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Ms Lee: Hi

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Please write out the names of the members in the group.
1. Danial
2. Geraldine
3. Sarah
4. Michael
5.

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Dear Students,

Welcome to Home-Based Learning 2016!

By now, you should have the list of the team members in your group. Each team will analyse 2 articles below to identify 3 evidence/information (2 Demand + 1 Supply or 2 Supply + 1 Demand factors)  to answer the following essay question:

a) With reference to the 2 news articles, explain the fall in prices of coffee beans in Brazil.

To discuss the answers with your group members, double click anywhere on the wall and a virtual "sticky note" will appear at the top. From, enter your name, then you can use the "sticky note" to "chat" with each other.

For example, Miss Lee: I don't think that is a non-price factor that affects demand. Please remember to write your name before the statement :)

Lastly, please identify these non-price determinants of demand & supply by quoting the relevant phrases from the article.

For example, as stated in article 1, "the recession in Europe has hit demand". After quoting the evidence for the article please proceed to explain how this non-price factor affects demand or supply with economic rigour.

I have provided some scaffolding statements to guide you in your essay development. Address each statement by writing the essay segment in the respective sticky note. Press the pencil button to write the respective essay segment.

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Topic: Demand, Supply & Market Equilibrium

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Topic: Demand, Supply & Market Equilibrium

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Objective - Students will be able to identify and explain how the demand and supply factors affect the market for coffee beans.

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NOT everyone appreciates the pungent smell of roasting coffee. Just ask the authorities in Brazil, who have been faced with farmers burning bags of beans and chanting slogans borrowed from recent nationwide protests to demand fatter state subsidies. The farmers are upset by falling prices: their beans now fetch around $106 a 60kg bag, a four-year low and less than half what they could get a couple of years ago. A reversal looks unlikely soon.

A third of the world's coffee is grown in Brazil. Along with other countries that mainly cultivate the tastier and pricier arabica-bean variety, it faces two problems. First, the traditional markets for their wares are saturated. Growth in Europe, America and Japan, which between them glug over half the world's coffee, is flat. Second, in places like China, Indonesia and Brazil itself, where coffee is an affordable luxury for the middle class, the market is growing by around 5% a year. But these drinkers are filling their pots with cheaper robusta beans-what Kona Haque of Macquarie dubs the "emerging-market coffee".
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Strong demand for entry-level coffee-40% of the world's coffee crop is now robusta beans-has enabled Vietnam to go from almost nothing a decade ago to producing 25m bags today (see chart). Worse still for arabica producers, the recession in Europe has hit demand and squeezed profits for roasters. These processors, including big food firms such as Nestlé and Kraft, have responded by blending cheaper robusta with arabica. As a result robusta prices have not fallen as fast as arabica. Even so, the narrowing gap between them has not yet prompted beancounters to reintroduce the costlier variety.

Nor is the supply of arabica beans likely to fall. In response to the high prices of 2011 Brazilian farmers invested heavily in new acreage and improved yields with better husbandry and more fertiliser. High prices also convinced Colombian farmers to replant many coffee plantations with more productive bushes. What's more, the bumper harvest of 2012, an "on" year for Brazilian coffee bushes, should be followed by an "off" year as the bushes' yields naturally fall after their exertions. Yet good weather means that even this year's "off" crop is a bumper one, with the prospect of another "on" year to come.

Low arabica prices are accompanied by rising costs. Coffee is a labour-intensive crop; picking is still largely done by hand. Wages in Brazil and Colombia are rising fast and production costs are above prices. Planting other sorts of crops, the usual response to agricultural boom and bust, is not an option. Prices for sugar cane, a potential alternative, are low. Coffee is mainly grown on small plots by farmers who have known nothing else.

Consumers ought to benefit from low prices, but discerning drinkers will still be disappointed. Demand for the fanciest arabica beans is healthy, as the global proliferation of coffee chains shows. Much of the finest coffee is grown in Central America in places such as Guatemala, Nicaragua and El Salvador. That region has been hit by leaf rust, a fungal disease, which could destroy 30% of the crop this year. Cutting back plants to deal with it is set to hit production next year, too. For the tastiest coffee, there is no chance of a cheap shot.

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NOT everyone appreciates the pungent smell of roasting coffee. Just ask the authorities in Brazil, who have been faced with farmers burning bags of beans and chanting slogans borrowed from recent nationwide protests to demand fatter state subsidies.

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COFFEE has many devoted drinkers. Its appealling aroma and caffeinated kick mean that 83% of all American adults drink it, 63% of them on a daily basis, according to a survey from the National Coffee Association. Yet despite the strong demand for coffee, some suppliers are unhappy. In Brazil, which produces a third of the world's coffee beans, farmers are striking over falling prices and burning sacks of coffee in protest. Why are coffee-growers feeling the strain?

There are two main varieties of coffee bean: arabica and robusta. The former, which accounts for around 60% of the world's crop, is considered superior and fetches higher prices; the latter is a hardier crop, resistant to leaf rust, but has a more bitter taste. Most of the beans produced in Brazil are of the arabica variety. But these beans now fetch around $106 a 60kg bag, less than half of what farmers could get for them a couple of years ago. Farmers in Colombia and Ethiopia, who also produce arabica beans, are suffering too. The reason is that production of coffee, and of cheaper robusta beans in particular, is booming. Vietnam has gone from growing almost nothing a decade ago to producing 25m bags of robusta beans a year today. The result is an oversupply of coffee.
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This hurts producers of arabica in particular, for several reasons. First, consumption in the developed world-American, European and Japanese drinkers consume more than half the world's coffee-is flat, and the recession has squeezed the profits of big food companies such as Nestlé and Kraft. They have taken to blending cheaper robusta beans into their products to maintain their margins, causing the price of robusta to fall more slowly than that of arabica. In the developing countries such as China, Indonesia and Brazil, meanwhile, where the emerging middle classes are discovering the joys of coffee and the market is growing by around 5% a year, robusta is the bean of choice. To make matters worse for arabica growers, falling prices have been accompanied by rising costs: coffee is still largely picked by hand, and wages are rising fast in Brazil and Colombia. Many Brazilian and Colombian farmers invested to boost production of arabica in response to the high prices of 2011, which has added to the oversupply and further depressed prices. And good weather in Brazil means that this year's crop has turned out to be unexpectedly large. That is why Brazil's farmers are striking, and are demanding more protection, in the form of fatter subsidies, from the state.

Farmers who grow arabica beans tend to be specialists, and do not plant other sorts of crops (which is the usual way for farmers to insulate themselves from volatile prices for a particular crop). Prices for sugar cane, a potential alternative, are also low. Aficionados' demand for the fanciest coffees, which fetch higher prices, is healthy, but for farmers to move upmarket takes time and expertise. Indeed, discerning coffee drinkers are also feeling the pinch, because the Central American countries where the finest coffee is grown, including Guatemala, Nicaragua and El Salvador, have been hit by leaf rust, which could wipe out 30% of this year's crop. So even while arabica beans fetch low prices on commodity markets, the price of the fanciest beans is going up. A storm in a teacup it ain't.

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COFFEE has many devoted drinkers. Its appealling aroma and caffeinated kick mean that 83% of all American adults drink it, 63% of them on a daily basis, according to a survey from the National Coffee Association. Yet despite the strong demand for coffee, some suppliers are unhappy.

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With reference to the 2 news articles,  explain the fall in prices of coffee beans in Brazil.

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With reference to the 2 news articles,  explain the fall in prices of coffee beans in Brazil.

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There is a decrease in demand for coffee beans in Brazil due to substitutes like robusta. Due to the recession in Europe, the demand for coffee beans has decreased, minimizing profits of producers. However, producers specialize in growing coffee beans and continue to produce coffee beans because of the good conditions, thus supply increases.

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Explain market mechanism:
The market mechanism works through the interaction of the market forces of demand and supply to determine the equilibrium price and quantity for sale on the market

Define demand:
Demand is the amount of a good that consumers are able and willing to purchase in a period of time at various prices, ceteris paribus.

Define supply:
Supply is the amount of a good that producers are able and willing to sell in a period of time at various prices, ceteris paribus.

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The initial equilibrium, E0 is when price is at P0 and quantity is at Q0.

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Body: Identify and explain whether the factor/event shifts the demand or supply curve. (2 Demand + 1 Supply or 2 Supply + 1 Demand)

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Body: Identify and explain whether the factor/event shifts the demand or supply curve. (2 Demand + 1 Supply or 2 Supply + 1 Demand)

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1 Demand: One of the factors contributing to the fall in prices of coffee beans in Brazil is due to recession. The articles state that "recession in Europe has hit demand and squeezed profits for roasters ", showing that there is a decrease in household incomes due to decrease in production and hence higher employment. This leads to a decrease in purchasing power, which is the decrease in ability to purchase goods and services, including coffee beans. Thus, there is a decrease in demand for coffee beans in Brazil as consumers in Brazil are also affected by the recession, ceteris paribus.

2 Demand: Another factor that caused the fall in prices of coffee beans in Brazil is due to robusta coffee being a substitute. The articles state that there is a "strong demand for entry-level coffee", and that consumers are "filling their pots with cheaper robusta beans-what Kona Haque of Macquarie dubs the 'emerging-market coffee'." This shows that consumers are leaning towards robusta coffee beans as a substitute for arabica coffee beans as they are cheaper. This leads to an increase in demand for robusta coffee beans, which are produced in Vietnam, but a decrease in demand for arabica coffee beans which are produced in Brazil.

1 Supply factor: good growing conditions/speciality
one factor that causes the increase in supply is the good growing conditions of the coffee beans. good growing conditions such as suitable temperatures for the coffee beans to be harvested , these temperatures are crucial for the coffee beans to grow well. the suited temperatures allows for optimum growth of coffee beans and a faster rate for coffee beans to grow hence increasing the supply of coffee beans. suitable weather conditions, such as rain may be good for the growth of coffee beans hence leading to increase harvest of coffee beans and thus increasing the supply of coffee beans.

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Body: Decide the direction and magnitude in which the curves shift

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Body: Decide the direction and magnitude in which the curves shift

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There is a leftward shift in the demand curve and a rightward shift in the supply curve. It is likely that increase in supply exceeds decrease in demand of coffee. It is likely for supply to increase significantly as Brasilian farmers and Colombian farmers had invested a lot in growing more coffee back in 2011 due to the high prices then plus the need to seize the opportunity of the absence of bad weather in the coming year that should have come.
On the other hand, demand will not decrease by much as 'First, the traditional markets for their wares are saturated.' and 'China, Indonesia and Brazil itself, where coffee is an affordable luxury for the middle class, the market is growing by around 5% a year' which will decrease effects of decrease in demand in Europe due to recession
(S> D)

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Body: Using the market adjustment process, explain how the shift(s) changes the
equilibrium price and quantity (Explanation of diagram):

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Body: Using the market adjustment process, explain how the shift(s) changes the
equilibrium price and quantity (Explanation of diagram):

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At the original price level P0, the new quantity supplied, Qs, exceeds the new quantity demanded, Qd.
This creates a surplus,
thus exerting downward pressure on the price of the coffee beans.
As coffee bean prices decrease, quantity demanded increases due to the law of demand, while quantity supplied decrease due to the law of supply, and the surplus is gradually reduced,
until the new equilibrium E1 is reached for the market for coffee beans where quantity demanded equals quantity supplied, with a lower price P1 and quantity Q1.

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The new equilibrium is at E1, with price at P1 and quantity at Q1.

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In conclusion, the increase in supply and decrease in demand reinforce each other to result in a significant decrease in equilibrium price of coffee from P0 to P1. However, the effect on equilibrium quantity may be indeterminate. Above, we have argued that equilibrium quantity increases because the supply for coffee increases by more than the decrease in demand. However, if the decrease in demand exceeds increase i supply instead, the equilibrium quantity would decrease.