Although a minor scale factor to the problems in the market, by having a poorly educated workforce, it has led to oversupply thus it has had an effected the industry. As they increase their output the farmers flood the market and thus cause the prices of cocoa to fall and cause their income to decrease. In order to cure this problem the farmers must be educated, by educating the workforce it will mean that they will learn about market forces, create less cocoa beans, cure oversupply and will be able to increase there personal income. Also by educating the workforce it will mean that the farmers can work in other sectors of the economy instead of being sole primary sector workers.
Another factor that has caused problems in the coffee market is the matter that large multinational businesses are taking advantage of poor farmers living in developing countries and exploiting them. This can be seen from the simple example of Starbucks. The transnational corporation has over 4000 outlets world-wide and in the second fiscal quarter of 2001 had a net profit of $32 million. According the International Coffee Organisation 10 years ago the coffee industry was worth $30 billion and the producers received $12 billion. Currently it is worth $50 billion and the producer’s only receive $8 million. This problem has to be cured in order for the market to become successful again. A solution for this problem is to create a tacit agreement from all the countries that develop the cocoa beans and thus cause multinationals to increase the price of the raw materials. Although this has solution has been implemented only 70% of the countries growing cocoa have agreed to join thus it means that the countries that do not join the tacit it will mean the agreement will not work. Also another solution linked with multinationals exploiting developing countries would be if the developing countries were to create business within the country to challenge the multinationals by selling coffee in the developed countries. By doing this it will mean the business will be able to help the farmers as they will purchase cocoa at a reasonable price and thus farmers will not grow as much and thus cure oversupply in the market. But by doing so they may be unsuccessful as it will take years to gain a larger share in the coffee market and also it must be taken into account that Starbucks and Nestle dominate the market. Also it must be considered although they may at first help farmers as time continues the business will get more competitive and force farmers to grow more, create oversupply and thus cause prices to fall.
Oversupply has increased mainly because of farmers growing more and increasing there output but it has also increased because it is being grown in more countries than it has ever before. Before the 1980’s the traditional coffee centres were Africa and South America who tended to provide most of beans to the large multinational corporations but since then Asian producers such as Vietnam, Indonesia and India have increased the production and exports of cocoa beans. These countries have challenged the traditional coffee exporters and thus has caused oversupply to occur. If the governments within the countries teach the farmers to grow different crops it would mean that the would not always only create cocoa all the time and flood the industry and also it would mean they would become multi-skilled and thus not be dependent upon the success of one crop.
Apart from oversupply causing problems in the market because coffee is not income elastic it has not caused demand to increase thus exposing another factor towards the problems in the coffee market. Demand and supply are both strongly linked and if oversupply was to occur demand must rise in order to cure the problems but this has not occurred due to the fact that coffee is not a very appealing drink to teenagers or children of any age. Thus in order to cure this problem the multinationals must increase promotion, create more outlets in more countries and spread coffee into areas where it has not drunk in. But by doing this it must be taken into account that it may not increase demand as it is already a globally recognised product.
It can be said that the coffee industry is prospering but it is not prospering for everyone involved in the industry. In order to cure the problem the one problem that would solve the oversupply dilemma would be if the multinationals charge a higher price for cocoa and thus it would mean that farmers would create less and thus it would cause oversupply in the industry to end.
