Economics of coffee

Coffee is an important commodity and a popular beverage. Over 2.25 billion cups of coffee are consumed in the world every day.[1] Over 90% of coffee production takes place in developing countries, while consumption happens mainly in the industrialized economies.[1] Worldwide, 25 million small producers rely on coffee for a living[citation needed]. For instance, in Brazil alone, where almost a third of all the world's coffee is produced, over 5 million people are employed in the cultivation and harvesting of over 3 billion coffee plants[citation needed]; it is a much more labour-intensive culture than alternative cultures[citation needed] of the same regions as sugar cane or cattle, as it is not subject to automation[citation needed] and requires constant attention. Coffee is also bought and sold as a commodity on the New York Board of Trade. This is where coffee futures contracts are traded, which are a financial asset involving a standardized contract for the future sale or purchase of a unit of coffee at an agreed price. The world's largest transfer point for coffee is the port of Hamburg, Germany. In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs.[1] Economic commodities comprise goods and services.[2] The more specific meaning of the term commodity is applied to goods only. It is used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market.[3] A commodity has full or partial fungibility; that is, the market treats its instances as equivalent or nearly so with no regard to who produced them. "From the taste of wheat it is not possible to tell who produced it, a Russian serf, a French peasant or an English capitalist."[4] Petroleum and copper are other examples

of such commodities,[5] their supply and demand being a part of one universal market. Items such as stereo systems, on the other hand, have many aspects of product differentiation, such as the brand, the user interface, the perceived quality, etc. And, the demand for one type of stereo may be much larger than demand on the other. In contrast, one of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets. Generally, these are basic resources and agricultural products such as iron ore, crude oil, coal, salt, sugar, tea, coffee beans, soybeans, aluminum, copper, rice, wheat, gold, silver, palladium, and platinum. Soft commodities are goods that are grown, while hard commodities are the ones that are extracted through mining. There is another important class of energy commodities which includes electricity, gas, coal and oil. Electricity has the particular characteristic that it is usually uneconomical to store; hence, electricity must be consumed as soon as it is produced. Commodification (also called commoditization) occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the intellectual capital necessary to acquire or produce it efficiently. As such, goods that formerly carried premium margins for market participants have become commodities, such as generic pharmaceuticals and DRAM chips. Another example is the credit card product, where all suppliers offer almost identical interest rates, fees, rewards programs, and bait & hook incentive models for new customers. Since the core credit card product is essentially identical, the only remaining market differentiators are branding & customer service.