Coffee Producers Cartel

Coffee Producers Cartel
A cartel explained by economists is a method of controlling the supply and demand effect and restricting prices from continual decrease. A cartel is an unlawful association or group of manufacturers or suppliers who get together to maintain high prices and restrict competition. In its simplest terms, a cartel is an agreement between businesses not to compete with each other. The agreement is usually verbal and often informal. Typically, cartel members may agree on: ? prices ? output levels ? discounts ? credit terms ? which customers they will supply ? which areas they will supply Cartels are most successful in areas where there is little competition, the product has no commodities, communication channels between competitors are already established and the industry is suffering from excess capacity or there is general recession.
Although they can be helpful if you are a member of a cartel, you could be fined up to 10 per cent of your UK turnover for up to three years. Most producers are better off agreeing to a tacit agreement where by there is an agreement between firms on an informal basis where nothing is recorded officially. Coffee is currently the second largest commodity market in the world behind oil. The market expands across the entire globe and its effects reach the developed and developing countries alike. Most cocoa beans are grown in the developing countries and have been done so for the past century but in recent times the cost of cocoa has rapidly decreased. As the price of the cocoa beans decrease it has caused large-scale problems in the market and oversupply of cocoa has caused this to a large extent. A cartel has several interests for consumers yet can be analysed and be concluded that by creating a cartel it may cause problems for consumers. Firstly by creating a cartel it will mean that the consumers will be purchasing products in order to save the livelihoods of poor Brazilian farmers. Although this can be argued that it is not in the interest of consumers it must be considered that consumers would feel better if the purchased a product that saves a farmers life for a whole month providing them food and water. Another factor contributing to the interest that cartels would provide consumers would be the fact that by creating a cartel it may mean that it will reduce supply. By reducing supply it will mean that the main problem in the coffee industry will be solved, this will mean that the consumers will help to cure the problems in a market. Also it will mean that by purchasing coffee they will be able to recognise that they are purchasing a product at a price that is reasonable and will save developing nations. By creating a cartel it will also mean that the bad quality cocoa such as cocoa from Vietnam and Indonesia will be rid of and the consumers will receive the best quality cocoa from countries such as Brazil and Costa Rica. This is because a cartel will mean that the countries that are bonded to it will only provide a certain amount of cocoa and thus it will mean that they will not be able to sell the cocoa at low prices (predatory pricing) to the retailers causing problems to the original high quality coffee producing nations. In contrast the negative aspects of a cartel are obvious to be seen. By creating a cartel it will cause severe problems for consumers in the long run, it will basically mean that competition in the coffee market will practically disappear. This will have direct effects on the consumers, as it will cause the prices of coffee to skyrocket, this is because the retailers will not be able to purchase cocoa at low prices from any producer and thus will give in to the cartels prices. Thus by giving in the producers will then continually rise the price of cocoa as the retailers will have no choice to agree and thus cause problems on a price basis for consumers. The effect of a cartel from the coffee producers on consumers may also mean that the quality of cocoa from the countries that produce high quality cocoa will decrease. This is because as the retailers give in to the demands of the coffee producers it will mean that the countries that develop high quality cocoa will see the fact that retailers will have no choice apart from buying there cocoa. Thus the producers will start to decrease their work effort, as they will notice that whatever happens they will get a continual amount of profit. As work effort decrease it will mean that the producers will care less about the cocoa and thus the quality of the beans will decrease and thus directly effect the interest of the consumers.

Coffee Producers Cartel 9.7 of 10 on the basis of 3665 Review.