Good Article Review On Microeconomics Of Coffee And Sugar Prices
Macroeconomics of Coffee and Sugar prices
Brazil is the largest producer of coffee worldwide DeWitt (2002). Arabica and Robusta are the two main kinds of coffee that are grown in Brazil. Marcy Nicholson article reveals fundamental aspects about the fate of sugar and coffee production and pricing in Brazil in the recent past. Nicholson is concerned about the languishing sugar and coffee prices. Marcy suggests that the drop in sugar prices is directly related to various critical macroeconomic and political factors. The rise in the American dollar value has reduced the general global demand of both coffee and sugar while encouraging the weakening of the Brazilian real. Also importantly, the growing political uncertainty in Brazil has contributed significantly to the downward revision of the sugar and coffee prices.
Sugar and coffee production are crucial components of the Brazilian economy. Production of both coffee and sugar play the fundamental role in the growth and development of the entire economy. Both coffee and sugar production are sources of foreign exchange in the country. They create millions of jobs to the Brazilian population. Also importantly, production of coffee and sugar contributes immensely to the Brazil balance of payments. Production of coffee and sugar results in many by-products that can be used in the manufacture of other vital products needed by the society.
The downward revision of coffee and sugar prices in Brazil will affect the Brazil economy negatively. Reduced coffee and sugar prices directly translate to reduced national income, loss of jobs to the local Brazil citizens. The Brazil economy will shrink due to the reduced cash inflow into the economy. Slumping of prices in Brazil and Brazil being the leading producer of both products in the world, it would result in ripple effects around the globe. Continuous reduction in coffee and sugar prices in Brazil would result in the temporary shift in production of coffee and sugar due to the reduced level of return. Also importantly, reduction of prices would ultimately result in the substantial amount of loss to coffee and sugar farmers. Brazil being the leading producer, and other stronger nations would be able to sustain the drop in prices; however, small-scale farmers would be significantly affected. As the decrease in the price of both coffee and sugar continues, the demand for sugar and coffee products would continue to increase. However, the supply of sugar and coffee in the market for production purposes would reduce due to the low prices in the market. Rogers (2010). The decrease in the two products prices would also make the supply of the product go down. As a demand and supply rule, suppliers will only be willing to supply coffee and sugar in international and local markets only if the prices are high enough to compensate them adequately. The consumers will expect reduced cost of both sugar and coffee products in the short term. However, in the long run, the coffee and sugar product prices will increase due to decreasing supply in the market.
The prices in the market changed due to a couple of both macroeconomic and political factors. The political factors that contributed to change in price were the growing uncertainty in the political environment resulting in instability of the Brazil real. The weakening of the Brazil real due to the rising value of the dollar
The rewards for work are salary and wages. This suggests that the recent increase in the product prices may be attributed to the fact that workers costs have increased over the years Almeida (2008). Capital as a factor of production is also an important component of the production of the two products. Typically, for any production to take place there has to be labor that will make the whole production process a success. The last factor of production is entrepreneurship. It forms an important component of production of the two products since an entrepreneur is crucial in ensuring that the product becomes a success.
The global economy as seen from the article plays an important role in shaping up the prices of the two products. The dollar has been on the rise therefore meaning that the product price has been on the decline. The dollar being one of the major currencies being used in various markets has resulted in the drop in prices. An Increase in the dollar would lead to the decline in the Brazilian currency, therefore, meaning that sugar and coffee products would be cheap. The price pressure being experienced in Brazil may result from the fact that there are abundant sugar supplies globally. It is common sense that the increase in supply would lead to the decline in prices of the product, as many producers would reduce the price in order to make sales. Coffee has close substitutes therefore making it easy for consumers to shift into other products, therefore, not moving products producers would be forced to keep the prices lower.
The reasons provided by Marcy in his article are satisfactory in that they fundamentally explain the reasons as to why sugar prices in Brazil continue to fall. The continuous drop in sugar and coffee prices in Brazil will have an adverse impact on the economy in the long run if the issue is not addressed in its entirety.
DeWitt, J. (2002). Early globalization and the economic development of the United States and Brazil. Westport CT: Praeger Publishers.
Almeida, J. (2008). Brazil in Focus: Economic, political and social issues. New York: Nova Science Publishers.
Rogers, T. D. (2010). The deepest wounds: A labor and environmental history of sugar in Northeast Brazil. Chapel Hill: University of North Carolina Press.
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