Analysis of the coffee crisis in Zambia : financial distress and commodity price.
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Coffee prices reached their lowest levels in 30 years in 2001 (and in 100 years in real terms). In almost all coffee producing countries, such prices are unable to cover production costs and have led to serious social and economic problems, including increased poverty, indebtedness and abandonment of coffee farms. The heavy reliance on coffee renders APC vulnerable to markets downturns and to the competitive pressures that exist in the industry. The coffee crisis has actually been "brewing" for some time now, but has recently percolated as the reality of far reaching structural changes in global coffee production and marketing are being recognized. While there are strategies that could be taken by the coffee industry to improve on the current situation, these are unlikely to result in a quick recovery of world prices or farms' profitability. Coffee farmers face at least two distinct sets of problems associated with prices; the outright price level and volatility. Historically, coffee prices have been among the most volatile of all commodity prices. Cyclical price volatility, particUlarly within the crop season, can be managed through price risk management instruments. However, the secular price trend requires other longer-term elements, such as diversification or improvements in quality and productivity. The paper concludes that debt within the financial structures of industry players is a result of the crisis and to solve the coffee crisis strategies focussed on raising and stabilizing incomes of coffee producers is the ultimate goal and not increasing production statistics.