COFFEE MARKET

Demand refers to the desire, willingness and ability of consumers to purchase a particular good or service at various prices per period of time, ceteris paribus. The law of demand states that the price and quantity demanded of a good are inversely related, ceteris paribus.

The supply of a good is the amount of the good that the producer is willing and able to offer for sale at various prices per period of time, ceteris paribus. The law of supply states that the price of the good, during a period of time, is directly related to its quantity supplied, ceteris paribus.

World consumption of coffee is projected to increase by 0.4 percent annually from 6.7 million tonnes (111 million bags) in 1998 2000 to 6.9 million tonnes (117 million bags) in 2010. 3 main consumer countries: Germany, Italy and The USA

World trend: gradual increase in total coffee consumption

Addictive nature of flavour Drinking coffee is a custom -> growth of coffee shops (The total number of coffee shops in the US increased by 70% between 2000 and 2005) faster paced life + increasing global development -> coffee improve productivity

IMPORTS OF ALL FORMS OF COFFEE BY SELECTED IMPORTING COUNTRIES FROM ALL SOURCES
Country 2012 consumption/ 60kg- 2011 bags consumption/60kg-bags 71 848 549 21 816 212 26 065 766 69 912 763 20 926 405 26 093 395

European Union
Germany USA

Coffee is the worlds most widely traded tropical agricultural commodity, accounting for exports worth an estimated US$ 15.4 billion in 2009/10, when some 93.4 million bags were shipped. 3 main suppliers: Brazil, Vietnam and Colombia

World trend: increasing supply

Country Brazil 2007 production/ 000 bags 2012 production/ 000 bags 36 070 12 516 16 405

50 826
8 000 22 000

Colombia
Vietnam

Increase in response to the gradual increase of demand Increase in number of sellers (coffee shops) Joint supply: coffee and milk price both increases

Price

S1 S2

P2 P1

D1
O

D2

Quantity demanded

The Coffee Paradox Experts on the world coffee market often make reference to the coffee paradox. A coffee crisis in producing countries with a trend towards lower prices, declining incomes and profits affecting millions of people in the worlds poorest countries. A coffee boom in consuming countries with rising sales and profits for coffee retailers and roasters A widening gap between producer and consumer prices only partly offset by the influence of Fair Trade in the coffee industry.

Because the supply-side of the world coffee market is fragmented with millions of small-scale producers the market power lies with coffee roasting companies who buy raw coffee beans and process them into coffee-based products. large multinational buyers, dominated by four firms: Nestl, Kraft, Procter & Gamble and Sara Lee.

The International Coffee Organization (ICO) brings together producing and consuming countries to tackle the challenges facing the world coffee sector through cooperation. Total 44 members (as to 17 Sep 2012) Brazil is effectively the swing producer for the global coffee markets, in other words, since Brazil is the largest coffee producer, changes in Brazil's supplies of coffee account for a large portion of the change in the world total supplies of coffee which then directly affects the prevailing international price.