#Load packages
library(readr)
library(ggplot2)
library(knitr)
library(dplyr)
library(lubridate)

#Import the data
coffee_prices <- read.csv("coffee-prices-historical-chart-data.csv") %>%
mutate(date = mdy(date)) %>%
select(date, price = value)

Why Coffee?

Below is a quick snapshot of the data:

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. The three vertical lines highlight 3 major shocks to the international coffee market in 1975, 1986, and 1990.

ggplot(data = coffee_prices) + 
  labs(x = "", 
       y = "Price in U.S. Dollars", 
       title = "Historical International Coffee Prices", 
       subtitle = "from 1969 to 2021",
       caption = "Source: Macrotrends.net") + 
  theme(plot.title = element_text(hjust = 0.5), 
        plot.subtitle = element_text(hjust = 0.5)) + 
  geom_line(mapping = aes(x = date, y = price)) + 
  geom_vline(xintercept = as.Date("1975-06-01"), linetype = "dashed", color = "blue") + 
  geom_vline(xintercept = as.Date("1986-01-01"), linetype = "dashed", color = "blue") + 
  geom_vline(xintercept = as.Date("1990-02-01"), linetype = "dashed", color = "blue") +
  theme_minimal()

3 Major shocks in the international coffee market

Frost

In 1975, 75% of Brazil’s coffee crop was destroyed due to an unexpected frost. Brazil was, and still is the top exporter of coffee in the world, so this loss in crops significantly decreased the excess supply on the international market. This decrease in excess supply caused an increase in the price of coffee on an international scale until the peak was reached in 1977. The price of green coffee tripled during this time, making it one of the largest coffee crises in history.
In the theoretical model, the aforementioned facts would shift the excess supply curve to the left, thereby increasing the international price of coffee.
knitr::include_graphics("frost_graph.png")

Drought

In 1985, Brazil experienced more unfavorable weather conditions as a drought overcame the region. The drought did not affect the coffee market for as long as the frost, since droughts do not kill the coffee trees like a frost does. In this situation, only the flowering of the coffee plants were affected. Even so, the drought caused around 65% of the coffee crop to be lost, decreasing excess supply on the international market. Again, the loss of excess supply increases the price of coffee on an international scale.
In the theoretical model, the aforementioned facts would shift the excess supply curve to the left, thereby increasing the international price of coffee.
knitr::include_graphics("drought_graph.png")

Cartel

Before 1989, coffee prices and coffee production were controlled by the International Coffee Agreement (ICA), a cartel that functions much like OPEC. They kept coffee prices fairly stable through the use of quotas and price control between major production and consumption countries. Their goal was to keep the crop’s prices at what it considered to be a sustainable level. The member countries renegotiated the agreement every five years. In 1989, the ICA failed when the agreement was not renewed, and producers of coffee flooded the market. The increased number of coffee suppliers led to an increase in the excess supply curve on an international level, which then decreased the price of coffee internationally. This crisis led to
In the theoretical model, the aforementioned facts would shift the excess supply curve to the right, thereby decreasing the international price of coffee.
knitr::include_graphics("cartel_graph.png")

References

Akiyama, Takamasa, and Panayotis N. Varangis. “The Impact of the International Coffee Agreement on Producing Countries.” The World Bank Economic Review, vol. 4, no. 2, Oxford University Press, 1990, pp. 157–73, http://www.jstor.org/stable/3989927.

Craves, Julie. “The Coffee Crisis.” Coffee Habitat, Coffee & Conservation, 8 Feb. 2016, https://www.coffeehabitat.com/2006/02/the_coffee_cris/.

Fowler, Elizabeth M. “Futures/Options; Brazil Drought Buoys Coffee - the New …” The New York Times, The New York Times Company, 16 Dec. 1985, https://www.nytimes.com/1985/12/16/business/futures-options-brazil-drought-buoys-coffee.html.

National Coffee Association . (2021). The Economic Impact of the Coffee Industry. National Coffee Association. Retrieved November 15, 2021, from https://www.ncausa.org/Research-Trends/Economic-Impact.

Ross, Nancy L. “Big Rise Predicted in Coffee Prices.” The Washington Post, WP Company, 15 Jan. 1986, https://www.washingtonpost.com/archive/business/1986/01/15/big-rise-predicted-in-coffee-prices/7c3a6c6c-755a-4afc-86e0-80a93953444a/.

Wood, L. (2021, June 1). Coffee market report 2021. Business Wire. Retrieved November 15, 2021, from https://www.businesswire.com/news/home/20210601005832/en/Coffee-Market-Report-2021---Global-100-Billion-Market-Growth-Trends-COVID-19-Impacts-and-Forecasts-to-2026---ResearchAndMarkets.com.