Coffee

Coffee is the world’s second largest traded commodity it is used not only for drinking but for soft drinks and cosmetics as well, it is second only to oil according to all imports and exports from all countries. They are two main types Arabica coffee (most people are used to this and are more popular) and there is Robusta coffee. In the last two years the prices of coffee have been gradually falling (Ycharts. (2013). Coffee Arabica Price) alongside this, the supply of coffee has also been falling. Although there have been some price fluctuations at times and this could end up really affecting an economy that depends on coffee. The reason that this is such a big deal is because the countries that heavily depend on coffee exports are usually developing countries and with the price of coffee falls, so does their rate of development, these countries involve countries such as Vietnam, Ethiopia, Peru and Guatemala who are all within the world’s top ten coffee producers (Justin Doom. (2011). World’s Top 10 Coffee-Producing Countries in 2010-2011). When these economies are weakened, they face to their governments, who need to somehow intervene in the coffee market and try to stabilise the prices so that they can reach their ultimate goal to continue to develop.
Price stability in the coffee market is an ideal scenario in a market where the prices for coffee do not alter drastically. They may raise a little or fall, but never by a noticeable amount, and are easy to predict, which can help coffee producers plan for the far future. It is not only important to coffee producers, but to the economy as whole, if the prices for coffee are unstable, for some countries this could have a huge impact on the inflation levels. The diagram below describes how an unstable price for coffee can increase and affect the short run aggregate supply and cause the general price level for the economy to rise and therefore causing inflation as they did in July 2012 (Ycharts. (2013) There are