Domestic and world market for coffee

Letenyei, Krisztina

Keywords: coffee, demand, supply, domestic and world market

Coffee trade is performed on international coffee exchanges. In times when supply exceeds demand over-supply exists. At such times the price of coffee is low and signs of crisis due to overproduction develop: coffee beans are burnt, coffee shrubs are outrooted or neglected, countries growing coffee beans reduce their production and coffee exports, coffee stocks increase. Due to lagging investments and unfavourable weather conditions supply declines and eventually demand exceeds supply, the effects of which can be countered for a while from the sale of stocks. As it takes 5 years for newly planted coffee shrubs to produce coffee, demand may exceed supply for prolonged periods of time. At such times the price of coffee beans increases to a high level; it is worth to make new investments, new coffee shrubs are planted and supply increases, initiating a new period of declining coffee prices. Thus the coffee market is cyclic in nature, with each cycle lasting 10-12 years. On world markets over-demand of coffee peaked in 1994 and over-supply peaked in 2002. The cyclic nature of coffee markets occurs not only with respect to years, but also to months and even days.

The Hungarian coffee market in the years after the change of political regime was characterised by black market, which no countermeasures could suppress other than reducing the tax burden on coffee. Traditionally in this country ground-roasted coffee beans are consumed. The coffee market is strongly concentrated in the hands multinational companies, displaying strong activity in brand promotion. Consequently the weight of their-own brands in this sector is well above average. With reduction in coffee prices the segment of market including premium quality coffee strengthened; consumers changed to a better quality coffee, thus reducing the weight of coffee mixtures. Innovations such as cappuccinos, 3in1 and cold coffee drinks are directed primarily at young people. The cappuccino market peaked in 2002, when the 3in1 appeared and in 2005 a new generation of 3in1 came on the market.

Full article