Coffee Commodities and Starbucks

If we look at commodity trading from a purely conceptual standpoint, we find that the true reason for having a commodity exchange in the first place, was to stabilize pricing so that the American farmer could have a better idea of what his agricultural product would sell for once the harvest was complete. It also helped manufactures who needed raw materials to know how much money could be charged in their end product, by knowing their costs.

If we look at the Colombian coffee market we see some interesting things develop. Starbucks has bought up half of the plantations there. While Starbucks was buying coffee previously, those plantation owners made lots of money, now Starbucks owns the plantations and therefore is running them differently. And not buying coffee from the other plantations, therefore the coffee prices have been lowered throughout the country, causing a Terrible plight on the people. Yet, if those plantation owners been sold their properties to Starbucks, had never sold them in a first place, then they would still be making lots of money from Starbucks.

Starbucks job is to return shareholder value to its owners and that means operating very efficiently, that means pain as little as possible to wholesale coffee growers. It was able to do this by buying out the plantations and doing it themselves. Of course there is a different culture in Columbia and a large coffee plantations also cared for the workers. That is not the way a modern-day American corporation works. The plantation owners are very upset, those in still remain owners, who have not sold out because there is nowhere to sell their coffee, for the high price they previously sold to Starbucks. However one must also consider, that before Starbucks the coffee plantations made just average profits. When Starbucks came along, their profits when up temporarily, until five years later Starbucks bought their own plantations, and not just in Columbia, all over the world. Someday, coffee means will be less of a commodity then they are today, because Starbucks will own over 50 percent of all the coffee plantations.

Coffee plantations do not produce a lot of harvest until their many years old. Starbucks is controlling that commodity by owning 23 percent of the commodity. Whenever they don't use, they sell for a higher price than the original coffee plantations were selling for. Some might complain about this strategy, however if they are using mostly coffee are retail level and selling the rest then they are free to do that. The only real problem with this, is bad messes with the entire supply chain, in this case it heard the people, the hard-working people of Columbia. Think about the macro and micro economics of coffee commodities next time you sip on your Starbucks Coffee.

By Lance Winslow

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