DEMAND AND SUPPLY

DEMAND AND SUPPLYCOFFEE MARKETDemand refers to the desire, willingness and ability of consumers to purchase a particular good or service at various prices per period of time, ceteris paribus.The law of demand states that the price and quantity demanded of a good are inversely related, ceteris paribus.

ConceptsThe supply of a good is the amount of the good that the producer is willing and able to offer for sale at various prices per period of time, ceteris paribus.The law of supply states that the price of the good, during a period of time, is directly related to its quantity supplied, ceteris paribus.ConceptsWorld consumption of coffee is projected to increase by 0.4 percent annually from 6.7 million tonnes (111 million bags) in 1998 - 2000 to 6.9 million tonnes (117 million bags) in 2010.3 main consumer countries: Germany, Italy and The USA

DemandWorld trend: gradual increase in total coffee consumption Demand

Addictive nature of flavour Drinking coffee is a custom -> growth of coffee shops (The total number of coffee shops in the US increased by 70% between 2000 and 2005) faster paced life + increasing global development -> coffee improve productivity

DemandIMPORTS OF ALL FORMS OF COFFEE BY SELECTED IMPORTING COUNTRIES FROM ALL SOURCES

DemandCountry2012 consumption/ 60kg-bags2011 consumption/60kg-bagsEuropean Union71 848 54969 912 763Germany21 816 21220 926 405USA26 065 76626 093 395Coffee is the worlds most widely traded tropical agricultural commodity, accounting for exports worth an estimated US$ 15.4 billion in 2009/10, when some 93.4 million bags were shipped.

3 main suppliers: Brazil, Vietnam and Colombia

SupplyWorld trend: increasing supply

SupplyCountry2007 production/ 000 bags2012 production/ 000 bagsBrazil36 07050 826Colombia12 5168 000Vietnam16 40522 000 Increase in response to the gradual increase of demand Increase in number of sellers (coffee shops) Joint supply: coffee and milk price both increases

SupplyPrice of coffeePriceQuantity demandedOS1S2D1D2P1P2

The Coffee ParadoxExperts on the world coffee market often make reference to the coffee paradox.Acoffee crisis in producing countrieswith a trend towards lower prices, declining incomes and profits affecting millions of people in the worlds poorest countries.Acoffee boom in consuming countrieswith rising sales and profits for coffee retailers and roastersAwidening gapbetween producer and consumer prices only partly offset by the influence ofFair Trade in the coffee industry.

World Coffee MarketBecause the supply-side of the world coffee market is fragmented with millions of small-scale producers the market power lies withcoffee roasting companieswho buy raw coffee beans and process them into coffee-based products.large multinational buyers, dominated by four firms: Nestl, Kraft, Procter & Gamble and Sara Lee.World Coffee MarketTheInternational Coffee Organization (ICO) brings together producing and consuming countries to tackle the challenges facing the world coffee sector through cooperation.Total 44 members (as to 17 Sep 2012)Brazilis effectively the swing producer for the global coffee markets, in other words, since Brazil is the largest coffee producer, changes in Brazil's supplies of coffee account for a large portion of the change in the world total supplies of coffee which then directly affects the prevailing international price.

The International Coffee Organisation (ICO)