Article Analysis free essay sample

The Economics of Coffee ECO/365 May 15, 2013 Article Analysis: The Economics of Coffee People around the world consume numerous goods every day. There are several things that determine what quantities and how frequently they are consumed and those influences can either work in tandem or act individually to influence a person. It is these foundations that set an average for what consumers will purchase and the volume of goods to be created by agriculturalists and industrialists. This is known as economic consumption patterns, and these patterns are carefully studied by economists. With the data that they glean from this assessment economists can then use that information to provide the economy with data about the supply and demand of those goods and services. In an article by Dan Harrington titled â€Å"Coffee Price Increase 2011-2012 – Coffee Prices – Coffee Shortage Due to Emerging Markets† he posits that even though the United States is in the midst of an economic crisis, there has been no downswing on coffee consumption. Just the opposite, Americans are buying more coffee and the demand is rising every year. Coffee has an unfailing and growing economic utility. In other words, the level of pleasure received when people drink coffee has remained high over the years. Additionally, there are more buyers in our economy that are extending the types of beverages they drink with coffee, and the extensive assortment of coffee drinks that are offered. This has supported the increase of coffee’s utility in the marketplace. In the past several years the demand, or desire, for coffee has increased in countries more widely known for their consumption of other beverages. For instance, the people in China are traditionally considered consumers of tea, but in recent years this has changed. The demand for coffee in China has been growing so rapidly analysts have a hard time gauging it though estimates have been a growth of about twenty percent annually for the last two years† (Harrington, 2011). With such an extreme escalation in demand, manufacturers are having a difficult time delivering the quantity of the product that is wanted. This increa se in demand, and no increase in supply, causes prices in the economy to rise. Up through 2012 the price of coffee rose for several reasons. One reason is that coffee farmers are increasing their costs in an effort to produce more coffee. These include growing more cocoa plants, hiring more laborers, upgrading shipping methods that move the coffee more quickly, and the fuel costs for those methods. A major production delay that must be factored in the increase for coffee is that it takes an average of five years for the cocoa plant to mature and begin producing beans. Also, time itself can be a hindrance to these farmers if they do not prepare for possible demand spikes. Finally, it is the unpredictable nature of the coffee market’s supply and demand that has made investors in coffee more speculative in recent years. The growth in the world’s economic demand for coffee is not the lone reason why supply cannot match the amount of demand. Other aspects such as climate changes, natural disasters, and cocoa plant diseases, are but a few things that can have an impact on the supply. One such disaster is currently happening in Guatemala. Small local farms have been plagued with coffee rust, an infection that severely affects the growing cycle of the plant and in most cases kills it completely. Because of this there is a growing fear that the supply of coffee will dramatically decrease in the next few years, pushing prices even higher. Coffee was not always increasing in cost. In years past, coffee was relatively inexpensive to buy because coffee was typically consumed in certain countries, but now that many more countries are consuming coffee, the supply is having a difficult time keeping up with the demand. For instance, if economists predicted in 1980 that the demand for coffee would increase between 50% and 80% by 1990, then it would stand to reason that farmers would have probably enlarged the size of their crops in order to accommodate the demand. However, in 1990 the demand for coffee only rose by 10% thereby creating a surplus of coffee on the market for consumers. Because coffee is so easily obtainable, and farmers are trying to sell their goods so the crops will not go to waste, prices begin to drop to help tempt purchasers, which helps the producers so they avoid losing their investment entirely. In our global economy, the price of coffee is thought of as elastic. What this means is that as the selling price of coffee increases or decreases, so does the demand for it. Simply put, coffee is not needed by humans to survive but rather is a luxury item, so as the price increases there is less of a demand for coffee and vice versa. Things that would be looked at as inelastic in our economy are staple products such as fuel, food, and water. These items are things that we believe we cannot do without and consumers will still purchase these items in spite of the price increases because without them they believe, their life would be greatly impacted. While the price of coffee is considered elastic, many people it is consider a vital part of their daily routines and this greatly diminishes its seeming elasticity for consumers. References Harrington, D. (June 3, 2011). Coffee Price Increase 2011-2012 – Coffee Prices – Coffee Shortage Due to Emerging Markets. Retrieved from http://www. gourmetcoffeelovers. com/coffee-price-increase-2011-2012-coffee-prices-coffee-shortage-due-to-emerging-markets/