The Coffee Crisis Essay

1415 words - 6 pages

Critique of: The Coffee Crisis

For years, coffee has been considered one of the most important crops widely grown in the developing world. Several countries’ economies, specifically countries in Central America and parts of Africa, are highly dependent on this crop as a source of both national income and export earnings. About 25 million people, most of whom are small-scale farmers, rely on coffee as their main source of income. For the past 15 years the coffee industry has experienced severe declines in prices that have impacted economic development in several international markets. This critique explores a case study released by the Kennedy School of Government at Harvard ...view middle of the document...

The exact region that coffee is produced will depend on the particular type of beans being grown. Robusta (coffea canephora) and Arabica (coffea arabica) are the two basic types of coffee produced in these countries. Robusta, grown from sea level to 800 meters, is the most prominent because it is easier to produce, but its acidic flavor makes it the less preferred coffee by consumers. Arabica, grown above 800 meters, produces in lower volumes and its milder flavor makes it the most popular choice (Quinlan, Gomez-Ibanez, & Bok, 2004).
Quinlan, Gomez-Ibanez, and Bok (2004) indicate there are other factors that contribute to the actual quality of the bean. In addition to altitude, weather and the care in which the beans are harvested and processed have considerable influence on the outcome of the quality of the coffee beans. In 1997, Brazil experienced a severe frost that affected its coffee crops and caused a sharp increase in the price of arabica coffee beans (Quinlan, Gomez-Ibanez, & Bok, 2004).
Quinlan, Gomez-Ibanez, and Bok (2004) described industry analysts’ opinions of the main factors that potentially led to the decline in coffee prices over the last 15 years. Analysts indicated an imbalance between supply and demand played a major role in the coffee crisis. Annual production exhibits provided by Quinlan, Gomez-Ibanez, and Bok (2004) indicate a total combined coffee production in 2003 of 101.4 million bags worldwide (Exhibit 5), but world consumption was estimated at around 90.9 million bags (Exhibit 3). Accounting for over 20 percent of the worldwide coffee consumption, the decline experienced in the US between 1970 and 1990 had a major impact on national consumption rates. Fortunately, in the early 1990s the decline in the US slowed after the introduction of premium coffees and major coffee shop chains like Starbucks and Dunkin Donuts (Quinlan, Gomez-Ibanez, & Bok, 2004).
The collapse of the International Coffee Agreement (ICA) in 1989 was reportedly another contributing factor to the coffee crisis (Quinlan, Gomez-Ibanez, & Bok, 2004). The ICA imposed quotas while also controlling prices between the major coffee producing and the major consuming countries. While the ICA was involved, the coffee industry experienced fairly stable prices. However, without the ICA to manage the exportation and importation quotas in the coffee market production increased without regulation. Overproduction created an imbalance in price and consumption, which was reflected in Exhibit 1. The table “Trends I Real Price and Consumption per Capita, 1984-2003” indicated there was a steady decline in real price and consumption per capita from the year of the ICA collapse up until the early 1990s (Quinlan, Gomez-Ibanez, & Bok, 2004). Although the initial price crash was an immediate response to the collapse of the ICA, another cause that contributed to subsequent crashes and sustained low coffee prices was over production....

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