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Macroeconomic Factors Affecting Coffee Trade Essay

2217 words - 9 pages

MBA
CORE

MICROECONOMICS PROJECT
AN ANALYSIS OF THE COFFEE MARKET
ASHWIN MURALI (I001) | ANIRUDHHA BHATOTIA (I006) | APALA RATH (I063)

CONTENTS
Sr. No.

Topic

Page No.

1.

Research Question

2

2.

Introduction

2

3.

Industry characteristics in India

3

4.

The economics of the coffee market

4

5.

Findings

6

6.

Conclusion

7

7.

Suggestions

7

8.

References

8

1

Research Question
How does weather drive microeconomic forces to affect the prices of coffee?

Introduction
Coffee is a brewed drink prepared from roasted coffee beans, which are the seeds of "berries" from the
Coffea plant. Coffee is a popular ...view middle of the document...

It earns a lot of foreign exchange in many developing countries and some
countries still rely on coffee for up to 80% of their export revenues. Trade patterns have evolved over
time traditionally benefiting big exporters like Brazil, Columbia and now Vietnam. From 1957 to 1989
the coffee market was regulated by the ICA, which regrouped both exporting and importing countries.
Second only to oil, coffee is the world’s second most traded commodity. As the global third most
consumed beverage, after water and tea, coffee beans are in high demand everywhere. The top producing
nations each produce millions of kilograms of coffee beans that find their way into the hands of eager
consumers.
The top 10 producers of coffee beans in 2014 were:
1. Brazil – 2,720,520,000 kg
2. Vietnam – 1,650,000,000 kg
3. Colombia – 750,000,000 kg
4. Indonesia – 540,000,000 kg
5. Ethiopia – 397,500,000
6. India – 344,750,000 kg
7. Honduras – 279,000,000 kg
8. Mexico – 240,000,000 kg
9. Uganda – 240,000,000 kg
10. Guatemala – 210,000 kg
The two most common types of coffee beans used in making coffee are the Arabica bean and the
Robusta bean. These two beans are used more than any other variety of beans, either in their pure form
or in coffee blends.

2

Industry characteristics in India

Seasonal nature of the crop
Coffee production is seasonal as it is dependent on rainfall. The first monsoon showers help the
coffee plant to flower and showers thereafter are necessary for the development of the coffee
berries. The Arabica crop has a biennial bearing tendency. The domestic coffee season is between
October to September.

Regional concentration of plantation
Karnataka, Kerala and Tamil Nadu have highly concentrated coffee cultivations. 98% of the
country’s coffee production come from these regions. Andhra Pradesh, Orissa and North-eastern
India account for the rest.

Fragmented land holdings
There is a high level of fragmentation in the area under coffee cultivation and small growers
account for 99%. About 37% of the total area under coffee cultivation is made up of estates of
less than 2 hectares.

Limited corporate presence in plantation; end-product market dominated by companies
The Indian coffee industry is characterized by presence of big companies such as Hindustan
Unilever Ltd (HUL), Nestle, Tata Coffee. These players are primarily present in the branded
segment. For instance, Tata Coffee Ltd's (TCL) production of 19.1 million kgs in 2013-14
accounted for only 6 per cent of the country's total coffee production.

Southern India predominant consumer of coffee
The people in South India account for nearly 80% of the total coffee consumption in India.
Among the south-Indian states, Tamil Nadu accounts for 36% of consumption, while Karnataka,
Andhra Pradesh and Kerala accounts for 21%, 18% and 15%, respectively. People in the south
region, prefer filter coffee more than instant coffee and people in...

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