Coffee Supply And Demand

Coffee Supply and Demand

Besides the high demand and cost for gasoline these days, coffee is considered the second most traded commodity on worldwide markets next to oil. "Coffee is grown in more than 50 countries in a band around the equator and provides a living for more than 20 million farmers. Altogether, up to 100 million people worldwide are involved in the growing, processing, trading and retailing of the product" (Spilling the Beans..., ). In 2001, coffee farmers and plantations produced over 15 billion pounds of coffee while the world market only bought 13 billion pounds. The overproduction in the coffee industry is not a usual thing and is one of the major reasons why prices vary throughout the industry.

One of the major corporations today that is trying to control a large portion of the supply of coffee is Starbuck. Starbucks Corporation is the leading retailer, roaster and brand of specialty coffee in the world. Starbucks purchases, roasts, and sells whole bean and rich-brewed coffees, espresso beverages, cold blended beverages, an assortment of food items, coffee-related

accessories and equipment, a selection of quality teas and a line of compact discs. Starbucks has over 8,700 retail locations in North America, Latin America, Europe, the Middle East, the Pacific Rim and is continuing to grow. When coffee is considered Starbucks has developed a worldwide name for itself and has become a huge success.

An article in the Seattle Post, describes the alliance that Starbucks is making to ensure that a sustainable supply of high quality of coffee is produce in Latin America. "Starbucks President and CEO Orin Smith said the alliance is partly his company's effort to pass on the "high price" of a cup of coffee to farmers." (Lee, 2004). He states that the high price enables them to pay the highest price to the farmers. Though the high prices to suppliers can demonstrate that money get to farmers with being diverted. Starbucks overall goal with this alliance is to buy 60 percent of its coffee under the standards agreed upon by 2007. "The agreement reflects the growing power of the premium coffee market and efforts to exploit it for the benefit of small farmers" (Lee, 2004).

When it comes to the supply, demand and price of coffee there are certain factors that can fluctuate these characters to rise or fall. Weather is one example that affects the consumption of coffee. People tend to drink more coffee in the winter rather than the summer due to the cold temperature, shorter days and the fact that it is harder to get going without a cup of coffee during the holidays. Starbucks has tried to avoid these dramatic drops in the summer by offering a variety of cold drinks and desserts however; during the summer these factors are considered more of a "want" compared to almost a "need" during the wintertime.

Another factor that directly affects coffee prices is the taxes and tariffs that the government imposes. In the same boat as cigarettes and alcohol, coffee is one of the highest taxed products in the United States. Just recently the tax on coffee went up to about 10 cents per cup, on top of all the tariffs that already are paid. In response to the increase, coffee drinkers all over the country reacted by protesting but