Emilie Chien, Ida Zhang

Economics IB HL

Mrs. Jordy

a. Coffee’s origin:

Coffee has first been produced in the 11th century. It was largely confined in Ethiopia where its native beans were first cultivated by Ethiopian highlanders. Arabs expanded the trade of coffee to Africa, and then entered the Indian and European markets.

b. Where is it produced?The world coffee production could be broken down to 65% Central and South America, 25% Asia and Pacific, and 10% Africa.

South America Brazil 32.6 million bags per annum Colombia 11.5 million bags per annum Venezuela 1.15 million bags per annum Equador 1.12 million bags per annum Guatemala

Central America Mexico 4.08 million bags per annum Panama Jamaica

Asia/Pacific Indonesia 7.35 million bags per annum Thailand 1.38 million bags per annum Papua New Guinea 1.01 million bags per annum Vietnam 5.8 million bags per annum

Africa Ethiopia 3.8 million bags per annum Kenya 1.02 million bags per annum Tanzania Rwanda Uganda 3 milli on bags per annum C™te D'Ivoire

Other India 5.02 million bags per annum

c. Who produces this product?

- Produced by agri-businesses and small farmers depending on the different countries.

- Ethiopia, well-known for its high quality processed coffee because its structure connects coffee farmers, processing-plant owners, and governmental organizations and coffee-purchasing enterprises, which lead to an effective quality control and efficient marketing.

d. Where is it traded?- Commodity chain: producers, middlemen exporters, importers, roasters, and retailers before reaching the consumer.- Middlemen exporter --- purchase coffee from small farmers- Purchase coffee below market price to keep high profit- Large coffee estates/plantations

export their own harvests/have direct arrangements with a transnational coffee processing or distributing company- Sell at prices set by New York Coffee Exchange- Purchased by importers from exporters/large plantation owners- Importers = many loads, sell through numerous small orders- Coffee reaches consumers through cafés/other shops

e. Goods made from coffee- Transformed into fireplace logs – old dried coffee grounds from coffee maker filter, combined it with candle wax then compressed it into old cigar tube. 25% more energy than wood and triple than flame-Coffee syrups – contain no sugar, no carbohydrates, no fat. Added to ice cream-Muffin, croissants, sandwiches, cakes, ice cream. Low in fat and salt, good source of fiber

a. Price History

- Coffee prices experienced many changes

- 70s/80s, monthly coffee price average in international trade above 100 US cent/lb

- Declined during late 90s, minimum of 41.17 US/lb, stayed low until 2004

- Due to International Coffee Agreement during Cold War pressures, had held the minimum coffee price to 1.20$/pound.

- 2005, coffee prices rose. Increase in consumption in Russia and China

- December 2007, cost coffee rose extremely, about three percent.

Pr i ce of coff ee dur i ng di ff erent t i me per i od

0

20

40

60

80

100

120

70s/ 80s September 2001 Col d War

t i me per i od

pirc

e of

coff

ee (

USce

nt/l

bs)

b. Conditions responsible for large fluctuations in price

- Climate change. Coffee produced under certain environment factors, if climate changes, coffee crops would also be altered- Amount of coffee produced/price change could also be determined by commercial policy interests of the producing and purchasing countries- Quality harvest continues to be irregular, unpredictable and unstable- Coffee Agreement created stabilizes the price between supply/found limited success.

Industry group/ trade agreement- International Coffee Organization

• established in 1963• producing and consuming countries meet to

discuss / solve problems• set up COFFEELINE• administered six International Coffee

Agreements (ICAs)• 77 Members include 45 coffee exporting and 32

importing countries• functions through the International Coffee

Council, the Executive Board, the Private Sector Consultative Board, the Executive Director and a small Secretariat.

Mission

1) projects

2)improving quality

3)promoting consumption

4)suatainable coffee

5)working closely with the private sector

6)providing objective and comprehensive information on the world coffee market

7)ensuring transparency in the coffee market through statistics.

International Coffee agreement 1983

• secure price stability by s system of export quotas

• price above certain level=quotas suspended, price fall = quotas subsequently reintroduced

• quota system operate with given consideration, setting individual quotas, past export performance and to the stocks of coffee held in exporting Member countries

• supported by an obligatory system of controls

• Carry-over stocks in each exporting Member country were verified annually

• Council require to coordinate national production policies: balance between world supply and demand

• A Fund for the promotion of consumption financed by exporting Members. Established to sponsor research and studies related to the consumption of coffee.

• If price rose above certain level(S1 will move to S2 and D1 will move to D2.) =quotas suspended , result in the change in demand and supply ( shift S2 and D2 back to the accepted range. Point 2 move to point 1 and point 4 move to point 3)

• If price fall (S1 will move to S3 and D1 will move to D3) = quotas subsequently reintroduced (shift S3and D3 beck to S1,D1, move point 1to 2, point 3 to 4)

Economic models- how do they do it ?

Let’s Relax –Coffee jokes!

Bibliography• Website • ►International coffee organization. 2008.<

http://www.ico.org/index.asp>• ►Sustainable Tree Crop Program .2008. 29 April

2008.<http://www.treecrops.org/index.asp>• ►Economics of Coffee. 29 Sep.2008.Wekipidia. <

http://en.wikipedia.org/wiki/Economics_of_coffee>.• ►Great Green Goods. 2008. <

http://www.greatgreengoods.com/2005/10/30/fireplace-logs-made-from-recycled-spent-coffee-grounds/>.

• ►Creating a place that people can call home. Wozza Works. 2008. Chatham Coffee Company. <http://www.chathamcoffeecompany.com/place.asp>.

• ►Coffee cost soar into 2008. Neil Merrett. 2008. 16 Jan. 2008. Beveragedaily.com.<http://www.beveragedaily.com/Financial/Coffee-costs-soar-into-2008>.

• ►The world coffee trade. HollandbyMail.com. • <http:// www.Hollandbymail.com/coffee/coffee/coffee_trade.html>.

Bibliography• Image • ►“table of coffee producing area around the world.” Table. Miss Maud.com 2 Nov.2008.

<http://www.missmaud.com.au/Coffee/WorldCoffeeProducers/tabid/88/Default.aspx>.• ► “Advertising support pf coffee brands”. Photo. Orimitrade. 2008. <http://www.orimitrade.ru/main.php?page=15&lng=e>.• ► “Wall paper of the week 03”. Photo. Coffee Dharma. Jun 16, 2008. <

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