Displaying different strategies, McDonald's and Starbucks call a 16 ounce cup different names.

Caffeine Highs and Lows

Nov 18, 2012 • Businesses, Demand, Supply, and Markets, Developing Economies, International Trade and Finance, Macroeconomic Measurement, Thinking Economically, Uncategorized • 521 Views    No Comments

Among the biggest coffee drinkers in the world, euro-zone consumers are cutting back.

As one Milan café owner explained, “Since the beginning of the year most of our regulars cut their coffees from around four to two a day. Sometimes, instead of getting a cappuccino or other types of more expensive coffees, they just have an espresso. This is the effect of the crisis.”

Meanwhile, in Brazil, partially because of good weather, supply is up for the highest quality beans (arabica) that the Italians and Spanish prefer. In addition, not only have some Europeans begun to switch to cheaper robusta beans but also growers who had withheld their beans awaiting higher prices are now facing a decline that might mean they will sell at a lower price.

It all adds up to classic demand and supply. Because of declining income, the demand curve for troubled euro-zone economies shifted to the left. Meanwhile, with bountiful crops, supply shifted to the right. The result? Price tumbled. And indeed, arabica coffee prices are down 30 percent from a year ago.

Sources and Resources: While I discovered the current status of coffee beans in a Barron’s column, my coffee prices, here, and consumption, here (source of table below), this August WSJ article tells more about European demand and was the source of the above quote. Also, for a nice combination of stats and stories, you might enjoy this Reuters video.

Per Capita Coffee Consumption: 2006/2007

Per capita euro-zone coffee demand is the highes in the world.

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