffee is not just a drink. It's a global commodity. As one of the world's most traded products-second in value only to oil-the coffee industry employs millions of people around the world through its growing, processing and trading. But while the coffee trade is vital to the politics, survival and economies of many developing nations, the industry's pricing and futures are decided in conference rooms and on stock exchange floors in some of the world's wealthiest cities. (Maskela, 2007)
Coffee has been a valuable traded commodity since the 1800s. In 1963 a trade organization was established called, the International Coffee Organization (ICO). It has operated under the International Coffee Agreements negotiated under the authority of the United Nations. These agreements were an effort to control coffee supply and prices. From the 1963 to 1989, they stabilized the market and prevented declines in prices as they limited excess supplies using a quota system and implemented price controls. The ICO created marketing tools and campaigns to promote an increase in coffee consumption globally. The agreements that were negotiated by ICO helped to strengthen the economies of coffee-producing countries in Africa and in Latin America.Mohan, S. (January 2007).
When demand or supply changes, there should be a corresponding change in price. As demand increase but production remains flat, prices should go up. Likewise...