Dumping of Coffee Stocks in World Market - Assignment Example

Coffee Market Question Producer cartels act as intermediaries between the producer and the consumer. However, unlike other stakeholders such as wholesalers and retailers who add value through storing and supplying the products, their aim is just to make profits. They achieve this aspect by ensuring that the producers and consumers do not meet in order to discuss on the prices of the commodities (Barro 2010). As a result, they are able to dictate the prices of the product in the market. In addition, they are able to control the amount of money that is reaching the producers. Cartels thrive because of lack of information. For instance, in 1980s, many of the major producers of coffee had poor technological infrastructures. Therefore, cartels took this opportunity to deceive the farmers concerning the real prices of coffee in the markets. Therefore, they dictated the amount of coffee to reach the market, an aspect that affected the supply of the commodity in the market. As a result, they create an artificial demand, thereby causing an increase in the prices of the commodity. However, on the other side, they maintain a constant amount of money they purchase the coffee from the farmers. Consequently, they make huge sums of money in the expense of poor farmers. The demand in the market determines the amount of the product that producers are willing to supply. Higher prices motivate the producers to increase the amount of products to be produced. However, cartels take all the benefits emanating from higher prices of the products in the market. Therefore, many producers end up being frustrated, an aspect that affects their levels of production. This explains why rising prices of coffee since 2005 have not acted as incentives to farmers. In reaction, majority of the farmers have uprooted coffee bushes and planted fast growing crops such as fruits which are earning higher prices in the global market. Cartels are illegal in many countries because they affect the independence of the market. This is through preventing the forces of demand and supply to dictate the prices of the commodities in the market. For instance, instead of farmers benefiting from high demand in the market, these benefits end up in the pockets of few individual who does not contribute even a single cent towards the production of the commodities. These are people who distort the movement of the goods along the value chain but their presence does not benefit the producers or even the consumers. As a result, they affect the growth of the production sector in the country. In addition, they raise the living standards of a country through hiking the prices of the commodities. Moreover, unlike the producers and consumers who carry the burden of paying taxes, cartels do not pay taxes. This is because their roles and activities have not been defined. As a result, they operate illegal businesses for their own personal benefits (Barro 2010). This explains why many governments across the world have scrapped off cartels in the value chain. This is to ensure that the producers are able to benefit from their work. Question 2 Question 2 (a) Severe frosts in important coffee growing regions will reduce the amount of coffee being supplied in the market. As a result, the demand for coffee in the global market will increase. This will in turn lead to hiking of prices of the available coffee in the market. However, this will only be possible if there are no cartels to affect the forces of demand and supply. In addition, it will be achieved if all the other factors of production remain constant. In an example, this new aspect cannot be achieved if the cost of production in the areas that has not been affected by frost goes up. This is because this might affect their level of production and profits in general. When all other factors are constant, countries that have not been affected by frost will overproduce in order to make immense profits. Question 2 (b) As indicated in the graph above, reduction of the costs of production will lead to an increase in the amount of coffee being supplied in the market. This is because many coffee farmers will be able to afford more pesticides, fertilizers, labourers, etc. However, increase in supply will lead to lowing of the overall demand for the coffee in the market. As a result, the prices of the coffee will fall drastically, an aspect that will discourage farmers from producing more coffee. However, this will be achieved only when all other factors of production remains constant. As indicated in the graph above, increase in the cost of production will in turn lead to a decrease in the amount of coffee being supplied in the market. For instance, if the farmers will not be able to afford the necessary chemicals or human resources required to produce coffee, they production levels will go down drastically. On the other hand, the demand in the market will increase an aspect that will make the prices of the coffee to shoot up. However, this will only be possible if all other factors are constant. Question 2 (c) According to the graph above, when the prices of coffee decreases in the market, the quantity demanded will increase. However, the quantity supplied will go down drastically. This is because the consumers will be willing to drink more coffee because it’s cheap to purchase. Nevertheless, the suppliers will not be willing to produce high quantities of coffee because it might not cater for the costs of production. However, according to the graph below, when the prices increase, the quantity of coffee being supplied to the market will increase because farmers will be yearning to make more profits. However, the quantity demanded will decrease because not many consumers will be able to afford a cup of coffee. Question 2 (d) Dumping of coffee stocks in world market will lead to a drastic fall of prices in the market. In addition, the supply levels will decrease while the quantity demanded will increase. However, this will occur only when all other factors remain constant. Question 3 Severe frosts in Vietnam would create an artificial demand in the market. As a result, the quantity supplied would reduce an aspect that would lead to an increase in prices. This would benefit other producers in the market. However, this could only happen if all other aspects remain constant. For instance, it cannot benefit other producers if there is inflation or the costs of production remains high. Nevertheless, other major producers would benefit more. References Barro, R. J. 2010. Intermediate MACRO. Mason, OH: South-Western Cengage Learning. Read More