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  • QA 202
    Question:
    Will coffee prices be influenced by the current (2008) financial crisis?
    Background:
    What could be the impact of the current financial crisis on coffee prices?
    Asked by:
    Student - Uganda
    Answer:

    The Coffee Guide does not make price projections. So we can only offer some general comment.

    1. The coffee trade functions to a large extent if not entirely on credit, just as other commodities do. As explained in Chapter 10 of the Guide (Risk and Credit, topic 10.03.01), few processors, exporters, importers, trade houses or roasters are able to finance their turnover from 'own' funds. Logically therefore, whenever credit becomes difficult to obtain or becomes very expensive, then the trade in coffee becomes more difficult. Exporters and the trade in general may find banks looking to reduce existing credit lines and unsold inventories. And smaller roasters, such as in the specialty market, may find importers less able or willing to provide extended credit as they would face similar limitations.

    2. Changes in incomes affect the demand for coffee. If turmoil in financial markets leads to falls in disposable incomes in consuming countries, particularly lower-income countries, then over time one could expect this to have an impact, certainly on more expensive retail products. Furthermore, lower incomes would make it difficult if not impossible to recoup higher costs, such as increased interest charges, through higher retail prices.

    To what extent or whether these issues will impact on coffee prices is however difficult to say, also because there are many other factors to consider as well. For example: exchange rates, fundamental supply and demand issues, competition from alternative drinks, etc.

    Credit issues are discussed extensively in Chapter 10 of the Guide - for more on factors influencing demand see Chapter 2, section 02.09 and onwards.

    Posted 01 October 2008

     

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