Coffee Is Globally Traded Commodity

GMCR’s warns of the potential impact of the price of coffee on the gross profit margin. To combat this, GMCR had made a number of purchase commitments to ensure an adequate supply of coffee (GMCR Annual Report, 2010). The market price for coffee is impacted by numerous factors including weather, economy, and competition. It is vital that GMCR continue to take proactive measures to secure against unforeseen spikes in coffee prices. The price of coffee does not only impact GMCR’s ability produce coffee for the Keurig brewer under its namesake but impacts their partner suppliers as well. GMCR purchases coffee from brokers, farms, estates, and cooperative groups and essentially diversifies its coffee supply, reducing some supply risk (GMCR Annual Report, 2010).

According to statistics, Finland is the country with the highest per capita consumption of coffee, and China is the lowest one, but in Finland there are nearly five million residents only, which means Finland will consume a million bags of coffee every year, but the 1.3 billion residents of China will provide approximately 200 million potential coffee consumers, and this will make China becomes a major coffee market. On the other hand, under the same culture background, compare to Japan and Korea, Chinese average annual per capita consumption is only around 20 Cups, but this also means Chinese consumer coffee market has a big room for future growth.

The 21st century has seen several companies cross international borders to look for new markets to conduct their business and increase shareholders’ return. The process was fuelled by opening of borders and advancement in transport mode and technology in the 21st century. The situation has complicated the attempts to fully understand the process of global production. However, the research and different literatures in the recent past have given customers and scholar a good read on forms of labour which go into producing the product or service, and how this work is globally distributed (Coe, Dicken and Hess 2008, p.274). The development has made customers to strongly know what they want and what they consume. Therefore, this essay will analyze the Global Production Network (GPN) of coffee and discuss who benefits most from the structure of this GPN. In the analysis, the essay will focus on three different aspects. First, the paper will analyze various forms of labour that go into creating the product and how is this work globally distributed. The essay will also analyze how the value is captured at each stage of production distributed along the network. Lastly, the essay will focus on the institutional arrangements that explain the structure of this GPN.

We can understand the relation between commodity and trade development through the study of coffee and it’s origins. Over about 90% of coffee is produced in the South, and consumed in the North. Or a long time Latin America has provided most of the world’s coffee. Coffee comes from a cherry produced by a tree that requires a warm climate without any sudden temperature shifts or frost and it needs plenty of rain. This climate is ideal for coffee between the tropics of Cancer and Capricorn. During the movement of coffee from harvest to export the first step is to separate the coffee bean from the skin and the pulp of the cherry, this results in what is called “green” coffee. Before it is exported the coffee is cleaned and sorted into lots that have different quality attributes, something like the grain elevators. The lots vary as they go from country to country based on the size, the shape shape and the deficiencies it might have or the way it is processed. At this point in the process the coffee still has it’s individual quality and value.

The growing chained coffee shops culture in the on-trade has inspired manufacturers to launch specialty coffees in the off-trade. This has led to an increase in both volume and value sales of coffee in the Netherlands. Dutch consumers are becoming more adventurous when it comes to coffee, as is illustrated by the growing popularity of espresso, cappuccino, single origin coffee and flavored coffee.

insights which have been neglected by the later literature of new growth theory and new trade

Along with the second biggest part of the equation are the consumers of the products, not only the countries that import the goods. In the last six months, the European Union fluctuated, but did not falter being the leading importer of coffee with 9,994 units in july 2017, 10,439 units in September 2017, and 9,509 units in December of 2017. The United States imported 2,453 units in July 2017, 2,255 units in September 2017, and 2,328 units in December 2017. Japan imported 580 units in July 2017, 607 units in September 2017, and 460 units in December 2017. The Russian Federation imported 476 units in July 2017, 446 units in September 2017, and 467 units in December 2017. All units in thousand 60 kilogram bags (“Trade Statistics Table”). Within the European Union is the biggest coffee market as well as the oldest coffee market, which are the United Kingdom and the Netherlands. Both countries’ fair trade sales increased by 24% in 2011 and continue to increase as more producers become Fair Trade certified (Ladhari,2015). The United States fair trade sales increased by 12% in that same year. While these statistics were acquired, it was also noted about the consumer’s purchasing trends compared to their personal values. According to Pelsmaker, consumers’ ideal purchasing trends are not completely reflective of their actual buying behavior (Pelsmacker, 2005). Therefore, the

Finally, global economic issues have an immense influence on the world of coffee. Throughout history there has been a pattern that coffee producing countries are economically worse off than those that are consuming the coffee. Pendergrast mentions that “in 1950 the average income in consuming countries was three times that of coffee-growing nations. By the late 1960s it was five times great” (270). With that said, many producing coffee countries were facing endemics and malnourished peoples because workers were receiving absurdly low wages thus placing them into poverty and human suffering (271). Specifically, although 90 percent of El Salvador’s exports consisted of coffee in the 1930s, they agonized from “‘low wages, incredible filth…[under] conditions in fact not far removed from slavery’” (168). Global economic issues of these producing countries lead to dictators easily gaining power such as those in Guatemala, Nicaragua, and Honduras (170). Not only was politics a matter that resulted from global economic issues, “the high interest rates from financial institutions and price [squeezes]” lead to the economic struggle of farmers like those from Colombia due to

As far back as 1860, coffee had become the major export in Colombia (Equal Exchange). By the 1920s, however, the coffee industry in the country was undergoing difficult times as a result of unstable international market forces. Thus, coffee growers were not guaranteed a steady income. Out of these circumstances arose an

Assuming that the demand and supply for premium coffees are in equilibrium, the price will be at a constant, without significant pressure from the market. If Starbucks introduced the world to premium blends, this would cause a positive shift in the demand curve. There a higher equilibrium price and higher quantity when demand increases and supply remain unchanged. As prices increase, and the market moves to a new equilibrium, we will see higher wages, more advances and investments in technology and infrastructure, and greater competition. As production become more efficient and competition becomes greater, supply will increase and cause prices to settle back down. There are several factors that will impact the long-term equilibrium, such as changes in supply. For example, if a hard freeze eliminated Brazil’s premium coffee crop, this would cause a negative shift in the supply curve. Assuming demand remains constant a negative shift in the supply curve will cause quantity to decrease and equilibrium price to increase. Research shows that in 2011 a frost occurred in Brazil's southeastern coffee growing belt. Traders worried that next year's yields could be hurt. At the same time, heavy rains during harvest forced Columbia to reduce its crop estimate for 2011. Understanding the impact of problems along the supply chain and how the changes in supply

The Wall Street Journal, Boston Globe , and the Economist as well as many other media outlets of record were all in consensus when they declared the onset of coffee crisis in October 2001; farmgate prices had sharply dropped reaching a thirty-year low of $0.39 per pound in This price was below the cost of coffee production at the time, listed at USD 0.60 per pound.(Economist 2001) Price declines are not such an uncommon occurrence, but what is more troubling is that the cash market for coffee suffers from high price volatility. For a more detailed look please see Appendix 1: Cash Price Variation. Coffee producers , who are mainly located in developing countries , are highly vulnerable to price risk in the cash market ,

In the movie “Black Gold”, the Ethiopian coffee farmers were getting a low cost for their harvested Ethiopian coffee. Farmers were forced to live a living standard below the average norm because of the unfair compensation. Despite the fact that more than two billion cups of coffee were getting consumed every day(“Black Gold”) and coffee’s retail sales have increased from $30 billion to $80 billion every year since 1990 (“Black Gold”), the farmers were still not getting enough to establish the lives that they deserve. The primary cause of this unfortunate occurrence was the fact that the four major companies (Kraft General Foods, Nestle, Proctor & Gamble, and Sara Lee) that hold the majority of the market shares of coffee controls the international price of coffee due to the lack of international regulation(“Black Gold”). Also, the

The “Fair Trade for All” implementation which aims to increase the market for fair trade coffee beans by allowing coffee plantations, who produce large amounts of coffee, to become fair trade certified. However, supply for fair trade coffee is larger than the demand. This makes it much harder for small coffee producers to sell their coffee as they must compete with large coffee plantations who can produce much more coffee, ultimately putting small-scale coffee producers at a disadvantage (Cole, N. L., & Brown, K. 2014).

The price of commercial coffee is controlled by the New York and London exchange markets where they decide the prices of coffee(Francis, 2006). Most of the buyers and seller that deal in the trading of coffee usually look at the New York market to make their decisions on the prices. Also the World Trade Organization is involved in controlling trade of commercial coffee, but these decisions and the way stuff is traded is controlled by developed nation and small undeveloped countries in Africa have to say or voice in

Fair Trade Coffee Fair Trade promotes socially and environmentally sustainable techniques and long-term relationships between producers, traders and consumers The world coffee industry is in crisis. A flood of cheap, lower-quality coffee beans have pushed world market prices down to a 30-year low. Many now earn less for their crop than it cost them to grow. Many coffee farmers around the world receive market payments that are lower than the costs of production, forcing them into a cycle of poverty and debtWithout urgent action, 25 million coffee growers' face ruin.