How government’s role in coffee import influences coffee production and supply chains?
Coffee is undoubtedly the most consumed hot beverage in the world. This magical crop is mainly grown in tropical highlands with Brazil being the leading producer.
Besides other factors, government policy on imports from coffee producing countries affects the demand and supply of this commodity. Below is a quick look at how government’s role in coffee import influences its production and supply chains.
1. Government determines where to import
Any imports to the country must be vetted by the government authorities. As a way of supporting international peace, the government is at will to impose trade sanctions on countries and individuals believed to propagate crimes against humanity. This means that players in the supply chain cannot buy coffee from countries or companies associated with persons facing trade bans.
Unfortunately, you cannot predict which country will be placed on a trade ban. This is because such restrictions are largely driven by the prevailing political climates around the world.
It is also good to note that sanctions do not last forever. They can be lifted anytime as long as it can be demonstrated that governments in power are no longer a threat to global security and wellbeing. All these changes will complicate the operations of supply chains when the bans affect existing relationships.
2. The government imposes import duty rate
The government has the discretion to impose tax duty on all imports. These may be uniform or vary with time and country of origin. If the government chooses to increase the import duty on coffee, then the supply chains will find it costly to buy this commodity and push back to producers to reduce prices.
If the producers yield, their returns reduce significantly and this affects the farmers. When low global prices persist over time, farmers get discouraged and opt to grow other crops.
3. It sets quality standards for coffee
Coffee beans have to pass a minimum threshold for them to be allowed in the country. They must be free of pests and disease. With stringent measures, it means that fewer producers will meet the required standards. The net effect is, the supply chains will have lesser options on where to import coffee.
Unfortunately, when the approved producers are affected by disease outbreaks and their yields are significantly reduced, the country suffers an acute shortage. This results in price hikes by suppliers and consumers have to pay more to enjoy their favorite java cup.
4. Ban of pesticides used in growing coffee
When health and environmental scientists prove that certain pesticides used for food production are harmful to humans and the environments, governments go ahead and ban its use. Unfortunately, this restriction is not universally adopted across the globe.
Most developing countries which form a good percentage of coffee producers continue to use these substances in their farms. This is because they lack the capacity to acquire alternative chemicals to control pests and diseases. Often, the proposed pest control chemicals are way too expensive making compliance a big challenge.
A good example is the coffee cherry borer, a pest that has continued to ravage coffee plantations around the world. Most of the chemicals used to control this pest have been banned in the U.S. and E.U. markets. These include Cypermethrin, Triadimefon, Methyl parathion, Disulfoton, DiazinonChlorpyrifos, and Endosulfan. If producers are unable to keep up with government regulations on banned substances, then the allowed coffee imports will continue to decrease and prices increase.
5. The government engages in trade treaties
In the spirit of improving trade within countries, governments can enter into treaties that determine how imports and exports are managed by the involved parties. It is usually a give and take agreement where the government concedes to allow certain imports at reduced rates in order to access market for its products in the partner countries. Such treaties may influence coffee prices as it is a commodity largely produced by developing economies which are a ready market for goods produced in the developed countries.
Written by Rudy Caretti
Rudy Caretti has more than 15 years of experience in the coffee industry, a passion that started in Italy within the family business and brought him to found Gimoka Coffee UK with a group of friends, who share the same passion. Rudy loves sharing his knowledge with readers around the world, writing and posting articles that range from the coffee brewing techniques to raising awareness of the importance of responsible production to help protect the rights of farmers and protect the environment.