Coffee Market

Paper Summary:

This paper provides an analysis of the international coffee market, including an explanation of the factors affecting the market, including pricing dynamics, supply and demand and the role of cartel-like behavior among industry associations. It focuses on a article in The Economist magazine (?Drowning in Cheap Coffee?, 9/29/01 ) in which the author offers some background on how coffee?s latest price slump came about, explains what some producers ? and producer associations ? are doing about it and suggests remedies for escaping their plight. It draws a comparison between the global coffee market and the world oil market, as both operate according to some of the same dynamics and cartel-like influences. A number of illustrative graphs and charts are included.

From the Paper:

"Another type of advantage realized by certain growers, not necessarily related to their choice of competitive strategy, is a low degree of operating leverage. By relying heavily on manual labor, a variable cost, rather than large-scale production machinery that entail high fixed costs, farmers across Latin America have been able to quickly scale down production in the face of poor economic conditions. Moreover, these firms likely have lower break-even points than equipment-dependent producers - that is, they can cover costs even while overall revenue is down, to a greater extent than more mechanized operations. While firms benefit from this kind of operational flexibility, the Economist article points out the other side of the coin: tens of thousands of rural laborers from Mexico to Brazil suddenly looking for work, many begging for food along roadways."

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