The coffee market is clearly far from the textbook model of frictionless efficiency. Its adjustment of supply and demand is subject to long lags and overshooting. Nevertheless, the story of the current coffee glut is at bottom a story of falling costs and productivity improvements on both the supply and demand sides. In particular, prices have fallen so low primarily because of dramatically expanded production by low‐cost suppliers in Brazil and Vietnam. And those low prices are a signal to high‐cost producers — for example, in Central America — to supply a higher‐value product or exit the market.
However well‐intentioned, interventionist schemes to lift prices above market levels ignore those market realities. Accordingly, they are doomed to end in failure — or to offer cures that are worse than the disease. There are constructive measures that can help to ease the plight of struggling coffee farmers, but they consist of efforts to improve the market’s performance — not block it or demonize it.
