Confronting the Coffee Crisis

942 Words2 Pages

Until about 1990, coffee was traded in a managed market, where both consuming and producing countries agreed on pre-determined coffee supply levels through export quotas for the producing country. This managed market was regulated by the International Coffee Agreement (ICA). But in 1990, disagreements broke out among the countries and the ICA was broke down. This, along with market liberalization, created an increase in the global coffee production. The increase in coffee supply brought on a rise in inventories in consumer countries along with a poor demand. One of the consequences of this shift was a change in power to the roasting and retailing industries and created a decrease in the prices that were paid to producers. This whole scenario is known as the coffee crisis. As discussed in class, when demand decreases for a product, companies or in this case producers should exit the market. But when it comes to coffee, producers don’t want to exit the market because the costs of moving out of coffee production are quiet large and farmers don’t have the means for alternatives. The reason being that, farmers don’t have any outside funding to promote efficient diversification and development. Another reason is that there are protection policies from the United States and the European Union that have made it harder for framers to benefit from producing other crops. And yet, the opportunity cost for farmers to switch to another product is higher than the cost of coffee in a low profit market. So, this book discusses different strategies that are being used to help producers get a better advantage to provide a living for their families. Different strategies being used include shade-grown coffee, differentiation of products, organic coffe... ... middle of paper ... ...ir payment to producers while also lowering the price to consumers. All of the strategies mentioned can help farmers but none of them seem to be the key solution. The supply of coffee is just too high with not as much of a demand. The problem with these strategies is that they can only protect a certain amount of producers, while leaving the rest to fend for themselves against the coyotes. I think that companies and cooperatives should look into educating producers on different ways to specialize their products or educate them on how to move from coffee to another product that could create more profit for them without creating a massive loss in the short-run. Fair Trade and organic coffee are good ideas but they need to develop more because they can’t protect all farmers due to limited demand. It is going to be a long process to truly get the coffee crisis solved.

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