Factors Affecting Supply and Demand of Coffee in Australian Market

Question: Discuss about theDemand and Supply of Coffee in Australia Market. Answer: Introduction: Demand is the willingness and ability of a buyer to buy a product at the current market price. It is the quantities that a consumer is willing and can be able to purchase at a given price in a specified period of time. Supply is willingness and ability of a supplier to supply products at the current market price. It is the amount of quantities that producers are willing and able to supply to the market at a given price within a specified period of time (Pinkasovitch, 2011). It is the balance of supply and demand that determines the market price of a commodity at a given period of time. Coffee is a beverage that is produced from coffee beans. According to Australian Health Survey released on 2014, indicated that 46% of Australia population consumes coffee. It also showed that tea which is a close substitute of coffee is consumed by 38% .This research showed how coffee is highly preferred in the Australian market. Coffee is consumed for it taste and refreshing effects. This paper will discuss the factors affecting demand and supply of coffee in the Australian market. Factors Affecting Demand For Coffee Demand for coffee is affected by many factors that change it price from the equilibrium .These factors are taste and preference, price of close substitute tea, population, consumers expectations, level of income and taxes. These factors are discussed below; The first factor is the level of income that a buyer has. Level of income determines the purchasing power of a consumer. A projected increase in consumer level of income will increase the demand for coffee in the market. For instance, the 2015-16 revenue forecasts of 8.4% will increase coffee consumption to 7.4% ("Coffee in Australia", 2016). Secondly is the consumer expectation. Buyers future price expectations affect the amount that will be bought. When consumers expect a future price decline, they will buy less today to avoid paying more in the in the future dates and vice verse. Consumers are speculative and will tend to consume coffee at the least cost possible (Mankiw and Taylor, 2011). Third is the price of tea in the market. Since coffee and tea are consumed as substitutes, a decrease in tea prices will make it affordable and therefore affordable to consumers. This will reduce the demand of coffee in the market. The fourth factor that affects demand for coffee in the Australian Market is population. The composition of individuals in the market affects the amount of coffee that is to be consumed. Immigration increases demand for coffee. Also an adoption of a coffee culture in Australia is steadily increasing the demand for coffee. For instance, the Italian immigrants are said to have a strong influence the Australian culture of drinking coffee. Fifth is the taste and preference of buyers. Coffee is much consumed because of it taste. Australians have a strong preference on quality coffee and change would greatly lead to change to it demand. Consumers have adopted a culture of taking good cup coffee from the top brands in the market. The last factor is the taxes charged by the government. Taxes charged by the government are passed to the final consumer. When this happens, the prices of coffee increase and the amount to be bought by a buyer decreases due to lowering of purchasing power. Factors Affecting Supply of Coffee in the Australian Market Producers and processors of coffee are affected by several factors that determine the amount they supply in the market. These factors are weather, cost of production, technology, producers expectations number of competitors, incentives and subsidies from the governments. These factors are discussed below. First is the climate change. Coffee is growth in plantations and prevailing weather condition affects the yields of the season. Unfavorable weather conditions reduce the coffee output therefore decreasing the amount that producers will be able to avail in the market. This condition causes shortages in the market vise verse. For instance, the coffee prices escalated when there was drought in Brazil in 2014.It lead to 20-30% crop loss that led to shortages in supply (Futures, 2014). Secondly is the change in production technology. Improvement or advancement in technology in the coffee industry enables producers and processors to produce and process more at lower cost. Therefore a change in technology increases the amount of coffee that producers are able to supply to the market at the prevailing prices in a given period of time (Garuma at al, 2015). Third is the cost of production. This refers to the amount spent by the producer or processor to produce a certain amount of coffee. An increase in cost of production reduces the ability of a producer to maximally produce coffee that is supplied to the market and vice verse. For instance, an increase in input prices will increase the cost of production therefore decreasing the morale and ability of a producer to produce more. The fourth factor is the number of competitors in the market. Many sellers in the market lead to high amount of supplies in the market and vice verse. The coffee market has many competitors who contribute to the wide variety in the market (Lewin, n.d.). A decrease in number of coffee competitors can lead to decrease in the amount of coffee supplied in the Australian market. Fifth is the incentive and subsidy given by the government. When government gives coffee producers an incentive or allows them access inputs at subsidized prices, it motivates them to produce more. The cost of production is lowed and producers are able to supply more coffee in the market with the prevailing prices (Garuma, 2015). Lastly is the suppliers expectation in the market. The amount supplied in the market is affected by the future expectations of the supplier. Whenever, the coffee producers are expecting a fall in price they will supply more to the market to dispose they already processed products to avoid or minimize losses and vice verse. Conclusion In conclusion, the factors that affect demand for coffee lead to increase or decrease of coffee prices that cause demand change. A decrease in coffee prices leads to an increase in quantities demanded in the market. On the other side, an increase in coffee market prices leads to an increase in supply .Therefore coffee is a normal good in the Australian market since it follows both the demand and supply law. I can also conclude that neither demand nor supply can determine the marker price on it own. It takes adjustments of both to determine the price of coffee .The point where the two meet is the equilibrium price and remains to be the market price until factors affecting demand or supply change. References Australian Health Survey.(2014). Nutrition First Results - Food and Nutrients, 2011-12 Mankiw N.G. and Taylor, M.P. (2011). Andover: Cengage Learning. Economics (2nd ed., revised ed.). Pinkasovitch, A. (2011). Introduction To Supply And Demand | Investopedia. [online] Investopedia. Available at: https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp [Accessed 30 Aug. 2016]. Coffee in Australia. (2016). Euromonitor.com. Retrieved 1 September 2016, from https://www.euromonitor.com/coffee-in-australia/report Garuma, H., Berecha, G., Abedeta, C. (2015). Influence of Coffee Production Systems on the Occurrence of Coffee Beans Abnormality: Implication on Coffee Quality. Asian J. Of Plant Sciences, 14(1), 40-44. https://dx.doi.org/10.3923/ajps.2015.40.44 Industry leaders discuss future coffee trends. (2016). BeanScene Magazine. Retrieved 1 September 2016, from https://www.beanscenemag.com.au/articles/view/industry-leaders-discuss-future-coffee-trends Lewin, B., Giovannucci, D., Varangis, P. Coffee Markets: New Paradigms in Global Supply and Demand. SSRN Electronic Journal. https://dx.doi.org/10.2139/ssrn.996111 The Top Factors that Move the Price of Coffee. (2016). Futuresknowledge.com. Retrieved 1 September 2016, from https://www.futuresknowledge.com/news-and-analysis/softs/the-top-factors-that-move-the-price-of-coffee/