Economics of coffee
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Coffee is also bought and sold as a commodity on the New York Board of Trade. This is where coffee futures contracts are traded, which are a financial asset involving a standardized contract for the future sale or purchase of a unit of coffee at an agreed price. The world's largest transfer point for coffee is the port of Hamburg, Germany.
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Consumption
Pricing
According to the Composite Index of the London-based coffee export country group International Coffee Organization the monthly coffee price averages in international trade had been well above 100 US cent/lb during in the 70s/80s, but then declined during the late 90s reaching a minimum in September 2001 of just 41.17 US cent per lb and stayed low until 2004. The reasons for this decline included a collapse of the International Coffee Agreement of 1975-1989 with Cold War pressures, which had held the minimum coffee price at USD$1.20 per pound. Moreover, the expansion of Brazilian coffee plantations and Vietnam's entry into the market in 1994 when the United States trade embargo against it was lifted added supply pressures. The market awarded the more efficient Vietnamese coffee suppliers with trade and caused less efficient coffee bean farmers in many countries such as Brazil, Nicaragua, and Ethiopia not to be able to live off of their products, which at many times were priced below the cost of production, forcing many to quit the coffee bean production and move into slums in the cities. (Mai, 2006).
Specialty coffee, however, is frequently not purchased on commodities exchanges—for example, Starbucks purchases nearly all its coffee through multi-year, private contracts that often pay double the commodity price. It is also important to note that the coffee sold at retail is a different economic product than wholesale coffee traded as a commodity, which becomes an input to the various ultimate end products so that its market is ultimately affected by changes in consumption patterns and prices.
The market for soft drinks has been steadily climbing, passing the consumption of coffee in terms of mass of product consumed in the early 2000s.
In 2005, however, the coffee prices rose (with the above-mentioned ICO Composite Index monthly averages between 78.79 (September) and 101.44 (March) US Cent per lb). This rise was likely caused by an increase in consumption in Russia and China as well as a harvest which was about 10% to 20% lower than that in the record years before. Many coffee bean farmers can now live off their products, but not all of the extra-surplus trickles down to them, because rising petroleum prices make the transportation, roasting and packaging of the coffee beans more expensive. Prices are expected to either remain constant or rise in 2006. (Mai, 2006)
