Product Webs – Coffee

 Well, we about stumbled to the end… 🙂

What’s a product web?

A product web is the term that Geographers use to describe the locations and processes involved in the production of a consumer product.

In terms of the pilot course we need to know

  • an example of a consumer product
  • the processes and locations involved in bringing the product to market.
  • the impact on the people growing or manufacturing the product.
  • the implications of us buying the product.

So what’s the issue with coffee?

coffeebean_man-700385Some people are concerned that multi-national companies ,such as Starbucks, exploit farmers in LEDC countries. Often, farmers in places such as Ethiopia aren’t able to make a profit from their coffee crop, whilst companies such as Starbucks make huge profits. A kilo of coffee grown in Ethiopia may cost around $2 dollars, whilst the equivalent in Starbucks might cost $34. But is it a simple case of multi-national exploits poor farmer?

Why is the price of coffee so low?

  • Coffee is a primary product, therefore value hasn’t been added.
  • LEDC countries, such as Ethiopia, tend to lack the means to process (technology, infrastructure and associated investment) the raw coffee and therefore add value. Remember, in our product web, just a small amount of value is added through washing, before auction. Starbucks has its own roasting plant in the Netherlands. Yes, as Chris stated, the huge irony being that coffee is exported back to the African continent. Your cup of coffee therefore has somewhat of a large carbon footprint.
  • Many farmers in LEDC countries have been encouraged to grow coffee, this has lead to overproduction and falling prices.
  • Due to overproduction, multi-national companies can basically pick and choose between exporters.
  • In order to encourage multi-nationals to buy, the exporters often demand lower prices from the producers. It is also often the case that exporters will sell to the multi-nationals and make a loss, this is due to changing prices, as a result of supply and demand; their hope is that over a year they will make a profit.

Remember also that coffee is a plant, therefore it is effected by adverse weather conditions and pests.

Overall, lower prices potentially means a lower quality of life for farmers.

Starbucks would argue that they make little profit as well, in fact after spending money adding value, packaging, marketing and providing staffed retail outlets, only about 4% of the price of a cup of coffee is profit, 3% is the cost of the coffee, and eventually 1% works its way back to the farmer.

Slide6

How has Starbucks responded to criticism?

Of course, there are always two sides to the story…

  • Starbucks funds educational programmes in Ethiopia, hence it helps local communities develop skills.
  • It builds direct relationships with farmers, purchasing from them, thereby cutting out the need for exporters. (Sorry exporters, no jobs.) Therefore less money is lost through the product web.
  • It offers long-term contracts. This allows farmers to financially plan in the long-term and protects them from shifts in prices.
  • It provides farmers with affordable small-scale credit, this allows farmers to survive during the lead up to harvest.  Of course, once the harvest is gathered they will have to pay back the loan. In the short term, this will help maintain the farmer’s quality of life and enable them to purchase any necessary equipment for farming.
  • It purchases Fair Trade/Organic coffee and tea. Consumers have a choice!
  • It supports conservation projects in the countries it purchases from.

So how do we tackle the poverty of the farmers?

Well as you suggested, either Fair Trade or help the countries that produce such primary products to develop the means to add value. But this would take a huge investment in infrastructure and education, which these types of country can not readily afford.

The other option is encouraging the farmers to diversify, to grow different products, this would limit supply and raise prices, but are the multi-nationals really going to raise their prices or reduce their profits, wouldn’t the profit margins for all just stay the same? Consumers aren’t likely to stomach higher prices…

Finally, have a great rest. Year 11 is hard work, so come back rested and ready to work! 🙂

Keep an eye on the blog, as we know from today’s quiz, your general geographical knowledge and current affairs could do with developing. 😉

P.S. Three people owe me something…

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