Supply Demand

Topics: Supply and demand, Coffee, Coffea arabica Pages: 4 (741 words) Published: May 4, 2014
Supply and Demand in the Coffee Industry

The coffee bean is the world’s most valuable and traded agricultural commodity. This worldwide

industry has exploded in recent years due to the ever increasing consumer demand. The days of plain

black coffee are gone, replaced by cappuccinos, espressos, lattes, and frappuccinos with whipped

crème, cinnamon, and mocha. As consumers drink more and more coffee, quality and value become

more and more important. However, the coffee bean has a very volatile price due to the supply

and demand factors of the market (“Coffee Demand Shifts Down-Market” The Wall Street Journal

More than 50 countries, such as Brazil, Colombia, Vietnam, and parts of Africa, produce these

beans and export them to coffee drinking countries. This industry provides a living for more than 20

million farmers and all together employs 100 million people in growing, processing, trading, and

retailing the product. However, coffee prices fell to the lowest since 2009 as the growing conditions of

coffee beans around the world, particularly in Brazil, continue to improve. According to

IntercontinentalExchange, otherwise known as ICE Futures, the price for arabica beans was set at

$1.127 a pound, the lowest it's been since March of 2009. The over production in the coffee industry

has pushed the prices of coffee down. The imbalance of coffee supply and coffee demand is also

another factor causing the sharp decline on coffee prices. Demand for coffee is at estimated level of

106 million 60-kilo bags and the supply is at an estimated 113 million 60-kilo bags. Prices are likely to

continue to fall as production is increasing at 3.6% a year and demand is only increasing

by 1.5% a year (“Coffee Demand Shifts Down-Market” The Wall Street Journal February 8, 2014).

According to the Law of Demand, a higher price for a good leads to a lower quantity demanded of that

same good. With these lower...
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