The Global Crisis of Coffee

Topics: EconomicsEconomic Development

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Last updated: April 20, 2019

For many years coffee has been the most valuable commodity in international trade after petroleum. The coffee sector has had a profound influence on the political, economic and social structure of a large number of countries like Colombia, and is at the same time, one of the world’s most popular beverages.

Fortunately, we are just recovering from one of the most dramatic moments in the history of coffee over the last 100 years. Export prices are the lowest since 1900. More than 20 million coffee farming families were and still are struggling to survive in countries located in Africa, Asia and Latin America, where the coffee sector continues to be vital for their economic development. It is no exaggeration to say that the coffee sector has been a powerful factor of economic and social development in these countries.In the case of Colombia, a country whose economy I am most familiar, coffee was responsible for creating urban centers, transport infrastructures, land use, job opportunities and the expansion of both, the industrial sector and the financial system. It is the agricultural source that the most jobs generates, 350,000 families take advantage of the coffee, which is also the mayor product of exportation. Colombia is the second largest producer in the world and has the tastiest and finest coffee in the world. With the global crisis that affected us so bad, we lost millions of dollars.

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Unemployment in Colombia was the highest in Latin America, entire families faced deep poverty and misery due to this drastic fall in world coffee prices, and this also happened to most of the countries whose economy depends on coffee as their most important source of exportation.What actually happened is these countries overproduced coffee, this allowed coffee corporations to buy beans at rock bottom prices, prices so low that they did not even begin to cover the costs of production; it decreased almost 50 per cent. In the economic world, this is an inelastic demand, in other words, there is no equilibrium between the amount of goods and the number of consumers. But while the price paid for coffee to producers has bottomed out, coffee processing corporations are making huge profits, like the Four major coffee roasting companies, Nestle, Kraft, Sarah Lee, and Procter ; Gamble, which control nearly 50 percent of the world’s coffee market and are not contributing with any solution, instead they were making it worst by buying more Robusta coffee, this is a low quality coffee grown mostly in Vietnam and in some Africa countries, for a really low prices, making the decrease in the consumption of high quality coffee, known as Arabica mostly grown in Colombia and central America, with a high cost of 400,000 to 500,000 jobs in Colombia and central America.Families depend on money generated by coffee were pulling their children out of school, they could not longer afford basic medicines, were cutting back on food, but beyond farming families, national economies were suffering. Coffee traders were going out of business, some banks were in trouble, and governments were faced with dramatically declining budgets for education and health programs, and there was little money for debt repayment.I think, according to the research that I have done, that some of the solutions for this tremendous problem might be; first of all, we definitely need to equalize coffee production and consumers demand, with a plan of restricting coffee, it requires that the countries’ exporters of coffee withhold 20 per cent of their coffee exportations for a long term of 3 to 4 years, this will equalize demand and goods.

Second of all, give new regulations to the coffee price market in the international coffee agreements (ICA). They had a lot of problems with its old system of regulating prices. Also, improving quality and giving easy financial mechanisms to producers.

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