Friday, July 24, 2009

Venezuela to Import Coffee For 1st Time Ever!!

Caracas, July 22 - Venezuela, a traditional coffee exporter that boasts one of the best cups of java in South America, may have to import coffee for the first time ever this year or face shortages, industry experts said. Producers say rising costs and prices fixed by the government have caused production to fall and illegal exports to rise. The government says poor climate and speculation by growers and roasters is to blame.

Venezuela is known to produce some of the best quality Arabica coffee anywhere and, unlike many countries in the region, traditionally consumed most of it itself. But more recently large quantities of coffee have been smuggled across the border to Colombia, where prices have been more than double the fixed 470 Bolivares ($218) per bag that producers are paid in Venezuela.

MP: This story provides yet another example of how central planning and price controls always fail. The laws of supply and demand are not optional. Artificially fix a price below (above) the market-clearing price and you create a guaranteed shortage (surplus). Period.


Update: P.J. O'Rourke summarizes it pretty well: "You can't get good Chinese takeout in China and Cuban cigars are rationed in Cuba. That's all you need to know about communism." (HT: Tim Worstall)

9 Comments:

At 7/25/2009 3:12 AM, Blogger Dave said...

This article not only shows "another example of how central planning and price controls always fail", but how govenments always respond by making up lies and blaming the private sector.

 
At 7/25/2009 3:24 AM, Blogger OA said...

The worst part of price ceilings is the farmers are never the ones who get the benefit of the higher export prices. Those mainly go either to the select companies who can legally export or the smugglers. With some bit sometimes going to government officials to look the other way.

It also discourages an increase in acreage going to that crop which could eventually lead to both cheap domestic prices and a high volume export.

 
At 7/25/2009 5:17 AM, Blogger 1 said...

Oh man! This is seriously an amazing (yet under present circumstances not unexpected) situation...

Venenzuelan mountain coffee (a truly excellent Arabica bean) was the main export product until oil was discovered...

200+ years of coffee exportation comes to a grinding halt due to a commie fool's idiotic actions...

 
At 7/25/2009 9:27 AM, Blogger Jason Gillman said...

Venezuela continues to be the best minor lesson on the negative effects of central planning, and is almost a foreshadowing of our own current administration's efforts..

 
At 7/25/2009 10:07 AM, Anonymous Anonymous said...

Communism only works in the imaginations of 20 somethings and their college professors.

 
At 7/25/2009 2:02 PM, Blogger QT said...

There is however still a case to be made for central planning in the case of international coffee prices.

According to the Composite Index of the London-based coffee export country group International Coffee Organization the monthly coffee price averages in international trade had been well above 100 US cent/lb during the 70s/80s, but then declined during the late 90s reaching a minimum in September 2001 of just 41.17 US cent per lb and stayed low until 2004. The reasons for this decline included a collapse of the International Coffee Agreement of 1975-1989 with Cold War pressures, which had held the minimum coffee price at USD$1.20 per pound. Moreover, the expansion of Brazilian coffee plantations and Vietnam's entry into the market in 1994 when the United States trade embargo against it was lifted added supply pressures. The market awarded the more efficient Vietnamese coffee suppliers with trade and caused less efficient coffee bean farmers in many countries such as Brazil, Nicaragua, and Ethiopia not to be able to live off of their products, which at many times were priced below the cost of production, forcing many to quit the coffee bean production and move into slums in the cities.

 
At 7/25/2009 4:14 PM, Blogger misterjosh said...

Central farming may benefit some few inefficient farmers QT, but it harms the other farmers, and all consumers.

 
At 7/25/2009 6:02 PM, Blogger OA said...

There is a very poor case to be made for central planning.

How can it be good to artificially reward the producers who are not efficient? Who decides which country's jobs are more valuable or that an inefficient small farm is preferable to a plantation?

Is it a shame that small farmers were put out of business by huge agribusiness in the US? They provide enough food for Americans to be obese and a surplus to feed many people in the world. There used to be alarming books a few decades ago about the mass famines that were to already have happened. But yields rocketed to fix that.

To the contrary, the protection of prices for things like sugar in the US prevents farmers in the rest of the world from being able to live off their crops.

 
At 7/25/2009 9:13 PM, Blogger QT said...

OA,

Yes, I agree that the sugar lobby certainly create distortions. I guess that the idea of market boards is one that I have not fully come to terms with. In some situations such as coffee, there seems to be a case for establishing floor prices just because cheap robusta coffee from Vietnam has caused a collapse in price.

How does one resolve such a problem?

 

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