Blog
Unit 1 Micro: Coffee Prices and Profits Fall for Growers
28th July 2013
We are now into the 3rd year of falling coffee prices in the world economy and the combination of weaker revenues and rising costs are causing big problems for some of the coffee suppliers in the poorest countries. This Financial Times news video provides some background on the industry. The price has fallen 60 per cent from its peak and the market seems saturated.
Ethiopia is an example of a country affected by the decline in world prices. The value of exports from Ethiopia, Africa’s biggest grower of coffee, fell 2 percent in 2012-13 from a year earlier as a result of declining prices for the beans - this despite a 19% rise in coffee bean production.
Global coffee production will exceed demand by 4.46 million bags in the 2013-2014 season, the fourth straight year of production surpluses that will send inventories to the highest since 2009.
This is good news for coffee retailers such as Starbucks whose operating profit margins have been boosted by the falling cost of supplying the roasted coffee beans. The Starbucks share price has risen by more than 80% since the summer of 2011.
Recommended reading:
The Economist - Plenty of Coffee - Too Few Drinkers - Click here to view
Financial Times - Coffee bean growers take a roasting - Click here to view
Business Daily Africa - Coffee, tea farmers face sharp drop in earnings as prices fall - Click here to view
FT News Video Report
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.