Article Review:The Mexican coffee crisis. Renard M. (2010). Latin American Perspectives, 37(2), 21–33
From this article, it is apparent that the liberalization of the international coffee market in 1989, led to emergency of more coffee producers, thus increasing the supply of the products in international markets. Consequently, prices began to fall owing to oligopolization andregulation of the coffee industry and oversupply of the commodity. It should be noted that most products, especially fast moving goods, and processed products and services do face competition in the oligopoly market environment. In this light, many firms including those in the coffee industry strive to penetrate through the oligopoly market environment. This is a clear contrast on the earlier conception of competition in a business environment as being a critical factor. According to Kohn (2008), competition influences many aspects of human experience. Essentially, a number of firms including those in the coffee industry have come up with various action plans which are aimed at making their entities being able to sustain themselves under strong competition. Among the measures that have been taken by such firms include balancing forces as a means of strategic moves alongside changing those elements which underlie competitive forces.
This aspect is made clear by Renard’s article who in his evaluation of the coffee industry in Mexico point’s that in 1989, the Mexican government which had controlled the coffee sector decided to relinquish its control of the sector in line with the structural adjustment policies that were set forth by the World Bank and other international financial entities. This led to the states sole regulating agency Mexican Coffee Institute to dismantle its operations in 1993. The agency had to restructure itself by undertaking various measures such as firing its qualified personnel and incurring an egregious waste of human resources. Prior to this, the agency had maintained a paternalistic and vertical relationship with famers and producers who were not happy with the dismantling of this agency and unable to cope with the new market environment (Greenspan, 2007).
As pointed out by Renard, the coffee industry has recently become a highly competitive area as new countries enter the arena. Competitors in this industry aim to capture a wide market base for their products. The continuous new entry of new players in this sector will require a much higher fixed cost in order for the foreign firms for instance, to continue thriving in the US market. However, this can also present a chance of collaborations in case their capacity becomes overloaded. The competitive advantage tends to focus on the preferences of customers and demand patterns. Certain Mechanisms aimed at minimizing costs or creating a barrier to entry may not be very advantageous in relation to the other strategies deployed by competitors. Generally, the processes of operations have a high rate of competition from amongst the players. Further, the high rate of new entrants in the coffee industry has resulted in low demands for products for other firms. This is because the firms are now forced to share customers who find products with similar features at other firms.
In order to sustain themselves in this industry, many coffee firms have opted to diversify themselves in the market. In essence, market diversification is among the strategies that have been used by coffee firms to and has been effective in sales volumes. Rather than focusing on a specific niche as they used to do many companies have endeavored to offer products and services that may be appealing to all people, irrespective of age or social economic background. A consideration of all generations in products and service have significantly reinforced the company’s social consciousness and corporate responsibility, which usually targets all people in a community, irrespective of age, or social economic standing. In this perspective, firms have established products and services with a conscious of all calibers of people.
In the context of Mexico, the government had to promote its coffee production by emphasizing on the quality of national coffee by instituting a series of decrees, regulations and campaigns to promote the quality of coffee produced. Further, the state was made to abide by the International Coffee Agreement that coffee prices should be based on quality, hence the emergency of coffee differentials among various types of coffee. This measure has consequently led to introduction of new technology which makes it easy to substitute one bean for another without necessarily interfering with the final taste (Greenspan, 2007). What is more, the use of robusta coffee in different blends has further given Mexican coffee a competitive advantage over others in the market. The technical improvements have also improved the rate of extraction of coffee beans thus reducing the cost of production.
Since producers have a tendency of paying less for low quality products, producing countries have opted to withdraw low quality coffee products from the market by implementing various programs. Manynations are not willing to execute retention program such as those established by then International Coffee Agreement because of the inability to implement them. However, there is an increased tendency of these countries in increasing the quality of coffee alongside national consumption in coffeehouses. These efforts have contributed to the tendency of consumers increasingly preferring coffees of gourmet qualityof a specific origin in coffeehouses including Macdonalds, Starbarks and Expression lane. On the other hand, the consumption of standardized blends has declined largely.
Alongside quality products, there is also increased tendency for consumers to prefer different coffee brands and tastes. Therefore diversification of coffee brands is an important factor in determination of market viability for coffee firms. This is because customers with different preferences and tastes are satisfied and enjoy their experience with the type of coffee, which they prefer. Further, differentiation of products and diversity of its customers is one of the key advantages for coffee companies. Firms have endeavored to be unique and to differentiate it from others. In other words, many coffee firms do not only target one customer group. Rather, they target low to a middle class, middle to upper class, as well as two income professional families.They also focus on not isolating the low income customers that do not have the financial stability where we have special productsfor them. Customers are updated on the new services and products.
The increased avoidance of low qualitycoffee brandsby consumerswas what mandated international coffee regulators on implementing a series of measures to promote consumption and quality globally. Among these measures included withdrawal and destruction of low quality coffee from the market. The amount of coffee that still remained were poorly paid to producers, a move aimed to make it hard to sustain them in the market. On the other hand, high exceptional quality brands are compensated attractively to encourage them in the market.