Colombian coffee producers and changing global market competition

Coffee demand was considerably more elastic than the Columbia producers believed because they were still operating upon an older mode of assessing demand, one based upon a market with fewer substitute goods and fewer alternative sources for the cash crop. Once upon a time, all Americans, by and large, woke in the morning to a cup of coffee. Coffee was consumed at breakfast as a staple. But in the 1970s, consumers had more available substitute goods, like sodas, for their caffeine addiction. Also, the number of producers increased: "As more and more farmers began producing coffee beans (estimates ranged from 750,000 to 900,000 farms in 1972), prices began to steadily decline. Well over 200,000 farms were lost by the mid-1990s, as the oversupply of coffee in Columbia reached record highs...Following the 1973 Paris Peace Accords, Vietnam quickly came into focus as a potential mass producer of cheap coffee. Farm labor in Vietnam has always been cheap; in 1980 the average farm worker there made $0.09 a day. The climate in Vietnam was also ideal for producing beans, and the world market was more than ready to capitalize on these prime conditions (Frank, 2004). Thus, there was a perfect storm of economic factors. Consumers and distributors had greater flexibility in their choice of coffee purveyors and Columbian producers could not gouge coffee drinkers as they had in the past.

Question

The Civil Aeronautics Act regulated "entry into and exit from individual markets (by dictating the route patterns between cities and the frequency of flights), fares for passengers and cargo, safety, financing, subsidies to carriers flying on less profitable routes, mergers and acquisitions, inter-carrier agreements, and the quality of service" (Siddiqi 2008).Such regulation ensured that no one company could dominate the market in a particular region and thus be in a position to set high fares because of the lack of competition. Deregulation seemed to work in the short-term -- up to a point. True, many airlines abandoned less profitable routes that took passengers to smaller cities and hub-and-spoke routes created more air congestion, as did the proliferation of more airlines. But the average airfares dropped by more than one-third between 1977 and 1992, and most consumers were willing to put up with the added inconvenience for the ability to travel more often, and to more exotic locations. Fares dropped so low, in fact, that bus and train fares went up, because fewer people used these modes of transportation -- one of the reasons that Amtrak is so difficult to maintain today (Siddiqi 2008). The Internet made it easy for consumers to 'shop' for the lowest possible fares.

Recently, the increased threats of terrorism and the financial insolvency of many of the major carriers suggests that, even if the system is not regulated as closely as in the past, more regulation is needed for both passengers and the airlines' sakes. Also, there has been further consolidation in the beleaguered industry, which could reduce competition and price wars. Higher input costs because of the rising price of fuel difficult for the smaller carriers to stay solvent in particular. Although consumers and airlines are unlikely to accept the level of regulation that existed prior to the 1970s, it is likely that the airline industry will have to be more heavily regulated in the future to provide safe, reliable, and efficient transportation to passengers. The structure of the industry has changed, consumers are more concerned about safe transport than before, and the world has changed, politically.

Question

We live in a global economy and it costs money, simply speaking, to transport food across state lines and to ship it around the globe. Food is primarily transported in trucks and ships that require diesel fuel, "which has hit records highs (in the U.S. over $4 per gallon)" (Markley 2008). Also, as more people all over the world demand more international and meat-based foodstuffs to satiate their palates, and local economies in the developing world are less self-sustaining than in the past because of political turmoil, the price of gas has more of an impact on food prices.

The shift in many farms to biofuel production, which deprives consumers of cheap corn and livestock of cheap feed has also driven up food prices. "According to a World Development Report authored by the World Bank, it takes 528 pounds of corn to fill the tank of one SUV. This same amount could feed one person for a year" (Markley 2008). As more and more corn and farmland is diverted to fuel production, it drives up the price of other foods. In short, there are many culprits, "including severe drought in certain regions and population growth in China and India" but the main source for the price pain at the grocery store is at the gas pump (Markley 2008).