Monday, March 1, 2010

Production Decline: An Opportunity For Price Increase

I've read several articles in the last week discussing what I have already addressed at some length: the world's waning coffee production. This slack in supply is going to be met with an intensified demand, and therefore a heightened price tag for consumers of all types. As a consumer, my first thought is to how I can avoid the wallet pinch this coffee quake is going to wreak on me. Can I buy green beans now, store them and roast them at my convenience later to stave off the effects of rising prices to me personally? Can I move to enjoying varietals that would be in greater supply, and in effect, have a lower price? After much pondering, researching, and investigation, I realize that we're all missing a great opportunity.

What truly sparked this thought was an article entitled, "Africa Key to Meeting Increased Demand for Coffee". This article addresses the requirements necessary for implementing this idea, the idea to grow more coffee to keep supply high enough for the growing demand. Investments in African infrastructure would need to be immense to boost the capability of growers there to meet the needs of the world's demand. The concept is to bring African coffee growing into the 21st century, to invest in the industry and bring about a renaissance of cultivation with its basis in the foundation of modern principles and economics. A fine dream, but I this action would defeat itself in the end. 

I understand the drive to invest in the African coffee producing infrastructure, I do. When Africa makes more coffee, more efficiently, at a higher quality, the consumer wins. Roasters get to source better beans from more producers at still low prices to meet their growing demand. Everybody wins, right? No. The farmers still lose when it comes down to it. Upping their production capabilities simply raises the supply and drops overall demand which, in turn, lowers their prices once more. Granted, the farmers will be selling more beans, but will the end growth in sales really be a significant profit? I think not. There is one fact of the coffee industry I have picked up on above all others and that is that the farmer always loses. How much he/she loses is the only variable. What I propose in this new situation we have found ourselves in is a bit strange, but worth considering, I think. Do nothing.

So, worldwide demand is growing significantly. Great! it seems that worldwide supply is dropping temporarily, too. Here's where my plan takes effect. Use this period of lower production (and higher prices) to make a shift in coffee sales practices. Get used to the idea of paying a bit more for raw beans. Start budgeting for pricier goods. Pass a bit of the cost on to the consumer. The effects of this when the supply of raw beans recovers will be a higher standard of living for the farmers. If production stays low enough for a long enough time (I do not claim to know how long), perhaps demand will have grown enough to keep genuine coffee prices at their raised value when production catches up. This genuine price hike will accomplish more than the Fair Trade pricing structure has been able to artificially.

Just a thought. If we're all struggling to get farmers paid better for their high-quality beans, why not use a genuine market fluctuation to affect the change? Why not use a natural event to start paying these farmers like we said we wanted to? I think the only reason why we wouldn't comply is because we really did not want to pay them much better in the first place. What it means is that all those roasters who gloated about being "Fair Trade Certified" were really just using it as a marketing ploy. Let the reduction in supply raise prices and lets keep paying those raised rates after its all over too. Just a thought.

Lord, thank You for changes in life to keep things interesting, but also Lord, thank You for remaining constant. That too, is very valuable. Keep my head deflated and on straight. Here we go.

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