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What actions might be taken by governments to reduce or limit price fluctuations of your commodity (Coffee) - Essay Example

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Supply and demand logic indicates that the consumers will be willing to buy goods at a larger quantity with lower prices than they would at a higher price. However, the assumption is usually violated when…
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What actions might be taken by governments to reduce or limit price fluctuations of your commodity (Coffee)
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What actions might be taken by governments to reduce or limit price fluctuations of your commodity (Coffee)

Download file to see previous pages... As a result, the farmers will not be able to make a profit and will end up running in a danger of going out of business. The government, therefore, intervenes and attempts to raise the prices or try to affect the farmer revenue. A good example of this intervention is through subsidy or negative taxation. In these cases, the farmers receive extra payments from the government. An example is in the coffee industry. Alternative solutions include government involvement to buy the products in the open market causing an increase in demand until the commodity prices get to the desired level. Alternatively, the supply of the commodities are curtailed by quotas where only certain farmers are allowed to grow a certain crop, and there are limits on how many products can be produced i.e. sugar, coffee, tobacco. Price controls can be imposed to limit the maximum and minimum prices that can be charged for a certain product. However, it has serious consequences causing a decrease in production as it will not be profitable to produce as many products as they are demanded because of the low prices causing a shortage of the commodity.
Farmers generally face price fluctuation of coffee product prices. This is so because coffee products that are produced by one farmer are equivalent to a similar product of the same grade that is produced by another farmer. Farmers are, therefore, considered to be price takers as they can sell all their products at any market price but have no individual bargaining power for their products to raise their prices. Therefore, it is essential to ensure that there is stability in the global market prices of the agricultural products (Mohan 2007). Supply management programs, and agricultural policies in the past have helped in maintaining production around the demand to ensure that farmers do not produce an oversupply that can lead to prices collapse of their products. A number of strategies ...Download file to see next pagesRead More
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