# data[].attributes.body
Ms Lee: Hi

# data[].attributes.body
Please write out the names of the members in the group.
1. Sharon
2. Yun Hui
3. Yiru

# data[].attributes.body
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.

# data[].attributes.headline
Topic: Demand, Supply & Market Equilibrium

# data[].attributes.subject
Topic: Demand, Supply & Market Equilibrium

# data[].attributes.body
Objective - Students will be able to identify and explain how the demand and supply factors affect the market for coffee beans.

# data[].attributes.headline
With reference to the 2 news articles,  explain the fall in prices of coffee beans in Brazil.

# data[].attributes.subject
With reference to the 2 news articles,  explain the fall in prices of coffee beans in Brazil.

# data[].attributes.attachment_link.readable_text
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".
Get our daily newsletter

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.

# data[].attributes.attachment_link.description
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.

# data[].attributes.attachment_link.readable_text
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.
Get our daily newsletter
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.

# data[].attributes.attachment_link.description
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.

# data[].attributes.body
Explain market mechanism:
Market machanism is the determination of the price of coffee beans in Brazil by forces of demand and supply.
Define demand: Demand for coffee is defined as the amount of coffee that consumers are able and willing to purchase in a given period of time at various prices.
Define supply: Supply of coffee is defined as the amount of coffee that producers are able and willing to offer for sale in given period of the time at various prices.

# data[].attributes.body
Initially, the equilibrium is at the intersection of D1 and S1 at equilibrium point E1 where the price is at P1 and the quantity is at Q1.

# data[].attributes.headline
Body: Identify and explain whether the factor/event shifts the demand or supply curve. (2 Demand + 1 Supply or 2 Supply + 1 Demand)

# data[].attributes.subject
Body: Identify and explain whether the factor/event shifts the demand or supply curve. (2 Demand + 1 Supply or 2 Supply + 1 Demand)

# data[].attributes.body
Demand factors:
1. Article 1 states that "these drinkers are filling their pots with cheaper robusta beans". Since Robusta bean and arabica-bean are substitutes, consumers would switch away from the more expensive substitute to the cheaper ones. As Robusta bean is considered cheaper compared to the tastier and pricier arabica-bean that Brazil mainly produces, the demand for Brazil coffee beans (arabica-bean) will decrease shifting the demand curve leftwards from D1 to D2, ceteris paribus.

2. Article 1 states that "Worse still for arabica producers, the recession in Europe has hit demand and squeezed profits for roasters." Therefore, with a recession, consumers will have lower income and they will have lower purchasing power. Thus they will demand less for arabica-bean which is not seen as a necessity by the majority consumers. The demand curve will shift leftwards from D1 to D2, ceteris paribus.

Supply factors:
1. Article 2 states "good weather in Brazil means that this year's crop has turned out to be unexpectedly large." This shows that there is a large production of arabica-bean thus this increases the supply, shifting the supply curve rightwards from S1 to S2, ceteris paribus.

# data[].attributes.headline
Body: Decide the direction and magnitude in which the curves shift

# data[].attributes.subject
Body: Decide the direction and magnitude in which the curves shift

# data[].attributes.body
Factors affecting demand curve causes the demand for coffee to decrease, resulting in the demand curve to shift left from D1 to D2, ceteris paribus. Factors affecting supply curve causes an increase in production of coffee, thus there is a rightward shift of supply curve from S1 to S2, certeris paribus.

It is likely that the demand curve shifts more than the supply curve.
Assuming that Brazil arabica-bean is a luxury good compared to other coffee beans like robusta beans, the demand for it will be income elastic. A recession will cause consumer's income level to drop which leads to a more than proportionate decrease in demand for arabica-bean. On the other hand, the good weather that increase the supply is not fix, weather varies so it is not certain that there will be a large increase in supply of arabica-bean. Thus the demand curve shifts more than the supply curve.

# data[].attributes.headline
Body: Using the market adjustment process, explain how the shift(s) changes the
equilibrium price and quantity (Explanation of diagram):

# data[].attributes.subject
Body: Using the market adjustment process, explain how the shift(s) changes the
equilibrium price and quantity (Explanation of diagram):

# data[].attributes.body
Note: Please draw the diagram manually, take a photo and upload it by clicking the "video icon".

From the diagram below, at the original price P1, quantity supplied is more than quantity demanded by QdQs,  creating a surplus. This exerts a downward pressure on price. As price decreases, quantity demanded increases while quantity supplied decreases and the surplus is gradually eliminated.

# data[].attributes.body
Once the market price of P2 is achieved, the market for coffee is at new equilibrium of E2 where quantity supplied is equal to quantity demanded. Overall, there is a fall in price of coffee from P1 to P2 and a fall in quantity from Q1 to Q2.

# data[].attributes.body
The leftward shift of the demand curve and the rightward shift of the supply curve will reinforce each other to result in a sharp decrease in price. The greater the fall in demand and rise in supply, the more significant the fall in price of Brazil coffee.