Emma Dillemuth
Coffee. Something people live on and can’t function without. The popularity of the drink has been growing more than ever, and right now, the U.S. leads the world in coffee consumption. According to Bloomberg, American coffee consumption was reported to grow 1.5% in 2018, and 1.2% globally. Additionally, as we come to the end of the year, companies are producing different holiday drinks as well, like the Pumpkin Spice Latte from Starbucks. People like to buy these drinks because they’re fun and seasonal, therefore adding to the higher demand for coffee. Is the increasing demand for coffee helping or hurting our economy?
High demand is great for companies like Starbucks, Caribou Coffee, and other coffee chains because people are buying more and more of their products, however, the growing popularity is off-putting the demand and supply balance. New styles of coffee are bringing up the demand for the beans, however there will always be a limited supply of them, no matter how large. Cold brew coffees are becoming more trendy today, but they use more beans than regular coffee. Due to the growing popularity of this drink, more coffee beans are being utilized, adding to the huge growth in imports. As well as new styles, seasonal drinks are very popular towards the end of the year and more people will be buying them. In order to have a big enough supply, the US imports thousands of coffee beans from places around the world.
According to the USDA, from 2017 to 2018 the United States went from importing 24,600 60-kilogram bags of beans to importing 27,000 bags, a 10% increase. That is a significant growth in just one year, and coffee beans don’t appear out of nowhere. The leading producer of coffee beans is Brazil, producing 1/3 of the world’s coffee each year. In 2016, Brazil experienced severe droughts and climate change, decreasing the amount of coffee they produced. This restricted some supply of coffee beans and made the prices go up. Since then, they have increased their coffee production, and stabilized their prices.
Although the price have stayed reasonably stable, that doesn’t mean importing coffee is cheap. In 2017, the US spent $6.3 billion on coffee imports alone. Due to the ever growing demand for coffee and coffee beans, this price can only go up. Is it worth it? Yes. According to the National Coffee Association, “the total economic impact of the coffee industry in the United States in 2015 was $225.2 billion.” Furthermore, the total income of the coffee industry was $68.5 billion. It also produces $28 billion tax dollars a year, and provides nearly 1.7 million jobs around the US. Compared to how much the coffee industry makes, the price to import coffee and satisfy the demand for it doesn’t seem as excessive.
Although the coffee industry will always be growing, and the prices of the coffee beans will most likely rise with time, the increasing demand helps our economy immensely.
Works Cited
“Americans' Coffee Guzzling Is Pushing Bean Prices Higher.” Fortune,
fortune.com/2016/07/01/americans-coffee-prices/.
“Coffee Imports by Country.” World's Top Exports, 2 June 2018,
www.worldstopexports.com/coffee-imports-by-country/.
“Coffee: World Markets and Trade.” Usda.gov, USDA.
https://apps.fas.usda.gov/psdonline/circulars/coffee.pdf
“National Coffee Association.” NCA - National Coffee Association USA - Est. 1911,
www.ncausa.org/industry-resources/economic-impact.
“Why Coffee Is Getting More Expensive.” KHOU, 22 June 2018,
www.khou.com/article/money/magnify-money/why-coffee-is-getting-more-expensive/285-566663202.
An increase in demand for coffee paired with a decrease in supply due to drought will definitely raise the equilibrium price of coffee. However, since it seems that Brazil has since recovered in production, the shift of the demand curve to the right is greater than the leftward shift of the supply curve. This means that the equilibrium quantity of coffee will also increase, leading to a greater rate of exchange than in the past. As long as all buyers who would pay the equilibrium price are able to purchase it (there are no price controls or deadweight loss), there will be more mutually beneficial transactions involving coffee than there were before demand increased.
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ReplyDeleteCoffee is a huge industry all over the world, and people still purchase coffee frequently. Although people can save a lot of money by using their own coffee makers, they still go to cafes, which helps the industry even more. I am curious to see in the future if people will substitute coffee due to rising prices. There are many teas out there for a fraction of the price of coffee that also have very good flavor and caffeine to energize you. How much will coffee need be for people to start substituting it?
-Colin Pham
I thought it was very interesting but also kind of sad the amount of money we spend on importing coffee to America. Spending $6.3 billion on coffee imports alone is insane! However, I never really thought about the value of coffee beans and sometimes I forget that things are unlimited especially when natural disasters occur like droughts which can raise the price of coffee tremendously. It is a good perspective to look at especially as a coffee consumer myself and only a iced coffee drinker which takes more beans!
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I think that the increase in coffee demand is helping our economy as well. We are consuming more than any other country, and even though we’re importing so much coffee from a limited supply, it’s worth it because we consume what we import (there’s not a surplus of coffee in our country). Also, since coffee is such a staple in our lives, there are many places you can purchase your coffee, helping create millions of jobs around our country. You mentioned the significant increase in imports of coffee beans, and even though that 10% increase is a huge difference from prior years, we’re still able to use all of the beans we’re importing, therefore making it worth the money.
ReplyDeleteThis is an interesting topic to learn about, considering the long term popularity of coffee, especially within the United States. The demand for this product is obviously very high, so it's no surprise that the price of coffee beans has been increasing exponentially over the years. This industry only continues to grow, which can surprisingly have a negative effect on consumers due to rising costs. I'm often times shocked to see the price of coffee from certain brands/businesses and don't expect that to change anytime soon.
ReplyDeleteThe coffee industry has a big economical effect on the world because people use it to stay awake and to get themselves going in the morning. People consider coffee to be just as important as a bagel and other food in the morning. Considering it also makes up that much income, then it makes sense that people are wasting this much money on the product. There hasn't been a good substitute for coffee that has prove effective so are we going to keep wasting this much money or are we going to attempt and find a substitute?
ReplyDeleteIt's crazy to see how much coffee is growing as much as it is in the United States, I could really see the point when it comes to teenagers and younger kids buying Starbucks seasonal drinks, due to the different flavors and seasonal varieties they have. The starbucks industry is almost like a trend in the market for people to buy their product from starbucks. Not just because of the label of brand, but because of the many different varieties in products they have. Knowing that they are very popular in today's world, they could change prices and people will still purchase these coffee drinks, even with a low supply with high demand from starbucks everyday buyers.
ReplyDeleteI agree that coffee is helping our economy because of how big of a business it has become here. There are seemingly endless amounts of coffee shops which create jobs all over the country. Also, us Americans consume as much coffee as we import so in my opinion, it is worth the rising costs it takes to import the coffee.
ReplyDeleteI agree with you that coffee is helping the economy more than it is hurting it. Everyone likes coffee since there are so many different types that some people purchase daily. This alone not only impacts the economy, but the seasonal drinks also have a large impact on the demand for coffee and quantity demanded. People will still be willing to buy the drinks because they love the specific brand. Also, raising the prices of coffee beans would be more beneficial because when the companies sell them to consumers, they can sell at a higher price. Although, I think it is pretty ridiculous how expensive some coffees can be-- especially seasonal drinks-- people will still want to buy that specific type.
ReplyDeleteIt is no surprise that coffee is a very popular industry all around the world. People drink coffee more than twice a day. While people drink so much coffee, we tend to forget where it all comes from and who supplies it and produces the product. More and more coffee beans are being utilized which is adding to the huge growth in imports. We never stop to think about how much it must be costing to import the coffee beans. As people with busy lives, we do not think about where the coffee is coming from, we instead do anything we can to reach it in the mornings to give us that caffeine and little bit of energy to get us through the morning. It is interesting to me that people spend so much money on Starbucks coffee everyday. I wonder what the increased price of coffee will be in the next 10-20 years and if people will continue to buy it or substitute it for other caffeinated, less expensive beverages.
ReplyDeleteEllie Reyes
There will always be a demand for coffee in the US. The caffiene is additing along with the unique flavors that are created throughout the seasons. These unique flavors may also increase the demand in the short run. With that being said, I have noticed a small increase in the price of coffee, espeically at Starbucks. I had not known that cold brew coffee takes more coffee beans than hot coffee. Knowing that now, I can see how that is relflected in the prices at Starbucks due to the iput cost. As the input cost increases, the overall cost of the product will increase as well.
ReplyDeleteIf I were asked how much the USA relied on coffee my exact words would be we all drink too much of to the warm drink that it has become and addicted and that it has made us very lazy in my opinion. I say that because if your going to work and you relied on coffee to get you through your day that very bad for the human body to consume that much caffeine. Be healthy and drink some WATER.
ReplyDeleteIt’s interesting to see something that we don’t even think about and how it is affecting our economy. When drinking a cup of coffee, we don’t think “I wonder how this is hurting or helping our economy” but instead we just drink it. This is the biggest time of year for coffee shops, especially Starbucks with their famous Pumpkin Spice Lattes and peppermint drinks for Christmas. Just think about the number of people you see in Starbucks when you go in there, and if everyone got coffee how many coffee beans they need. That’s just one store, in one location, that’s not even all the Starbucks, that’s just one small coffee shop in Pewaukee. The number of coffee beans needed across the U.S. is tremendous and it’s crazy to think something like your cup of coffee this morning affects the economy.
ReplyDeleteAs someone who regularly drinks coffee without thinking necessarily about the cost of the beans to be imported, it is shocking to see that the US spent $6.3 billion dollars on the coffee beans alone. I had no idea about the drought in Brazil, but I could see how that would cause a decrease in supply and an increase in price for the beans cause the equilibrium to shift. It is weird to think about how the natural resource of coffee beans is limited because there are so many coffee chains everywhere and you always see people drinking coffee. Also, its interesting to think about how the demand increases around the holidays because of the seasonal drinks, but it generates revenue for the large companies which is good.
ReplyDeleteSpeaking for myself, I am not a huge coffee drinker, I may have one every now and then, but I know people that are huge coffee drinkers and I can almost assure you that they don’t ask themselves, “how is this cup of coffee affecting the economy?” everytime they drink a cup. I have never really thought of this myself but being the number one consumer of coffee in the world, how would the economy be changed if no one in the US drank coffee? We spend billions of dollars on this product every year, and so many more people would be sluggish and tired all day. I feel like this would be horrible because it is such a big industry and it is continuing to grow as we speak.
ReplyDeleteI had no idea that the US alone spent $6.3 billion dollars in coffee because I am a person who hardly ever drinks coffee. I can see how the price of the coffee bean would increase because there is a drought in Brazil making it so there is a decrease in supply and an increase in price. With all the other coffee chains around I see also why it would increase because every business needs coffee beans. With all the seasonal drinks that coffee chains have there is an even more increase in demand for coffee beans so the companies can satisfy there customers.
ReplyDeleteI am someone who drinks coffee on a regular basis, and if the price of coffee did go up dramatically, I believe many people would switch to other caffeinated drinks like tea. Coffee is price elastic in general, so if the price did go up to a point that turned many consumers away, people could switch to substitutes. This could hurt the economy, as a large profit loss could decrease the worth of the coffee industry.
ReplyDeleteWe could also see a decrease in jobs, as small coffee shops may not be able to survive the high prices of coffee beans, whereas large companies like Starbucks, will be able to survive. I agree, that if coffee prices go up and consumers stop drinking coffee, there could be a big change in the coffee industry.
Since there is so much coffee being consumed it definitely creates more opportunities in the US and countries with high coffee consumption. In countries where the coffee is grown however it has complicated effects. In central america there is lots of coffee farming, which takes place mostly because the farmers know that there will be a steady and reliable demand from the high coffee consumption. This isn't always a good thing because the competition in the coffee market drives the prices very low, so even though the farmers have reliable demand, they are selling for a very low price. Not to mention that a drought or flood could leave them with no revenue for a year.
ReplyDeleteAn increase in the price of coffee will most likely cause a minor decrease in the demand for coffee because the demand must be relatively inelastic, so it will decrease a bit but not drastically. That being said, there are other substitutes for coffee such as other energy drinks, there's even a company that sells caffeinated water so people wouldn't have any issues in finding a different way to get caffeine.
ReplyDeleteIt might be interesting to look at how productivity from coffee affects the economy. Since most people use coffee to be productive, I believe that coffee can impact the economy positively again. Your analysis does not take this into account, however the impact of the economy is still positive. I never even thought about how coffee could impact the economy but it is nice to see that it is very good for the economy even if the beans are not produced in the US
ReplyDeleteAs you said, the price of coffee rose when Brazil went through severe drought, but have stabilized since then. The prices of coffee beans have dropped, but this will not continue to be the trend. The demand for coffee is will more than likely continue to rise, but the supply will not be able to keep up. There are only so many coffee beans that the Earth can produce before maxing out, so although the supply is not too limited now, at some point it will be. Because the supply of coffee beans will be unable to keep up with the demand, the equilibrium price of coffee will likely increase in the future and continue to increase along with the demand for coffee.
ReplyDeleteAs Mr. Reuter always says why buy coffee when you can make your own. Millions of people throughout the world could save thousands of dollars within a year just by not buying coffee on the daily. Sure, the millions of buyers of these drinks help the US economy tremendously but many realize too late that it will hurt their own bank accounts as they should be saving up for more important stuff like college for example. Going along with a poor way of saving money, people also don’t realize that by drinking Starbucks all the time they are indulging in lots of calories than an average cup of joe at home. Sometimes many people also indulge in many cups of coffee a day, this leading to the impact of your future health not looking as good as what it would have been by cutting back a bit. In the end, the US does make a lot off of coffee but would we as consumers be more reasonable if coffee was taxed more?
ReplyDeleteThis is a really interesting blog, and I agree with the point you make. With the increase in demand, the equilibrium quantity demanded will rise - but since there were droughts in Brazil, the equilibrium price of coffee will rise because it will cost firms more money to supply the same amount of coffee since the overall supply decreased from a major supplier of coffee beans. I do, however, think that the subsequent rise in the price of coffee would affect the demand for some consumers. Since there was damage and increase in price of an input, consumers may not be able or willing to pay the higher price for their coffee. In a world where the cost of living is so great, some may choose that the opportunity cost is greater for another choice in their lives.
ReplyDeleteBefore reading your blog post, I never knew how much coffee helped our economy. It is a staggering number. That being said, the amount of supplies needed to produce that much of coffee must've been a immense number. To continue this trend of supply and demand, a similar or greater amount of coffee must be produced. After the drought in Brazil, the overall supply of coffee will decrease, causing the equilibrium price to increase. This rising price may affect the demand of customers, as they may not be willing to pay the amount needed for a cup of coffee. They may also view this as an opportunity to seek a substitute for either coffee or coffee production.
ReplyDeleteI feel like Americans do have a problem with drinking coffee but it’s better they drink that instead of something like energy drinks. People who have problems with drinking coffee are the ones who got a addiction and need more, so they don’t have migraines. Now say if everyone stopped drinking coffee and think what would happen to those that love it or to those of who that need it for their coffee addiction. Otherwise those growing prices are somewhat of a problem in the economy since I have heard how people wish they could stop drinking coffee but can’t or don’t have enough will power.
ReplyDeleteIt's interesting to see an example in which rising demand for a product does not always transfer to the best outcomes. The individual firms such as Starbucks, McDonald's or Caribou might be making a profit, but the economy itself and the pockets of consumers are suffering. This brings us back to the elemental concept that while consumer demand is insatiable, the inputs needed to satisfy them are limited, so you could've expanded more on the inelasticity of the supply of the coffee market. There are only so many coffee beans available so the price of coffee has risen but consumers have shown they are still willing to pay more to get their coffee.
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