The effect of demand and supply on coffee

The effect of demand and supply on coffee

Coffee is one of the horticultural products which is highly consumed all over the world with over 2 billion cups consumed daily. It is one of the commodities traded in the world with millions of people depending on it either directly or indirectly either on production or sales of coffee for their living. Market prices for coffee are characterized by volatile prices and production levels which directly affect survival and income of the producers.

Over the past months, coffee buyers have experienced a sharp fall in production which has forced an increase in market prices which has made the market more volatile (Emiko, 2017). As an effect of changes in supply especially to the farmers, they are enjoying relative high prices from the sales, and in response, they are trying to increase the quantity produced and supplied to the market. However, it is expected that with the increased market prices producers will focus on increasing production targeting the available market.

Pricing is usually a continued evaluation of the product by product and market by the market which balances the needs of the business and continuing to provide quality services to all the consumers. About price volatility, producers are attributing it to frequent weather changes which are experienced in the production zones (Sylvain, 2017). This has significantly affected production and quality of coffee which is resulting in low supply in the market. For instance one of the world largest producers for coffee Brazil has experienced production forecasts which is a key role driving current market volatile, i.e., the difference between high-end supply forecast and low-end forecast becoming bigger every day which creates noise in the marketplace.

With the expected future increase in prices of coffee, producers and domestic consumers are expected to buy more of the good now when the prices have not changed. This is expected to cause a rightward shift in the demand curve. This means that consumers will buy at the original price p0, but the quantity demanded rises to q2 developing an excess demand in the market. However excess demand creates a force in the market which raises the prices towards achieving equilibrium point where new demand curve intersects with the initial supply curve. The result is an increase in market price. An increase in demand for coffee will cause an increase in the equilibrium price and quantity of the product.

References

Emiko Terazono. (2017, April 11). Coffee Industry Warned of Volatile Prices. Retrieved from https://www.ft.com/content/e994faf8-1eb8-11e7-a454-ab04428977f9?mhq5j=e5
Sylvain Charlebos. (2017, October 10). Bad News for Coffee Lovers. Retrieved from http://www.dailymail.co.uk/sciencetech/article-4966856/How-coffee-industry-affected-climate-change.html

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