# Load Packages 
library(readr)
library(dplyr)
library(lubridate)
library(ggplot2)

# Import the data 
coffee_prices <- read_csv("Data/price-data.csv") %>%
  mutate(date = mdy(date)) %>%
  select(Date = date, Price = value)

Reasons for Selecting Coffee

Coffee is a good that is commonly traded between many countries and is essential to the economies of many developing nations. Millions of small producers in these developing countries rely upon the money made from exporting coffee to survive. These small producers feed the daily fix of industrialized nations, with many consumers claiming it as a favorite drink. This high demand also secures it as a steady commodity in futures contracts that are exchanged between leading international businesses. Reliance for survival, daily demand from powerful nations, and status as an underlying commodity on important contracts secures coffee as an important international good whose price deserves significant attention. Here is the first recorded prices of coffee beans in our data set (USD):

knitr::kable(head(coffee_prices))
Date Price
1973-08-20 0.6735
1973-08-21 0.6710
1973-08-22 0.6580
1973-08-23 0.6675
1973-08-24 0.6660
1973-08-27 0.6590

Below is a visualization of the data over time where sections between green lines indicate periods of significant price increases and red lines indicating significant price decreases. Not all drastic price changes are marked, but those that are marked in the graph are discussed in the following sections in chronological order.

ggplot(data = coffee_prices) +
  geom_line(mapping = aes(x = Date, y = Price)) +
  geom_vline(xintercept = as.Date("1975-04-10"), linetype = "dashed", color = "green") +
  geom_vline(xintercept = as.Date("1977-04-03"), linetype = "dashed", color = "green") +
  geom_vline(xintercept = as.Date("1990-09-22"), linetype = "dashed", color = "red") +
  geom_vline(xintercept = as.Date("1992-08-20"), linetype = "dashed", color = "red") +
  geom_vline(xintercept = as.Date("2010-04-15"), linetype = "dashed", color = "green") +
  geom_vline(xintercept = as.Date("2011-06-15"), linetype = "dashed", color = "green") +
  theme_bw() +
  labs(x = NULL, y = "Price(USD)", title = "International Price of Coffee Beans", subtitle = "1973-2021", caption = "Source: Macrotrends.net")

Major International Price Changes

The Brazilian “Black Frost” of 1975

In 1975, an Antarctic cold wave caused lower than normal July temperatures in Brazil and caused a strong frost to settle on the trees that grow coffee. The particular frost is termed “black frost” by the local people because it freezes the entire plant, from leaves to roots, effectively killing it and any production. This frost destroyed 90% of Brazil’s 1975 harvest and reduced the world’s coffee production by 33% that same year. This affected the harvests of the following years, creating a multi-year shortage as well. The end result was a large shortage of coffee beans around the globe, causing prices to skyrocket. In the international trade model, this caused the excess supply curve to shift to the left, explaining the sudden price increase for coffee around the globe.

Source: https://www.cbc.ca/archives/entry/price-of-coffee-skyrockets-in-1977

knitr::include_graphics("Data/SnapCrab_NoName_2021-11-11_1-24-41_No-00.png")

International Investments of the Early 1990’s

Following the collapse of the International Coffee Agreement (ICA) in 1989, world development banks championed export led-production to decrease poverty by funding increased coffee production. The country that saw the greatest investment was Vietnam, whose coffee production would rise 1100% in the decade following 1991. Even further encouragement came from international brands such as Kraft, Nestlie, Proctor and Gamble, and Sara Lee whose desire was cheaper coffee beans. This led to robusta beans being the predominate coffee bean grown in Vietnam (and southeast Asia as a whole), which is harvested much easier and faster than the arabica beans of Latin America. This over investment into coffee production combined with the fall of the ICA created a drastic oversupply of coffee on the global market. In the international trade model, this is revealed by the excess supply curve shifting to the right, resulting in lower prices for coffee around the world.

Source:http://www.coffeehabitat.com/2006/02/the_coffee_cris/#:~:text=Under%20the%20free%20market%2C%20prices%20plummeted%2C%20down%20to,farmers%20are%20extremely%20vulnerable%20to%20this%20market%20volatility.

knitr::include_graphics("Data/SnapCrab_NoName_2021-11-11_1-39-33_No-00.png")

Poor Harvests of the Early 2010’s

In the year 2010, two of the world’s leading producers of coffee beans (Brazil and Vietnam) produced poor harvests. In the following year, Columbia (another leading producer) suffered heavier than expected rainfall which resulted in another poor harvest. Back to back years of poor harvests from nations key to the world’s supply of coffee resulted in a severe shortage of the beans. Investors using futures contracts, seeking to cover their positions through lower coffee production, exacerbated the price fluctuations caused by the shortage. To further complicate this matter, the rapidly growing middle class of nations such as China, Brazil, Indonesia, and India have had an increasing desire to drink coffee. This low supply, heavy investment, and high demand resulted in rising international prices, as shown in the international trade diagram below:

Sources:https://www.theguardian.com/business/2011/apr/21/commodities-coffee-shortage-price-rise-expected , https://www.theguardian.com/business/2010/jun/14/commoditries-coffee-prices-rising-sharply

knitr::include_graphics("Data/SnapCrab_NoName_2021-11-11_1-45-16_No-00.png")