Eco 212 - Coffee Beans: An Economic Look at Supply and Demand

Supply and Demand of Coffee Beans

ECO212

Supply and Demand of Coffee Beans

Coffee bean supply are contingent on a few different factors, the most prominent is weather, the off and on year planting cycle and suppliers holding back coffee to influence the change in prices. Arabica coffee beans and Robusta coffee beans constitute the majority of the world's coffee markets. Along with these there is a smaller percentage of Liberica coffee beans grown and also in demand.

There are many variations of coffee beans all with different market values due to the time of year of the harvest and soil in which it is grown and of course the quality and demand for the specific types of beans.

Most of the premium coffee is made from Arabica and the less costly Robusta beans. Robusta beans are less desired than Arabica but add a desired characteristic to espresso. Over the last few years there has been a surge in the demand for Arabica coffee because of the emerging markets coming from Brazil, India and China (Harrington, Feb.) These two countries have a fast growing middle class which have a high demand for good coffee. The United States is competing with these countries for their share of gourmet beans. Brazil is expected to surpass the United States in 2012 and it is expected that they will be keeping about half their own crop by 2015 (Harrington, Febr.)

Off year production is used to give the coffee trees time to recover from the harsh harvesting season. Generally alternating years of coffee sales reflect the scarcity of coffee beans during off seasons. The plantations are researching alternate means of growing bean to overcome the need to have off and on years. This form of harvesting is called "zero-crop" harvesting. Trees are pruned to produce beans only in the "off" year when prices are usually higher (Harrington, Febr.) Also used to circumvent the off/on year harvesting is the more frequent use of "washing trees" when processing coffee beans. This process strips trees of their cherries much earlier than earlier than normal and thereby increasing the recovery period. The use more updated irrigation techniques helps to facilitate this process and influences the growth of the beans by supplying more water than the trees would normally receive from normal weather patterns (agrimoney, Febr.) Because of these new techniques Brazil's next off year, 2011-2012 will be their biggest yet which means that the prices that Brazil will receive for their beans will be premium. Though it puts more beans into the supply it does not mean lowering of prices. Brazil is planting off season specifically to reap the benefits of the off season price of beans.

There are many substitutes for coffee that can