The Effects Of Globalization And The Coffee Industry

3422 words - 14 pages

The Effects of Globalization and the Coffee Industry
Assignment #5
ECON 401

December 30, 2014

Globalization has had an effect on many aspects of our lives, socially, economically, politically, and culturally. Since the 1970’s trade barriers have been minimized and the coffee industry has been a high import and export for many countries being the second most traded commodity in the world behind crude oil (Chapman, Hodges, 2011). As the industry evolved and large corporations fed on the increasing demand for coffee, it has become a commodity many countries rely on; 20 million people depend on coffee for their livelihood (AAFC, 2010), whether it be the north American coffee retailor ...view middle of the document...

00 per pound to 0.62 cents (Frank, 2004). This low price attracted many multinationals (MNC’s) to take advantage of a hot commodity at such a low price.

The United States is the world’s largest importer of coffee. Companies such as Kraft, Nestle, Proctor and Gamble are the major roaster companies and account for 50% and the annual production of coffee (Tradertech, 2014), which is sold in our grocery stores for consumers to buy. Also the popular retailor Starbucks who has revolutionized people’s relationship with coffee since 1982 and now has close to 20,000 stores worldwide (Schiltz, Gordon, 2011), has made the coffee market what it is today. In 2012 Starbucks sourced 545 million pounds of coffee for the 20,000 stores (Website, 2014). The company surely had a leg up in the mass expansion in the 1990’s due to the overproduction in developing countries and buying at the low rate.
As it takes 3-5 years for a coffee tree to grow where the bean is marketable, it is no wonder more countries started to open their climates up to the production to attempt to keep up with the demand. The world’s top coffee producing countries are Brazil, Vietnam, Columbia and Indonesia. Brazil and Columbia produce Arabica Coffee, which is of the higher quality. Countries such as Vietnam produce Robusta coffee, which is a lower quality type. When it comes to consumption, it really has no effect on the price. When coffee prices rise, people just don’t stop drinking coffee, and the same if coffee prices go down (Tradertech, 2014). Brazil for example produced 2 million metric tones of coffee beans in 2005, which was double Vietnam production.

(Source: www.coffeeforless.com)

Production, Quality & the Environment, Corporate Exploitation

I wonder if people think about how much of the $5.00 coffee actually goes to the farmer. But in fact we are paying approximately 50 times more than what they are actually getting in labour for us to have the morning cup of coffee, according to Oxfam, an International Humanitarian organization who attempts to defend the farmer’s rights in various industries. Since there are many parts to the $5.00 coffee from the farmer, middle man and laborers in the country being sourced, that all gain a piece of the $5.00. Not to mention the transporting costs, production costs, the farmer is at bottom of the coffee chain and it doesn’t make any difference as rising costs of production and transport, farmers are still getting the same price.

For example, farmers in Vietnam farmers make 0.09 cents per day (Frank, 2004), working hard to get a fair price in the market and are competitive. This creates a surplus in the market, with nowhere for the bean to go. The farmer must sell their crop just after harvest, as they have no storage facilities. The
(Source: www.pearlspowder.blogspot.com)

multinational corporations then purchase for much lower prices. This effect on the overproduction on the developing countries is hidden...

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