Suppose that you have been hired by the Bureau of Economic Analysis to analyze the factors that have driven the recent (that is, in XXXXXXXXXXworld price of green coffee. Use the tools of economic...

TECHNICAL SUMMARY
MAJOR FACTORS AFFECTING
THE WORLD SUPPLY OF COFFEE
AND THE WORLD DEMAND FOR COFFEE
IN 2011-2012
Facto
event
Impact on the world
supply of coffee
Impact on the world
demand for coffee
1. Climate change adversely
affecting coffee production
primarily in East Africa and
parts of South America
The world supply of
coffee decreased.
This resulted in
higher prices in the
etail market
No impact.
2. Rise in disposable income,
consumption in developing
economies increasing
Supply will slowly
increase with the
ise in per capita
income
While developed
economies witnessed
stagnant consumption
growth, developing
economies with higher
per capita income
witnessing increase
demand
3. Increasing population Rising population
esulted in higher
proportion of people
catering to the
growing demand for
coffee
With the rise in
number of people,
demand for coffee will
ise substantially
World Coffee Market 2011-2012: Structure and Composition
Coffee is amongst the world’s widely trade commodities. Given the
amount of consumption (c. 600 billion cups every year), the demand for
coffee is phenomenal. In addition, as only a little over 60 countries
produce coffee, majority of the countries have to depend on imports to
meet their requirements.
According to International coffee organization – an intergovernmental
organization for coffee (IOC), total coffee production for crop year
2011/12 is cu
ently estimated at c. 134.4 million bags. Coffee production
during the year increased marginally by c.0.7% over crop year 2010/11.
The paltry growth in coffee production during the year can be attributed
to the adverse weather conditions in many exporting countries that had
negative impact on the post harvest activities. While the production
witnessed a marginal increase during the year, world coffee consumption
increased by c.1.5% to 139 million bags in 2011.
In terms of production, Brazil dominated the list, followed by Vietnam and
others. During 2011/12, Brazil produced c.43.5 million bags of coffee
accounting for c.32.4% of total world production. Besides being the
largest producer of coffee, Brazil also remained the largest coffee exporter
during the period. In 2011/12 alone, Brazil exported c.30.5 million bags
or c.70% of its total coffee production. According to the IOC, the United
States is the largest coffee importer. During 2011/12, the US imported
c.26.1 million bags of coffee from across the globe. Since it does not have
favourable coffee production environment, it relies heavily on imports for
its coffee requirement. However, being a major trade destination, it
serves as one of the largest destination for re-export of coffee. During the
period US rexported c.3.8 million bags of coffee, second to Germany and
Belgium. There is a fair bit of consolidation in the world coffee market,
which suggests that the coffee market across the globe is highly
competitive.
The dynamics of world coffee prices in 2011-2012
The ICO composite indicator...