The level of competition in the business world has increased significantly over the last couple of years, as more business organisations are established. All these businesses compete for a share in the market (Humphrey 2014). Supply chain management is one of the most significant departments in an organisation, because it has the ability to define the competitiveness of the organisation. Supply chain management deals with the flow of goods from the manufacturer to the final consumers (Henderson et al. 2002). Goods normally have to go through several stages of production before they are ready for consumption. Moreover, the raw materials need to be transported to the place where they are converted to consumable goods. The employees in the manufacturing department (work- in- progress) then work on the raw materials to come up with the final products. The final products are later stored in a warehouse before being passed on to the final consumer, or they may be moved directly to the consumer (Humphrey 2014).
There should be interconnections between all these processes to ensure that the end consumer is provided with what they require. Supply chain management determines the quality of production and the competitiveness of a business organisation (Ponte 2002). In other words, supply chain management involves the design of the supply chain, planning of the production and movement processes, execution of the activities involved, control, and monitoring of the supply chain. The objective of supply chain management is to create a competitive infrastructure, create net value to the organisation, as well as synchronise with the market demands (Humphrey 2014).
The global commodity chain is also a significant process in the logistics department, as it facilitates the gathering of raw materials, their conversion to final products, and distribution to the final consumer (Cox 1999). It ensures quality in production, a factor that gives the organisations a competitive edge. Further, with globalisation becoming dominant in today’s economy, there has been a need for global production networks (GPNs) for companies that have international operations. The GPNs facilitate the global movement of goods (Humphrey 2014).
Coffee is a commodity that is traded in the international market, but its movement is affected significantly by the power relations among countries and companies that deal with coffee. These power relations affect the supply chain of coffee, as well as its prices and overall marketing (Mehta & Chavas 2004). There is a general fall in the prices of coffee, as well as other agricultural products in the global market due to a myriad of factors and dynamics in the industry and the global supply chain of coffee. The fall in prices in the coffee market, in specific, has been drastic. Coffee prices are said to be lower today compared to the 1960s (Sethi 2008). This paper examines the global supply chain of coffee by discussing how power relations influence the supply chain.
How Power Relations Shape and affect the Supply Chain Management (SCM) Framework of Coffee
Coffee is a global commodity and a source of income to many nations, especially the developing countries. Over the years, the supply chain of coffee on the global market has changed significantly due to a number of factors that can be associated with power relations among nations, as well as the international companies (Cox 1999). For instance, there have been deregulations in the international market. There has also been an evolution of corporate strategies that have hurt the coffee market. The politics that affect coffee supply regarding the international coffee agreements have also played a major factor in the supply chain management of the commodity. Moreover, there have been imbalances in the distribution of income generated by coffee, which has led to a general effect on the supply chain management of the commodity in the global market (Ibrahim & Zailani 2010).
First, it is inevitable to have politics in the coffee market because there have to be agreements in the international market regarding how coffee is to be distributed. Moreover, the coffee business is a historically regulated trade, given that coffee is a valuable commodity. It is imperative to note that most of the countries that produce and distribute coffee are the developing nations, among them Brazil, Vietnam, Uganda, Burundi, and Ethiopia (Stockman 2010). Most of the times these nations do not have a significant influence on the development and implementation of international policies that affect the coffee trade. Instead, the developed countries influence the process significantly due to their power. As a result, the agreements that are made in the international market fail to be favourable to the developing nations (Ibrahim & Zailani 2010). This affects the manner in which the developing countries distribute coffee. The agreements mainly favour transnational organisations, most of which are from the developed nations. These nations have the economic might and the influence to make certain decisions. The effect is that the developing countries do not get sufficient returns for their coffee. Therefore, they are not able to produce in sufficient amounts (FAO 2003).
Supply chain management starts at the level of production and ends at the consumer level. If the coffee producers are not able to produce sufficient amounts, then they are not able to supply consistently and satisfy the market. As mentioned earlier, supply chain management is aimed at satisfying the consumers. Consequently, the coffee producers are not able to satisfy the coffee consumers because of the negative effects of the power relations that emanate from politics in international market agreements (Ponte 2002).
Corporate strategies, on the other hand, have a significant influence on the supply chain management of coffee, given that they are some of the major players in the supply chain management. Some of them are agents that act on behalf of coffee producers, or on behalf of coffee customers (Stockman 2010). For instance, there are corporate bodies that get coffee from the farmers, process it, and then sell to the final consumer or to another corporate body, which will then sell to the final consumer. The regulations that these corporate bodies adopt have a significant influence on coffee supply chain management. If, for instance, corporate bodies adopt regulations that make it difficult for farmers from a certain country to sell to them, then the farmers will have a limited market and be demotivated to produce more because the demand will go down. It should be noted that some of these regulations are not specific to coffee, but they are meant for the general international market. The fact that coffee trade takes place in the international scene means that it is also affected by the regulations. If it is too expensive to import from a certain country due to the exercise duty, then the costs of supply chain management go up, even for coffee (Fitter 2001).
The regulation of the coffee trade in the international market has a negative effect on the supply chain. For instance, the importing nation may be forced to look for alternative markets from which it can import coffee (FAO 2003). On the other hand, the exporting nation will have lost a customer, thereby have smaller markets. In the end, the producing nation earns less income, and it is forced to lower its production of coffee. Corporations operating in the international coffee market are competitors against each other. They all aim to get the largest volume of coffee at the cheapest price possible, in addition to getting a high number of customers for the same after value addition (Stockman 2010). Therefore, each of the corporations tends to come up with strategies that can give them a competitive edge over their rivals. This further affects the supply chain management of coffee negatively. For instance, if one corporation has strategies, whereby it pays more to the coffee suppliers, then there is a high possibility that such a corporation will get more coffee compared to its competitors. The effect is that supply chains will be directed towards one direction, leading to inequitable distribution of coffee. The corporations that are able to create a good relationship with their suppliers are also able to get more coffee in the long run (Humphrey 2014).
How Power Relations Shape and Affect the Global Commodity Chain (GCC) of Coffee
The global commodity chain (GCC) is equally important in ensuring the global supply of goods and services in the market. The power relations among nations, as well as companies that operate in the international scene have an effect on the global commodity chain of coffee. The global commodity chain can be categorised into four dimensions for the sake of analysis. The four dimensions include the geographical coverage, the structure of governance, the input and output structure, as well as the general institutional framework (Sethi 2008). The structure of governance is one of the most significant dimensions in the analysis of how power relations shape and affect the global commodity chain in the coffee market. Entry barriers are most likely to be experienced in the structure of governance in a country. There are countries that have entry barriers that make it difficult for other nations or companies to sell their products in their markets (New 1997). If there are factors in the international market that make it difficult for coffee producers to enter a certain market, then the global commodity chain of coffee is affected negatively. Addressing the effects of power relations in the global commodity chain of coffee market can be done by viewing the power relations in terms of two systems. One of them is the International Coffee Agreement regime, while the other one is the Post International Coffee Agreement regime (United Nations 2000).
The former is a regime that refers to a period in the early 1900, when there were state actions aimed at increasing the general prices of coffee. The actions were influenced by Brazil, which was a huge producer of coffee at the time (Sethi 2008). The first agreement that was signed in the year 1962 involved all the major producers of coffee, as well as the countries that were the major consumers of the same (Ponte 2002). The agreement had a target price for coffee. Therefore, those buying the coffee had to meet these target prices, while those selling were not supposed to sell at prices higher than the target prices. The agreement also determined the quotas for the coffee exporters (Oxfam International 2002). The quotas were, however, influenced by the prices of coffee. For instance, the quotas could be relaxed in case the prices of coffee rose beyond the set prices. This system was very important because it helped in stabilising the prices of coffee (United Nations 2000).
Some of the reasons why this agreement was successful at the beginning include the participation of all the countries that consumed coffee and their support for the quotas. The fact that the producing countries were present and they allowed the governments to make decisions was another factor that led to the success of the quotas (Stockman 2010). Brazil, which was the largest coffee producer at the time and had a very significant influence on the coffee market, was in support of the agreement. It agreed to shrink the market share to demonstrate its support for the system (United Nations 2000). This was another success factor to the agreement. The general effect of this agreement and its implications is that it influenced the global commodity chain of coffee. The agreement stipulated the amount of coffee to be traded in the international market at a given time and the prices at which it was to be traded (Ponte 2002). The suppliers, as well as the producers of coffee were forced to stay within the limits, to some extent. There was a good balance between the coffee producers and the consumers during the regime. As a result, coffee was highly profitable and farmers earned a high income from the venture. This meant that the suppliers could be able to supply more, as coffee could be produced in plenty. They were also able to satisfy the market, while they were also satisfied with the coffee prices (Mehta & Chavas 2004).
The International Coffee Agreement, however, came to an end in the late 1990s, leading to a regime that was referred to as the Post International Coffee Agreement (Stockman 2010). This is a regime that greatly affected the global commodity chain of coffee in the industry for a number of reasons. The Post International Coffee Agreement led to the loss of balance in the coffee supply chain. The consuming countries started to dominate the coffee farmers, coffee producing nations, and governments, as well as the local coffee traders (Mohan 2010). The ramification of this dominance is that the prices of coffee dropped significantly. It meant that the coffee producing nations would only get a relatively small proportion of coffee income, while the largest share of the same was retained in the consuming nations (United Nations 2000). As mentioned earlier in this article, most of the coffee consuming nations are the developed countries, while the producers are the developing countries. It is a good indicator of power relations between the developed and the developing countries. The developed countries have more power to influence the coffee market compared to the developing nations, yet the developing nations are the dominant producers of coffee.
The shift in prices affected the global commodity chain in a number of ways. First, the developing countries could not be able to produce coffee in large quantities like they did during the previous regime because they did not sufficient incomes from coffee like they used to get. Consequently, they were not willing to supply more due to less profitability (Mehta & Chavas 2004). It is important to note that the global production volume of coffee is highly dependent on the coffee prices. Therefore, when the prices of coffee are low, the global production generally goes down. On the other hand, high prices motivate coffee production and increase the volume produced (Ponte 2002). These free market dynamics were hurt by the Post International Coffee Agreement.
How Power Relations Shape and Affect the Global Production Networks of Coffee
Global production networks have become more common following the emergence and the development of the global market. The fact that globalisation aims to integrate the world economy means that the international market and the products that are traded in the international markets, coffee being one of them, are very important (Henderson et al. 2002). The coffee market can be viewed in two very distinct perspectives. The first one is that of producers, while the second one is that of consumers. These can further be differentiated, as the majority of coffee producers are the developing countries, while the majority of consumer nations are the developed nations (Mehta & Chavas 2004). The success of the coffee trade, therefore, depends on how the networks are integrated; the integration of developed and developing nations in the coffee market (Bair 2009). This, in turn, constitutes the global production networks of coffee.
The regulations that are established by nations play a very essential role in the integration of global production networks in the coffee industry. For instance, if a country has regulations that make it harder for international trade to take place within its boundaries, then such a nation cannot support the integration of global production networks for coffee. The developed countries make it difficult for the developing nations to establish such networks with them. Some of the nations have regulations that make the developing nations find it challenging to meet the requirements (Mehta & Chavas 2004). In doing so, the consumers are able to dominate the producers of coffee. They are, in turn, able to buy the coffee at lower prices (Fitter 2001). This is one of the reasons why the prices of coffee have gone down in the last couple of years. The success of the global production networks depends on the degree with which coffee consumers and producers are able to integrate. Better integration of the two parties means that the coffee market is able to establish a good network (Mehta & Chavas 2004).
Whether the networks are vertical or horizontal is dependent on the power relations between the concerned countries, or the companies involved. In addition, heterogeneous networks and homogeneous networks are also dependent on the power relations of the parties involved. It, therefore, follows that when nations are at different power levels, or when one nation is more powerful compared to another, the possibilities are that production networks will be vertical. They are also likely to be heterogeneous (Humphrey 2014). The more powerful nations are at the top, while the less powerful ones are at the bottom. The powerful nations dominate the less powerful nations (Henderson et al. 2002). This is clearly depicted by the Post International Coffee Agreement. In this agreement, the coffee consumers, mostly the developed nations, dominate the coffee producers, who are the developing nations. The consumers influence the prices to make them favourable to them, while hurting the producers. The overall effect is that coffee prices have gone down as a result of these networks.
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