When considering the interplay between domestic and international markets, the latter can significantly affect the former, especially in the context of open markets. Therefore, it is important to look at the imported and exported goods in the context of a country to determine how opening up to international trade affects several areas of operations. In the US, coffee represents one of the most popular consumer goods that have been imported to the country. This good will be further analyzed as an imported product. In terms of exports, the consumer product that is number one in the food category is soybeans, which will be further explored as an exported product.
Supply and Demand of Exports and Imports
US Coffee Imports
The consumption of coffee in the United States has slightly changed over the recent years but has remained approximately at two cups a day per capita, with 47% of Americans between 18 and 24 drinking the beverage on a daily basis (Ridder, 2022). Therefore, the demand for the product is high, which enables constant price increases. As reported by Levin (2021) for Marketplace, a significant drought in Brazil and the resurgence of post-lockdown coffee ship trips have enabled coffee commodity prices to reach their highest level in years. The global consumption of coffee, in which the US also included, outpaced production in 2021 (Levin, 2021). Because of the drought in Brazil, wholesalers importing coffee beans to the US have to pay more than $3 in 2021, which is an increase from around $2.60 in 2020 (Levin, 2021). This has caused an increase of prices for end consumers. However, increased coffee prices did not deter customers from continuing to purchase coffee, including beans, ground coffee, and brewed drinks at coffee shops.
US Soybean Exports
The demand for soybeans is driven by a combination of continued expansion in international protein demand and the leveling off of US distiller’s grains availability. Between 2021 and 2022, the US soybean ending stocks reached 260 million bushels as opposed to the average expectation of 266 million and a range of expectations from 196 to 325 million (CME Group, 2022). Global ending stocks reached 89.58 million tonnes as opposed to the average expectation of 88.5 million (CME Group, 2022). In 2021/2022, US soybean supply and use included higher exports and lower ending stocks (USDA, 2022). With the rising prices of soybean oil, its use as biofuel has decreased in the recent months of 2022, with the exports of soybean oil increasing in response to the reduced international sunflower seed oil trade and tighter supplies of global vegetable oil.
Coffee is among the most preferred drinks in the United States and has the highest rate of consumption after carbonated beverages and bottled water in the non-alcoholic drinks market. Based on the product type, the market is divided into ground coffee, instant coffee, whole-bean, and other variations. Naturally, the US coffee market is highly competitive and includes a large number of both international and domestic players. The emphasis is placed on mergers, expansions, acquisitions, and partnerships of companies along with new product development as strategic approaches adopted by leading industry players to boost the brand presence among customers. With the increased demand for fresh ground coffee pods providing customers with a premium coffee experience, the market is expected to face competition from the entrance of private-level companies. Some of the major competitors in the coffee market include Starbucks Corporation, Eight O’Clock Coffee, The J.M. Smucker Company, Keurig Green Mountain, Inc., Maxwell House, Nestle, Folgers, and several others. In terms of the market concentration, it is fairly fragmented – while there are several dominant players who compete for leadership, there are vast opportunities for new niche companies to enter and capture consumer audiences.
When it comes to the competition in the soybeans market, since the 90s, the US has lost its market share to Brazil and Argentina, with the share declining from 71% in 1992 to 47% in 2012 (Salin & Somwaru, 2015). Losing the advantage to South America meant that the US had to be smarter in its approach to competitiveness. The challenge for the US as one of the dominant players in soybean exports to global markets depended on its ability to cut transportation costs and enhance infrastructure capacity. The results of the dynamic model developed by Salin & Somwaru (2015) suggest that under present conditions, the market share of the United States in the export of soybeans could be stable along with the growth of the overall market. Nevertheless, the country’s initial position as the dominating one eroded, with the market shares of competitive countries growing faster. Slight differences in the cost of transportation can make the exports of soybeans from South America more profitable compared to US soybeans, which diverts trade from the United States to Argentina. Importantly, when US can reduce its transportation costs, the soybean trade is likely to divert to the country because of more attractive costs. Besides, changes in the costs of ocean transportation are crucial to the competitiveness of countries exporting agricultural products because around 81% of US agricultural exports are shipped by ocean carriers to major export markets (Salin & Somwaru, 2015).
Impact of Change in Competitiveness on Equilibrium Price and Quantity
In any market, the equilibrium price represents the price at which the quantity demanded is equal to the quantity supplied. In the coffee market, the equilibrium price is $6 per pound (“Principles of Economics,” 2016). The equilibrium quantity represents the quantity demanded and supplied at the equilibrium price (“Principles of economics,” 2016). If to look at equilibrium price and supply as curves, there is only one price at which the two curves meet, which means that there could be only one price at which equilibrium is achieved (“Principles of economics,” 2016). If there is a change in competitiveness and the dominating companies increase the initial price per pound to $8, there will no longer be a balance between the quantity demanded and quantity supplied, which means that the price cannot be considered the equilibrium price (“Principles of economics,” 2016). At the new price of $8 per pound, the demand curve is examined to determine the quantity of consumers that the customers will be willing to buy, which will inevitably decrease because of the rising price. Because the initial expectation of supply was quantified for the price of $6 per pound, companies may end up with a surplus, which entails the exceeding of the demanded quantity. However, in the coffee bean market, surpluses do not last long because sellers will have to inevitably lower prices to clear out unsold coffee.
Similar to the coffee market, the equilibrium in the soybean market is attained through market forces of supply and demand, and this equilibrium attainment is imperative for knowing the equilibrium price and equilibrium quality will prevail. If the equilibrium in price and quality has increased, it is possible to conclude that demand has also increased (Suranovic, 2015). As a result, an increase in demand for soybeans will inevitably shift the demand curve for the product in the direction to the right. As a result, this will give rise to both the equilibrium price and the quantity of soybeans being exported by the US to different markets. If the demand for the product decreases, the curve will shift in the left direction, which will decrease the price and quantity of soybeans.
How Opening Up to Trade Affects Domestic Markets
Stepping away from the examples of exports and imports, it is important to discuss how opening up to trade on a global scale affects domestic monopolies. The removal of trade barriers causes intra-industry trade to arise, with each country getting more opportunities to become exporters and importers of differentiated products that are classified in the same industry (Suranovic, 2015). In the ideal variety approach, some consumers in the domestic market are more likely to find an ideal variety of a product that a foreign firm offers. In a similar vein, some consumers in the foreign market can find an ideal variety of a product manufactured by domestic firms, which further creates opportunities for opening up to trade.
Drawing from the game theory principles, it may be suggested that the opening up to trade will create conflicts of interest between the domestic and international players. Therefore, the demand for domestic monopolies’ products will fall while the domestic demand by foreign consumers will rise. Similarly, the foreign demand exhibited by foreign consumers will decrease while the foreign demand by domestic customers will increase (Suranovic, 2015). Importantly, this will apply even in the case if all prices of all products in both domestic and foreign markets are identical at the beginning. This means that based on game theory, the maintenance of competitive advantage for domestic monopolies will entail the development of strategies to appeal to new consumers while also capturing significant portions of domestic ones (Suranovic, 2015). Often, this entails marketing promotions, improved value propositions, and leveraging prices. Similarly, foreign markets will compete to gain the interests of domestic customers, and the actions of both foreign and domestic firms will create an equilibrium, a point in which all companies make their decisions, with the outcomes being reached.
The main cause of this equilibrium is assuming that customers, at least in the aggregate, have a demand for variety. The increased number of product varieties offered by different importers will make the demand curve more elastic because consumers become more sensitive to prices. Because there are more varieties from which to choose, even one one-dollar increase in the price of one of the product varieties will result in more consumers switching to an alternative brand, which is harmful to domestic monopolies from which customers were always purchasing that product (Suranovic, 2015). In addition, the free entry and exit of new firms in response to opening up to trade will result in a zero-profit equilibrium for all firms that have remained in the industry.
CME Group. (2022). USDA supply & demand review. Web.
Levin, M. (2021). Mismatch in supply and demand sends coffee prices higher. Web.
Principles of economics. (2016). University of Minnesota Libraries Publishing.
Ridder, M. (2022). Coffee market in the U.S. – statistics & facts. Web.
Salin, D., & Somwaru, A. (2015). Eroding U.S. Soybean competitiveness and market shares: What is the road ahead? Web.
Suranovic, S. (2015). International trade: Theory and policy (2nd ed.). FlatWorld.
USDA. (2022). World agricultural supply and demand estimates. Web.