In order for the global economy to strive, there must be confluence amongst the countless

micro and macro economic factors. This places a spotlight on the interdependence of the
factors of production, coupled with how key role players interact with each other and conduct
their business activities. Users of economic events may use this spotlight in an attempt to
interpret market behaviour, estimate price action, forecast supplies and attain optimal
inventory levels at bearable prices. Some of the factors to consider when evaluating a
precious commodity such as coffee is; the weather, the farmers and most importantly the
supply chain.

The arrival of the La Nina weather

phenomenon has a trait of bringing
dryness into the southern part of
South America where the largest
coffee exporter, Brazil, is located.
This leads farmers into fear as it
affects the harvest they anticipate
along with the health and quality of
produce of their plants. As the
economic problem is one of scarcity,
it is expected of farmers to demand
higher prices for their stock as that
would be the rational solution to
accommodate endless needs and
Figure 1: decrease in the supply of coffee beans
wants. This persistent need is
graphically illustrated in figure 1
above as D1, which remains unchanged. On the contrary, supply factors have been victim to
change and are anticipated to be discouraging. This lack can be interpreted as the leftward
shift from S1 to S2 that subsequently leads to an increase in price. The values of Q merely
reflect quantity demanded, with Q1 and Q2 reflecting quantity demanded in the event of S1
and S2 respectively.

Not to place all blame entirely on farmers for punishing consumers with higher prices. Their
actions can be justifiable as an action of minimising opportunity costs and maximising
benefits. The United States Department of Agriculture stationed in Sao Paulo has observed
farmers holding on to their inventory in an attempt to seek buyers at higher prices. Farmers
further made their intentions clear by forfeiting on arrangements previously made at lower
prices and accepting nothing but the highest price for their stock.

This has driven traders and distributors of coffee into the alternative futures market. The
futures market allows one to have a guaranteed price on a specific date. If the real price
(commonly referred to as the spot price) on the specific date is higher than the future price
that a trader locked in, the trader experiences a discount. This discount can be interpreted as
the difference between the spot price and the future price. It is common practise for the
futures market to quote an over steamed price, but in the current treacherous conditions, most
 consumers would gladly take a
higher price with some
guarantees. Despite the futures
market presenting opportunity
for discount, the futures market
in itself rallied upwards in price,
reflecting the uncontrollable
demand of consumers trying to
at least get their orders filled.
Beside is figure 2 reflecting the
price chart of Arabica coffee, the
most consumed coffee beans,
that account for 60% of global
production (Wikipedia, 2023).
Figure 2

The retail prices paid by consumers often

reflect all costs incurred to get the product
into a consumption ready condition. With
that being said, the costs of distribution,
namely freight rates are an ever-
significant component when attempting to
interpret the price behaviour of the final
product. The Covid-19 pandemic
disrupted the global supply chain and
supply services still had to find their post-
pandemic feet. Coffee export volumes are
down 24% in October 2021 compared to
October 2020 (Terazono, 2021). The
Coffee Exporters Council of Brazil stated
that traders struggled to get bookings for
containers and vessels and that traders
Figure 3: Reflecting the market factors concluding the price of
freight charges faced frequent loading postponements
from shipping companies. Figure 3 beside
reflects the consequences that this will have on the market forces of demand and supply as
wells as the concluded price. The leftward shift of the supply graph from S to S2 reflects the
dwindling supply of pandemic struck freight services. The rightward shift of the demand
curve from D to D2 illustrates the firm demand for coffee as well as the recovering state of
post pandemic consumers. The quantity of freight services available would remain fairly
balanced as the new demand would incentive fresh quantity supplied and offset some of the
deteriorating suppliers. This leads the cost of freight services into higher pastures as reflected
in the upward shift from P1 to P2.
In conclusion, the global economy is highly interdependent and actions by many of economic
role players have a ripple effect on the bottom line price of products

Written by: Mphatso Manyamba