What is the price of
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Pricing for data people
When the C price fell to a year low in August, it prompted heated discussion about how coffee pricing works and its impact on producers. Is it reasonable that coffee is used as a financial investment at the expense of producers?
Some are arguing that the C price is an ineffective way of handling coffee pricing and calling for a new model. But what are the problems with the C price? Is it time for a new financial structure in the coffee industry?
And is it possible to have truly equitable prices for producers? Bags of green coffee at Jubilee Coffee in Colorado. Credit: Devon Barker. The price of coffee changes every minute. This is because it is handled as a commodity. Commodities are simply raw materials that can be bought and sold on regulated markets known as commodities exchanges. The trading price of Arabica on the ICE is known as the C price, and it is this figure that affects the price of coffee. All coffee is treated as one raw material, regardless of origin or other factors.
Even specialty coffee prices are usually linked to the C price, plus a premium. A coffee farm in Zimbabwe. Credit: Nicole Motteux. At its basic level, the C price is defined by supply and demand. That is, the price sits at the point at which supply equals demand. If there is a scarcity of coffee, the price will go up until people decide not to buy because it is too high.
As the price drops, people buy more to take advantage of a good deal. The price stops dropping at the point where buyers collectively agree to buy the quantity available. Theoretically, the demand for coffee determines how expensive it is. Commodities are traded on the balance of supply and demand and the market directly reflects how much coffee is available and how much people want it.
Or at least, that is how it is supposed to work. Natural processed coffee drying in raised beds at a farm in El Salvador. The seemingly straightforward system of supply and demand is not the reality of the C price. Futures contracts are essentially promises to purchase coffee at a future date at a price determined today.
The agreed-upon price in a futures contract is based on the predicted price at delivery date. So a lot of the price is determined by speculation. The increased demand for coffee contracts now, based on speculation about future conditions, causes the current price to go up. The reverse is also true. If there is speculation that the price will drop, people will start selling coffee and any futures contracts. This will cause the current price to drop.
What this means is that the price of coffee is removed from real market conditions. The C price is not linked to the cost of production, and this has a very real impact on producers. Karl Wienhold handles logistics and marketing at Direct Origin Trading. Before focusing on coffee, he was an international trade consultant and rural development economist. He is also the author of an upcoming book on the economics of the coffee supply chain.
But he says that this is not how the model works today. Some investors speculate on coffee without ever intending to use it. Others speculate to increase the profit margins of their roastery or export business. Karl tells me that this use of coffee as a financial tool has an unfair impact on producers.
Workers load bags of green Colombian coffee. Credit: Direct Origin Tradin. So when the C price dips, it can very easily put a farmer in the red.
Evelio Francisco Alvarado Romero is a general manager at Anacafe. But speculators are not taking into account higher producing costs, like coffee that is below producing costs. Producers are not taking proper care of plantations and eventually the industry will face higher prices because of production decline. Men move coffee on drying patios at a farm in Guatemala. The exception is the small group of farmers with market access who manage to trade their coffee with a fixed price.
The coffee industry is at a breaking point. Already many farmers are selling their farms or abandoning parts of their farm. If we want to see coffee in Guatemala and other Latin American countries around in the future we need a new pricing mechanism that reflects actual costs and is independent of outside forces. Bags of green Colombian coffee.
Credit: Direct Origin Trading. For some products, that may be the case. However, in the case of coffee, where you have the livelihood of more than 25 million families at stake, many of which are facing a pauperization process that is taking them to a situation of misery, that is nothing short of inhumane. Today, the imbalance in the coffee value chain and the process of pauperization of the coffee producers are at levels that we do not hesitate to define as tragic. But what would an alternative pricing model look like?
Karl suggests one that is linked to real costs and based on greater transparency. Personal trust and transparency are fundamental to these contracts holding up. Ripe coffee cherries. But it can be a polarising subject.
Karl argues that rather than a blanket minimum price, fair pricing has to be linked to the real cost of production, which varies across different countries, and that the emphasis needs to be placed on transparency. Paying them a generous differential, say US 30 cents per pound, and gloating in a CSR report about it, loses meaning when production costs are 40 cents per pound over current base price. If roasters were to insist on fixed pricing to farmers, signing fixed contracts with their importers, and if importers were able to verify payments to producers, it would be feasible to simply bypass the futures market and offer farmers a fixed portion of the roaster price.
Coffee growing in shade at a farm in Colombia. There is no easy fix to the unstable price of coffee and the devastating impact the current system has on producers. Simply implementing a minimum price is a short-term idea rather than a genuine solution.
But by increasing transparency, consumers can become more aware of where their coffee comes from and the human impact of commodity trading. Perhaps it is time for the industry to stop debating and start making concrete changes to improve transparency and link the cost of coffee to the real cost of production.
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Hazel Boydell. Hazel is a writer based in Lisbon, Portugal. Jobs Board Coffee Events. Subscribe to our newsletter Want to receive the latest coffee news and educational resources? Sign up for our free newsletter!
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One of the secrets to business success is pricing your products properly. Price your products correctly and that can enhance how much you sell, creating the foundation for a business that will prosper. Get your pricing strategy wrong and you may create problems that your business may never be able to overcome. However, there's no one surefire, formula-based approach that suits all types of products, businesses, or markets. Pricing your product usually involves considering certain key factors, including pinpointing your target customer, tracking how much competitors are charging, and understanding the relationship between quality and price. The good news is you have a great deal of flexibility in how you set your prices.
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We examine the price and variety of a sample of consumer goods at the barcode level in cities within China. Unlike the position in the United States, in China the prices of goods tend to be lower in larger cities. In both countries, there is a greater variety of goods in larger cities, but that effect is more pronounced in China. Combining the lower prices and greater variety, the price indexes in China for the goods we study fall with city size by around seven times more than in the United States. Access to restricted content on Oxford Academic is often provided through institutional subscriptions and purchases. If you are a member of an institution with an active account, you may be able to access content in the following ways:.
Price Elasticity of Demand
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RELATED VIDEO: What Is The Price For An Epoxy Floor?Spread the Knowledge. When thinking about the price of college, people often focus on college tuition costs. But the total price tag can include additional expenses ranging from housing and transportation to school supplies. Let's take a look at the average costs behind a year of college. Colleges estimate the total cost to attend their institution for a single year--not including grants and scholarships--in a figure called the Cost of Attendance COA.
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Or login with. A relative price is a price of a product or service measured in comparison to the price of another product. It helps companies adjust their production and allocate resources in the right way.
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