The Economics of Coffee Bean Prices: Factors Affecting Cost

Coffee is the most popular morning drink. It seems that people could not start their day right without a cup of hot coffee. In fact, to some, a drink of this beverage in the morning suffices to substitute for a quick breakfast. Some can be contented with just a cup grabbed along the way to the office. Because of the love of coffee, many cafes had started to flourished almost anywhere in the world. And thus began the invention of different coffee concoctions that contributed to higher demand and a corresponding increase in coffee bean prices.

Coffee bean price: law of supply and demand

coffee bean pricesCoffee, next to oil, turned to be the second highest traded good in the world.  This gives us an idea on the high demand for this commodity causing coffee bean prices to go up. When the supply is too low, with the continuous increase in demand, coffee prices inevitably increase. That is the law of demand and supply.

Coffee prices are greatly determined by the factors affecting supply and demand. These two factors work in the opposite direction. When the supply is low and the demand is high the price would go up. Putting these two factors in the reverse condition, when the supply is high and the demand is low, the price will go down. Our concern now when we look at coffee bean prices is to check which of these two is threatened

World demand for coffee beans

Because of the increase of global demand for coffee beans, there arises a significant effect on the beans’ prices. In the past, there were countries where coffee is not a staple drink but lately, the demand in some countries was notably increasing. Take for instance China where drink consumption was traditionally tea. However, some years past, drinking coffee had become a part of the culture, though not totally replacing love for tea.

Another cause for the increase in demand for coffee and the resulting high coffee bean prices is unprecedented rise in coffee shop or cafe businesses. In the Philippines for instance, the emergence of call center or BPO jobs created a high demand for coffee, where night shifts are very common. Add to this the growing new trend of snacks, the chocolate covered coffee beans. Speculative trading has also contributed a lot to inflate the demand for coffee beans. What would you expect from all of these? When the demand is not correspondingly addressed by supply, coffee bean prices go up.

Factors affecting world supply of coffee beans

Not all countries are blessed with the right soil to produce best coffee beans. And even if a country produces beans, still not all can have high altitude locations to raise the good Arabica beans.

Aside from the growing demand, other factors can affect the supply of coffee beans. Weather and plant disease, political conditions and taxes can also affect supply and coffee prices.

Weather harsh to coffee plants is uncontrollable; adverse conditions affect coffee growth and yield. The damage will cause a diminishing supply and for that, increase in coffee bean prices is inevitable. Pests and diseases are also uncontrollable and when affected, an imbalance in supply and demand can be a hostile effect.

Granting that coffee bean producing countries enjoy good climatic and healthy conditions, the supply of beans may suffer due to the coffee-producing country’s political instability. Coffee bean trading can be hindered causing untoward effect on the coffee market. In some occasions, the government of coffee exporters may impose strict taxes and restrictions on coffee trading. The result will be less supply for higher coffee bean price.

Demand for coffee beans is on the rise. And like any commodity, coffee bean prices are subject to the economic law of supply and demand. Any imbalance between the two has an impact on the price.

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