Essay Sample on Coffee Pricing

Introduction

Coffee is an agricultural product, and therefore, the price can vary depending on different factors and are beyond the control of the farmers or producers, weather and disease. Besides, since supply and demand are inelastic, any alteration in supply can cause a substantial change in the price. Demand for coffee relatively prices inelastic. If there is the rise in the production of coffee, the price will fall, and as a result, there will be a smaller percentage increase in demand. Few close substitutes cause the above scenario to coffee (Free, 2010).

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Additionally, coffee accounts for a smaller percentage of income and therefore, changes in pricing do not make a much substantive difference to the overall demand. Historically, the supply of coffee is always inelastic, and in many cases, if there is a rise in prices, farmers cannot always respond by increasing production and supply in a shorter time (Free, 2010). Instead, the process of production will take longer than expected as farmers will have to prepare the land to plant more coffee. In other words, it will take three to five years before the coffee can produce beans. The above scenario, therefore, reveals that there is always a big delay in responding to changes in pricing. In the modern market, the number of countries producing coffee has increased (Free, 2010). Therefore, traditional producers such as Colombia have increasingly faced stiff competition from other countries seeking to enter the market.

Causes of Fluctuation in the Prices of Coffee

Historically, there has been a fluctuation in the prices of coffee due to the demand factors. The growing demand in the emerging countries in line with the per capita incomes is one of the main reason behind the fluctuation in prices. For instance, the demand in China has doubled in China for the last five years. The historical fluctuation in coffee pricing has also been attributed to the prices of substitutes for the commodity such as cocoa and tea.

Additionally, supply factors have also led to the fluctuation in pricing. The supply factors influencing the prices of coffee include inventories (the existing levels of coffee stock), climatic conditions such as the impacts of heavy rains such as El Nino (Free, 2010). Variation in the number of countries producing coffee is also another factor that contributes to the variation in the prices of coffee. Lastly, investments and productivity in the production in major coffee farming countries is another factor that often leads to the fluctuation in the prices of coffee (Wilson, 2010). The falling stock levels usually put upward pressure on the prices, in the year 2018, coffee prices rose partly because there was an increase in the demand, a situation which greatly reduced the stock levels. In many different markets, scarcity often drives prices higher.

The fluctuation in the prices of coffee is expected to increase in future. There is a growing consensus among the experts that climate will harshly impact coffee crops over the coming years (Wilson, 2010). Climate change generally threatens the agricultural sector, and as a result, many farmers are experiencing challenges in trying to maximize production. In other words, the mounting land surface caused by climate change will not be suitable for arable farming (Wilson, 2010). Coffee supports livelihood for over fifteen million Ethiopians, constituting sixteen percent of the population. Climate change is, therefore, the major threat to the resilience of similar nations.

Recent Pricing of Coffee

The table below shows the fluctuation in the coffee prices from the year 2010. Going by the figures presented in the table, from the year 2010, there has been a fluctuation in the prices of coffee. Again, there is also a constant decrease in average prices. Before 2010, i.e., from 2002 to 2010, there was an increase in both price and global production. However, after the year 2010, the growth in supply finally led to the decrease or fall in prices. One factor is that the rise in prices in the year 2002 could have triggered the increase in supply. When there was a fall in prices from the year 2011, the planting or production of coffee remained constant, a situation that led to an increase in supply and reduction in prices. Going by the trend shown in the table, price fluctuation is likely to increase in future due to changes in climatic conditions as well as the increased production. However, it is very difficult to anticipate future changes due to variation in the market demand. Many companies, through advertisement campaigns, as well as the factors that are beyond human controls, the pricing patterns may change.

Application of the Information

Various managers in a supply chain can apply the information above about the price fluctuation in the coffee prices. The sales managers in planning can use the information and the trends in the prices. Besides, the information can be used by the manufacturers to regulate the number of products in a given time. Besides, coffee farmers can also use the information to make predictions about sales in the market and plan for their production activities. In most cases, when there is high demand for a commodity in the market, the prices often increase, and when there low demands, the prices tend to decrease. The above situation can, therefore, be explained by the trends in the table above. With the information about the fluctuation in the prices of coffee, those who are willing to enter the business can find the best procedures and ways to deal with uncertainties that are often defined by climate change, weather patterns, and even consumer behaviors. In many cases, coffee farmers, manufacturers, and sellers have encountered problems due to the variation in the markets. With the information, different stakeholders involved in the farming, manufacturing and the sales can prepare for the uncertainties in the market. Demand for coffee relatively prices inelastic. If there is the rise in the production of coffee, the price will fall, and as a result, there will be a smaller percentage increase in demand. The historical fluctuation in coffee pricing has also been attributed to the prices of substitutes for the commodity such as cocoa and tea.

References

Kordick, C. (2019). The saints of progress: A history of coffee, migration, and Costa Rican national identity.

Free, R. C. (2010). 21st-century economics: A reference handbook. Thousand Oaks, Calif: SAGE.

Wilson, B. R. (2010). Indebted to fair trade? Coffee and crisis in Nicaragua. Geoforum, 41(1), 84-92.