Coffee Market

Coffee Market

Rebeca García – June 8, 2015

Coffee seeds are known to delight many palates and help us start our day with its active, Caffeine. Such active allows us to produce many beverages, like cappuccino, iced coffee, espresso, latte, regular and smoothie, among others.


coffee-market

The seed comes from inside a berry that grows in a shrub called coffea; it is extracted and then roasted, milled and merged with water and other ingredients. Throughout the centuries several cultures had been drinking it along with liqueur, and has served to gather social groups. It is one of the most demand products, making around 2.250 million cups a day, ranking second in the major export commodity after oil.

Interestingly 2/3 coffee productions come from family plantations of 10 hectares or less. As a non-mechanised process it depends on a large number of workers. For example, Brazil generates about 3.5 million people, which produces more than a third of world production.

The coffee market is considered a fair trade, even though the price fluctuates below the limit, the purchase price remains the same as in the currency market. It has even allowed many producers to recover from crisis that have impacted in recent decades; according to the article by International Coffee Organization in April 2015, the depreciation of the Real Brazilian against the dollar between October 2014 and March 2015 had a favourable impact on sales for Brazilian producers because as they export their goods in dollars, when they change to the national currency, it creates a surplus that covers customs payments. Mexico (ICO member) produced in the previous crop year (2013-2014) about 2,457 bags.

Although merchandise are export in dollars, the greatest demand is led by the European Union, with an estimated import of 70%, representing 72.246 bags of 60 kg; the second on the list is US with 27.016 of 60 kg. And the third one is Japan with 8,381 sacks of 60kg (ICO 2013).

Predictions regarding the production of Brazil and its international and national demand are still being debated, it is estimated that crop from April 2015 to April 2016, will produce around 44.1 and 46 million bags, local consume round about the 21 million bags, this allows them to export a total of 24 million bags. This could affect on the annual production decreasing the offer, causing an increase in the price market.

An example of the limited supply of coffee its reflected in Venezuela, who as an exporter of good quality coffee, has suffered serious falls in the production and fails to complete their exports quota; therefore, Venezuela has begun to exchange barrels of oil for sacks of coffee with Nicaragua, and cover at least the amount needed to feed its plaintiff population. The reason was that the government applied low prices over coffee, increasing demand without properly remunerate the production. In Venezuela a cup of imported coffee costs around 6 USD while 1 kg. of national coffee costs around $ 1.11 (El Economista).

Much can be learned from the statistics of coffee in the market, its limited supply vs. the vast demand, as well as the strategy of producers and governments. Market behaviour can vary by remote reasons, what Adam Smith called the “invisible hand”. The important thing is to be aware that although day to day we enjoy coffee, there is a large and complex system that is constantly changing, and affects directly in our life style.