Effect Of Demand On Coffee

1017 Words 5 Pages
A shift on the supply demand curve will have an effect on the pricing of coffee, as supply increases the price of coffee will decrease. The increase of coffee supply from 1997/8 to 1998/9 is an example of this, using data collected by the ICO, as supply increased from 99,550 (in thousand 60kg bags) in 1997/8 to 108,858 (in thousand 60kg bags) in 1998/9 this can be explained due to an increase in suppliers with the addition of Yemen, Guyana and Loa. The increase in coffee supplying countries will effect total production by adding to the market, simultaneously additional competition in the market will encourage other exporting countries to further increase their productivity and therefore supply. Alongside this 1998 saw the beginning of a decline …show more content…
Coffee is a good example of this as there are limited substitutes for coffee, due to customer preferences substitutes such as roasted grain beverages seem to have minimal effect on the demand for coffee. The lack of success of these substitutes is potentially due to there tendency to be caffeine free, this addictive component of coffee tends to keep demand constant. Additionally, the variety of coffee products available such as latte, Americano or an espresso keeps the market open to a wider variety of customers will a variety of preferences, therefore demand for coffee proves inelastic. These factors can be used to explain my value of price elasticity of demand at -0.45%. Furthermore, if the consumer’s income increases they will be able to purchase more of the product. In relation to coffee the income elasticity of demand was at 1.18% therefore if the consumer’s income increases they are highly likely to purchase higher quantities and quality cups of …show more content…
This can be seen from historical data recorded by the ICO on prices paid to growers in exporting countries, increasing from 39.30 US$/lb in 2004 to 67.10US$/lb in 2005 in El Salvador. Additionally, these importing countries can use their knowledge of price elasticity of demand when factor pricing. The inelasticity of coffee means importing countries can pay more for the coffee and still achieve the demand required even if they increase retail price. Income elasticity of demand also is important information for businesses when forecasting supply needed as income will greatly effect the demand. As income elasticity of demand for coffee is greater than 1 businesses can research into predicted financial situations and use this to determine the amount of supply and which types of coffee to produce to reach the maximum potential for

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