Coffee Analysis

Topics: Coffee, Supply and demand, Price elasticity of demand Pages: 16 (4569 words) Published: April 26, 2014
Indtroduction .
The history of coffee goes at least as far back as the thirteenth century with a number of myths surrounding its first use. The original native population of coffee is thought to have come from East Africa, and it was first cultivated by Arabs from the 14th century.[1] The earliest credible evidence of either coffee drinking or knowledge of the coffee tree appears in the middle of the 15th century, in the Sufi monasteries of Yemen.[2] By the 16th century, it had reached the rest of the Middle East, Persia, Turkey and northern Africa. Coffee then spread to Balkans, Italy and to the rest of Europe, to Indonesia and then to the Americas.[3

ow are coffee prices currently set?
A: Coffee prices are set according to the New York "C" Contract market. The price of coffee fluctuates wildly in this speculative economy, generally hovering around fifty cents per pound. Most coffee is traded by speculators in New York, who trade approximately 8-10 times the amount of actual coffee produced each year. The single most influential factor in world coffee prices is the weather in Brazil. Droughts and frosts portend shortages of coffee and the price increases. Specialty coffee is often imported at a negotiated price over the C market, which is considered a 'quality premium'. Most of those premiums never reach the coffee farmer, but rather stay in the hands of the exporter. This creates a disincentive for farmers to increase their quality, as they do not receive the direct benefits of increased investment in producing better coffee.

Cost structure
Dynamics ofWorld Coffee Prices
The indicator Price system established in 1965 by International Coffee Organization (ICO) to provide a consistent and reliable procedure for reporting prices of different types of coffee. The ICO indicator price system is based on the four spate price groups namely, Colombian mild arabicas, Other mild arabicas, Brazilian and other natural arabicas and Robustas. ICO composite indicator provides a benchmark for price of green coffee. ICO organization collects ex-dock shipment prices data and calculates arithmetic mean. This represents ICO composite indicator. The current ICO composite price (US cents per pound) as listed for March, 2013 is 131.38 cents per pound with a high of 135.30 and low of 128.52 cents per pound.

The dynamics/trend of the monthly ICO composite price over 1998-2012 can be broken down into three phases. ( Refer Figure 1 in appendix)
Phase 1: The average composite price for coffee decreases from $108.95 in 1998 to $45.59 in 2001.
Phase 2 begin with an increasing trend line where in average composite price increases from to 47.74 in 2002 and continues the upward swing, hitting the maximum in 2011 at an average composite price of $210.39.

Phase 3 starts the decline in 2012 to an average price of $156.34 from 210.39 in 2011 and continues in 2013 where the current average price for the first three months is $131.38. Price-elasticity of Demand For and Supply of Coffee

The price elasticity demand is measure to show the elasticity of the quantity demanded of the good or service to a change in its price. IN case of Coffee, Coffee is produced primarily in south american countries and some developing countries but consumed in developed countries.With disruptive weather the supply of coffee is suppressed and hence the price of coffee will rise hence the Price of coffee can be considered volatile. Factors/events that affected the world supply and demand of coffee in 2011-2012. Weather has been rated as one of the top factors affecting the supply of coffee. The countries where coffee is grown is generally humid, disruptive patterns in the weather has caused coffee plant diseases. Some articles have also listed fungus as one of the elements causing decrease in the coffee supplies. Difficulty in growing Arabica...
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