Price volatility in the coffee market
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Revision presentation on the economics of price volatility in the coffee industry
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Price volatility in the coffee market
- 3. World’s biggest exporters of coffee in 2016
- 4. World’s biggest exporters of coffee in 2016 Distinguish between exporters of raw coffee beans and processed coffee products – which have a higher value added in retail markets
- 5. How many cups (200 ml), on average, of coffee do you drink per day? 30% 38% 18% 7% 1% 1% 5% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 1 cup or less 2 to 3 cups 4 to 5 cups 6 to 8 cups 9 to 10 cups 11 or more cups No answer Shareofrespondents
- 7. CAUSES OF PRICE VOLATILITY D1 P1 Price Quantity S1S2 P2 An adverse supply shock can cause market prices to rise especially when PED is low (<1) PRICE DETERMINATION
- 8. CAUSES OF PRICE VOLATILITY D1 P1 Price Quantity S1S2 P2 An adverse supply shock can cause market prices to rise especially when PED is low (<1) If the demand curve is inelastic when the supply curve shifts there will be a significant increase in price PRICE DETERMINATION
- 9. CAUSES OF PRICE VOLATILITY Price Quantity P1 D1 P1 S1Price Quantity S1S2 P2 D1 D2 P2 An adverse supply shock can cause market prices to rise especially when PED is low (<1) Rising market demand can cause price spikes – especially when supply elasticity is low If the demand curve is inelastic when the supply curve shifts there will be a significant increase in price PRICE DETERMINATION
- 10. CAUSES OF PRICE VOLATILITY Price Quantity P1 D1 P1 S1Price Quantity S1S2 P2 D1 D2 P2 An adverse supply shock can cause market prices to rise especially when PED is low (<1) Rising market demand can cause price spikes – especially when supply elasticity is low If the demand curve is inelastic when the supply curve shifts there will be a significant increase in price If the supply curve is inelastic when the demand curve shifts there will be a significant increase in price PRICE DETERMINATION
- 11. PRICE VOLATILITY IN THE COFFEE MARKET 0 20 40 60 80 100 120 140 1/1/00 9/1/00 5/1/01 1/1/02 9/1/02 5/1/03 1/1/04 9/1/04 5/1/05 1/1/06 9/1/06 5/1/07 1/1/08 9/1/08 5/1/09 1/1/10 9/1/10 5/1/11 1/1/12 9/1/12 5/1/13 1/1/14 9/1/14 5/1/15 1/1/16 9/1/16 5/1/17 Global Price of Robusta Coffee US$ per tonne PRICE DETERMINATION
- 12. PRICE VOLATILITY IN THE COFFEE MARKET 0 20 40 60 80 100 120 140 1/1/00 9/1/00 5/1/01 1/1/02 9/1/02 5/1/03 1/1/04 9/1/04 5/1/05 1/1/06 9/1/06 5/1/07 1/1/08 9/1/08 5/1/09 1/1/10 9/1/10 5/1/11 1/1/12 9/1/12 5/1/13 1/1/14 9/1/14 5/1/15 1/1/16 9/1/16 5/1/17 Global Price of Robusta Coffee US$ per tonne Coffee price change Rationing Function Incentive Function Increase Demand contracts Supply expands PRICE DETERMINATION
- 13. PRICE VOLATILITY IN THE COFFEE MARKET 0 20 40 60 80 100 120 140 1/1/00 9/1/00 5/1/01 1/1/02 9/1/02 5/1/03 1/1/04 9/1/04 5/1/05 1/1/06 9/1/06 5/1/07 1/1/08 9/1/08 5/1/09 1/1/10 9/1/10 5/1/11 1/1/12 9/1/12 5/1/13 1/1/14 9/1/14 5/1/15 1/1/16 9/1/16 5/1/17 Global Price of Robusta Coffee US$ per tonne Coffee price change Rationing Function Incentive Function Increase Demand contracts Supply expands Decrease Demand expands Supply contracts PRICE DETERMINATION
- 14. PRICE VOLATILITY IN THE COFFEE MARKET Growing demand in emerging nations as incomes rise Prices of substitutes for coffee Inelastic demand among coffee consumers Demand factors PRICE DETERMINATION
- 15. Share of coffee consumers in China as of December 2016, by age 3.1% 14.3% 32.4% 28.6% 21.6% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% Below 20 years old 21 to 25 years old 26-30 years old 31-35 years old Above 35 years old Distributionofconsumers
- 16. PRICE VOLATILITY IN THE COFFEE MARKET Growing demand in emerging nations as incomes rise Prices of substitutes for coffee Speculative demand among coffee traders Demand factors Climatic conditions e.g. impact of el Nino Level of coffee stocks (inventories) Number of countries producing coffee Supply factors PRICE DETERMINATION
- 20. Key economic issues • Causes of price volatility in markets • Micro consequences of volatility e.g. for farm and household incomes, profits, employment and investment • Macro consequences of volatility e.g. for exports (balance of payments), growth of real GDP, tax revenues, prospects of extreme poverty reduction • How can price volatility be moderated? • Buffer Stock Schemes • Innovation in farming • Investment to tackle long-term challenges of climate change including better crop resilience, addressing water scarcity
Hinweis der Redaktion
- Coffee is the 117th most traded product and the 948th most complex product according to the Product Complexity Index (PCI).
- This tree map shows the share of countries that export Coffee.
- This tree map shows the share of countries that export Coffee.
- Coffee grown in more than 60 countries Coffee is the most traded commodity in the world after oil. Coffee beans are grown in more than 60 countries and allow 25 million families worldwide to make a living Brazil is by far the largest producer, followed by Vietnam and Colombia.
- China has doubled its consumption in the last five years.
- World coffee production in 2017/18 is provisionally estimated at around 158 million bags, which represents an increase of 0.7 per cent compared to 2016/17
- Falling stock levels put upward pressure on price – prices seem set to rise in 2018 partly because rising demand has reduced existing stock levels. Scarcity drives prices higher.
- Long term threat to coffee supply There is growing consensus among experts that climate change will severely affect coffee crops over the next 80 years. By 2100, more than 50 per cent of the land used to grow coffee will no longer be arable. Coffee provides a livelihood for close to 15 million Ethiopians, 16% of the population.
- Strong recommend this BBC article