Coffee Crisis Essay

Introduction Stephen Quinlan and Jose Gomez-Ibanez describes, in The Coffee Crisis, that in 2004 the g everywherenments of umber berry producing countries were considering how to respond to quick decline to cocoa harms. In 2001, cocoa prices hit a forty-year low, which resulted in extreme hardships for the local anaesthetic farming communities. On that note, this decline in coffee bean prices was considered the coffee crisis. The coffee crisis came to be thanks in part to coffees overproduction, under- sp curioing and oligopoly trade structure. International personality and Structure.At best, coffee should be turn outn in an area with a warm climate and an abundance of rain. Coffee is centrally grget nest the equator however, it is primarily consumed in the northern hemisphere. It is traded in 60-kilo bags and the annual crop exceeded carbon gazillion bags in recent years. In 2003, for example, 101 billion bags were produced of which some 95 million bags were consum ed and the remaining 6 million added to storage in the hopes of fetching higher prices in later years(Quinlan & Gomez-Ibanez, p. 1, 2004). Coffee is comes in two types Arabica, which is milder in flavor, and Robusta, which is acidic.Robusta, which is grown in Asia and some countries in Africa, is easier to grow and is primarily used to make instant coffee, espresso and local consumption in the producing countries (Quinlan & Gomez-Ibanez, p. 2, 2004). Arabica, which is grown primarily Latin America makes up, historically, two-thirds of the coffee produced and is the immenseest to produce. The long production time begins with a two year period out front the coffee seedling can bear fruit followed by several more years before reaching full production (Quinlan & Gomez-Ibanez, p. 2, 2004). Supply and bring AnalysisThere was a rapid decrease in coffee consumption due to an increase in sonant drink consumption. In the U. S. , it is estimated that coffee consumption fell from 36 gallon s to 17 gallons per person and soft drinks change magnitude from 23 to 53 gallons per person (Quinlan & Gomez-Ibanez, p. 2, 2004). As U. S. coffee consumption began to slow down in the 1990s, due in part to the increased liking to premium coffees thanks to Starbucks, Petes and other coffee chains, European coffee consumption increased along with other countries helping spark off the U. S decline.Beginning in 1962, the International Coffee Organization (ICO), an standoff of coffee exporting and importing countries, managed the coffee market by negotiating exporting and import quotas to support target prices (Quinlan & Gomez-Ibanez, p. 3, 2004). The ICA grantd in 1989 and this opened the door for non-traditional suppliers equal Vietnam and traditional supplier Brazil. During this period, Brazil had always been the worlds oversizedst coffee producer, growing Arabica by traditional labor-intensive methods in frost-prone areas (Quinlan & Gomez-Ibanez, p. 3, 2004).Since most Arabic a coffee is grown on steep slopes, Brazilians utilized new plantations on leveled shew developed new large-scale coffee plantations in less frost-prone areas, mechanical harvesters along with other cost-cutting devices to replace donkeys in how they produce coffee. Vietnam, who had never exported coffee before through government assistance, was able to build irrigation systems to help in the production of Robusta coffee beans (Quinlan & Gomez-Ibanez, p. 3, 2004). These beans produced in Vietnam had a vile tone, less flavourful and were processed at lower quality standards than traditional Arabica.Within a couple of years Vietnam had become a top supplier and was context of use the price in which all other Robusta producers would have to compete. By the end of the decade, Vietnam had become the largest Robusta producer in the world, although its be were rising as the rapid growth in the Vietnamese economy was increasing local income and wages (Quinlan & Gomez-Ibanez, p. 3, 20 04). Market Structure The overall coffee market resembled that of an oligopoly, which is defined as a market dominated by a few large producers of homogeneous or differentiated product.Because of how few exist, oligopolies had considerable control over their prices, but each must consider the possible reaction of rivals to its own pricing, output, and advertising decisions (McConnell, Brue & Flynn, 2012, p. 223). Oligopolies are also characterized by barriers to market entry (McConnell, Brue & Flynn, 2012). Although on that point were many countries producing and exporting coffee, the market was largely dominated by a few countries (i. e. , Brazil, Colombia, and later on, Vietnam). Oligopoly, by its very nature, limits transparency in the market place.Within ten years this country grew from a relatively undistinguished producer to the world second largest ahead of Colombia (producing 11 million bags score for 10% world export) but behind Brazil (producing 35 million bags account ing for 35% world export) producing well over 11 million bags annually and accounting for approximately 12% of world exports (CRB, 2006). Factor Markets From the ICA collapse bringing forth Vietnams entrance into the coffee market to the quality degradation, the coffee crisis affected more than just the market.With a drop in coffee prices, the farmers not being able to grapple all of their costs so growers families many had to remove their kids in drift to help out at the farm (Quinlan & Gomez-Ibanez, 2004). There was the merging of coffee blends and the experimentation of new ways of creating low quality coffee beans in an effort to meet demands. As a result many of the beans were of poor quality, which caused the coffees to taste cheap. Furthermore, such an increase in low-quality beans causes the price to drop in order to remain competitive (Quinlan & Gomez-Ibanez, p.3, 2004).Many major roasters experimented with technical advances in finding new ways to mask the bitterness of the acidic bean. They tied(p) went as far as combining Robusta and Arabica beans together. This line of production caused the price of coffee to decrease, which hurt many producers because the profits werent enough to cover most of their overhead (roughly 65-90 US cents per pound) (Quinlan & Gomez-Ibanez, Exhibit 6, 2004). This caused the quality of coffee to shine because many roasters were using beans that should have been discarded.It also caused countries whose costs were high (Central America, Colombia and Mexico) with medium or lower quality coffee to be in disoblige (Quinlan & Gomez-Ibanez, 2004).Reference Commodity Research Bureau (CRB). (2006). The CRB Commodity Yearbook 2006. eBook Retrieved from http//books. google. com/books? id=GmzxkvNhxnIC&printsec=frontcover McConnell, C. R. , Brue, S. L. , & Flynn, S. M. (2012). pursue Determination. Economics (19th ed. ), (pp92-114). New York, NY McGraw-Hill. Quinlan, S. & Gomez-Ibanez, J. (2004). The Coffee Crisis. Capella Uni versity. McGraw-Hill.