Let’s have a nice cup of coffee:
https://www.bbc.co.uk/news/world-us-canada-48631129
At the producer level the price of coffee is dropping, despite increasing prices for Western consumers for the finished product. The first thing we have to point out is that there is absolutely zero connection between the two things.
The price we are willing to pay for a cup of coffee is…the price we are willing to pay for a cup of coffee. It doesn’t even relate to the cost to the coffee shop to produce it, although if they can’t make an adequate margin from the business they will simply shut down loss-making branches. Across the entire supply chain, the lion’s share (I’ve never been entirely sure what lions have got to do with this) of the profit will go to the single point of scarcity. Up until recently that point, in wealthy cities with vibrant economies, has been the provider of the premises. Now, of course, changes in the high street mean that premises are no longer scarce, not even here in Cambridge, and it’s not yet entirely clear where the new point of scarcity is. Based on casual observation I suspect it may in fact be the customers. If I am right we can expect prices to drop soon, or outlets to close.
One thing I am absolutely certain of is that the point of scarcity is not with the growers, which is why prices for their product are at a ten year low. One factor in this is the two years of surpluses from growers in Brazil, where apparently there’s an awful lot of coffee. Reading between the lines I believe coffee growing in Brazil is relatively productive, in contrast to other parts of the world:
‘Across Africa, where the market is largely made up of these smaller, subsistence farms, this cycle is proving exceptionally challenging.
“In Africa we are likely to see a lot more suffering than elsewhere because our yields are quite low,” Fred Kawuma, Secretary General of the Inter-African Coffee Organisation (IACO), told the BBC.
“The amount of coffee that a farmer gets out of his farm is so limited compared to, for instance, an Indian or Vietnamese coffee farmer.”’
I have some advice for these African coffee growers: unless your product is able to command a price premium, stop growing it and let places that are more efficient do the job instead. The correct response to a glut of supply is to stop producing the damn stuff in such large quantities. At least OPEC understand this, even if the policy implementation is not entirely effective. In fact, one of the tensions that makes agreeing global oil production limits so difficult is an exact mirror of the coffee situation – the cost of getting the stuff out of the ground is a lot lower in Saudi Arabia than, say, Russia, so the Saudis can live with a lower price per barrel than other producers. This especially suits them because one of the countries low oil prices hurt is Iran.
Countries and individuals do not get rich on the basis of agrarian economies. Even the production of raw materials such as oil and gas is a poor basis for development, since national economies will always be at the mercy of the world market. The trick is to add value through ideas, efficiency and innovation. Anything else is the road to ruin.