Coffee is beloved by all. While that could be a generalisation, it can’t be that far off. Estimates are that 400 billion cups are consumed annually, with 450 million of those consumed in the United States alone. The Finnish consume 26 pounds of coffee each person, average of four cups a day, and are required by law to take two 10-minute coffee breaks throughout the workday. The world’s most popular beverage is coffee, bar none. Nothing compares to it.
Therefore, learning about coffee’s well-known trading position in global markets shouldn’t surprise. Two commodities are sold more frequently than any other when considering the overall picture of world trade. Crude oil is the first. Our whole global infrastructure, including our manufacturing and transportation systems, is powered by this. The second fuels the human race; coffee is the second-most traded commodity in the world and the number one in food commodities trading.
What is a commodity? A commodity is “a raw material that can be used to manufacture other finished items,” according to FXSSI. Items referred to as raw commodities, of which coffee is one, fall under this description. Something that “cannot be eaten in the form that it is sold” is a raw commodity. You are not eating coffee made from freshly picked berries. The procedure that goes into making the beverage that you’re putting in your cup includes selecting, drying, transporting, grinding, and brewing the beans.
The coffee market is about $100 billion globally. Most people throughout the world use coffee regularly, but we barely ever stop to consider how significantly it influences international trade. Farmers, transportation firms, cafes, supermarkets, and entire nations are all impacted. Coffee is the second most traded commodity since it is consumed by a large portion of the world’s population.
Both emerging and developed markets consider coffee a staple of their diets. Although there are just a few non-consumption uses for this commodity, the enormous demand for coffee has led to the development of a thriving futures market.
Because coffee has such specialised uses, it frequently attracts investors looking for short-term investment opportunities by gambling on price swings that could occur as a result of supply and demand variables.
Different kinds of volatility are linked to the coffee trade. However, several elements affect all coffee bean varieties, such as:
Because coffee is grown in tropical and subtropical climates, any dramatic weather changes that occur throughout the transit process may have an impact on the real state of the coffee. These unfavourable circumstances include freeze, frost, and prolonged periods of extremely hot weather.
Extreme heat in the atmosphere has the power to bind and melt coffee bean particles. When supply declines due to damaged crops brought on by a natural disaster, prices may drop once again.
To grow and produce a good crop, coffee plants require very specific climatic conditions. As climate changes, the areas where it can be grown shift to locations higher up in the mountains. This makes growing coffee more difficult.
Climate change also threatens the areas in Africa where coffee comes from. The wild coffee plants grown in Ethiopia are the only source of genetic variability. If they disappear, we might not be able to find plants that are resistant to pests and diseases.
Pests and diseases
Coffee production is threatened by pests and diseases. I wrote about the most important one, coffee rust, exactly two years ago.
Price of oil
Vietnam and Brazil are the two countries that export and produce the most coffee, but they are geographically apart.
Despite this, the price of oil has an effect on the price of coffee in both nations. The cost of coffee beans increases along with the price of oil. The cost of oil is one factor that directly affects the cost of coffee beans. With oil prices going up, the cost of your morning cup might be much higher soon!
It is always interesting – and occasionally amusing – when politicians use mathematics in their speeches. The UK new business minister, Mr Jacob Rees-Mogg, MP, has just referred to logarithms in his argument for allowing back fracking:
It is safe, it is shown to be safe, the scare stories have been disproved time and time again. The hysteria about seismic activity fails to understand that the Richter scale is a logarithmic scale. It seems to think that it is a straight arithmetic scale, which of course it is not.
I am a great fan of logarithmic scales; having even given a popular lecture on that topic some years back. But they need to be used carefully.
The Richter scale is used to describe the severity of earthquakes. Developed in 1930s, it is designed to cope with a huge range of the power released in the process. From small tremors which are hardly noticeable, to devastating catastrophic events at a global scale, we need a way to assign the numbers.
To cope with such a range of energy release and hence damage, the Richter scale uses logarithms – more precisely, base-10 logarithms. Thus, the increase in the magnitude by one unit is associated with an energy increase by a factor of 10.
Logarithms were invented by John Napier, Scottish mathematician, physicist and astronomer who lived between 1550 – 1617, exactly for the purpose of dealing with both small and huge numbers. The idea is to turn multiplication (which can be quite complicated for large numbers) into addition (which is simple), and division (which is even more complicated) into subtraction (which is simple).
Thus, it turns a scale in which the value of consecutive elements increases arithmetically (by a unit) into a scale in which the values are multiplied, for example by 10. The Rt Hon Member of the Parliament for North East Somerset seems to know that and was trying to use the Napier (a Scot!) idea to explain away other MPs concerns regarding fracking.
Fracking is known to result in (relatively small) earthquakes. Basically, water and chemicals are pumped into the ground under high pressure to extract oil. The fluid fractures the rock structure and the resulting collapse can cause waves to propagate to the ground.
To prevent high damage, there is usually a threshold of earthquake magnitude above which fracking has to stop in the location. In England, fracking companies have to halt operations for 18 hours if there is a seismic event of 0.5M. The UK government has just announced that this threshold will be increased to 2.5.
I suppose Mr Rees-Mogg was referring to logarithms to point out that 2.5 on the Richter scale is actually not a very big number. Still, it corresponds to an explosion of a large bomb, 5.6 tons of TNT. It will probably not be as damaging – fracking rarely occurs near houses – but still is something to recon with.
But I am not entirely sure what he meant by comparing it to an arithmetic scale. It is absolutely true that a logarithmic scale is not an arithmetic scale – it is actually worse. An increase of 2 units on the Richter scale means the 100-fold increase in the amplitude of shaking.
What about the energy? As explained on the Earthquake Calculator page, the energy released, , depends on the magnitude, , but the equation
Thus, a 0.5 earthquake releases 354 kJ energy, and a 1.5 earthquake releases 11,220 kJ – an increase of about 32 times. For a 2.5 earthquake, the increase is a staggering 1,000 times (to 354,813 kJ)!
Now, fracking might – or might not – be the way forward in the time of high oil and gas prices. It also might – or might not – be resulting in problems by causing earthquakes. But, it is still very important to understand the mathematics behind the politician statement, particularly if mathematics is being abused.