Coffee Supply/Demand Elasticity Business At Cost Competition Monopoly (Essay Sample)

coffee Supply /Demand Elasticity Business at their Cost Competition Monopoly name School affiliation Introduction. In a year, more than 2.5 billion cups of coffee are consumed. This aspect makes coffee the second most valuable commodity in the world and also widely traded. Millions of people depend either directly or indirectly on coffee sales to earn a livelihood. However, the volatile prices of coffee and its production makes the core characteristics of the global market, hence ends up having a direct impact on the incomes earned by producers. According to the World Bank, an estimated 95 countries which are still developing out of 140 depend on exporting coffee at a rate of at least 50% of the total revenue of these countries. This makes coffee a dependent commodity in these countries, for example, Burundi which makes a total of 75% and Uganda at 54%. More than 25 million small-scale farmers engage in coffee production and sale solely for their livelihood. The sales of coffee worldwide, are estimated to be more than 70 billion dollars, but the worrying factor is that only 5 million dollars of the total money earned reach these countries. The reason for this is that the developed countries retain the majority of the earned revenue for their use. According to a report prepared by Oxfam, Ugandan coffee farmers only receive about 2.5 percent of the total price that coffee is retailing in the UK market. The roasting companies are the ones that determine the market power of coffee because the world coffee market is fragmented. Monopsony occurs in situations where the buyers dictate the market prices, thus lowering the prices that coffee growers receive at the end of the day. Over the last ten years, the prices of coffee have been volatile, and this is because of the determination of the market supply and demand. Consumption of coffee and the price elasticity of demand. In many rich countries, the demand for coffee has remained stagnant the growth of consumption has been growing stronger and stronger in markets that are emerging, like the eastern bloc countries. In order for fairer trade to exist, several factors are put into consideration when determining the prices. These prices include the taste and quality of the coffee (Kilian et al. 2006). The price elasticity of demand to acquire regular coffee might be quite elastic. According to Hayes (2008), conventional coffee has a less elastic price as compared to Fair Trade coffee. Research goes further to state that the demand for individual brands of coffee which are regularly turning out to be elastic. However, the demand for fair trade coffee is quite in...