IBDP Economics 2.2 Supply SL Paper 2 - New Syllabus

Coffee production in Honduras

1. Coffee farmers in Honduras, Central America, are struggling to earn enough revenue to cover production costs. Some have left their farms and migrated to the United States (US). Many remaining families depend on remittances (money sent by a foreign worker to their home country) from relatives in the US.
   
   
2. The agricultural sector, which employs about 28 % of the labour force in Honduras and accounts for 45 % of gross domestic product (GDP), has always faced difficulties and has had very little government support. Fluctuations in international commodity prices are also a problem. The average global price of a 60 kg bag of coffee beans dropped from US$140 in 2017 to US$62 in 2019, because countries such as Vietnam, Indonesia and Ethiopia increased their exports.
   
   
3. Scientists say that the greatest threat to crops comes from global warming. The World Bank has estimated that over the next 30 years climate change could force around 1.4 million people to leave Central America for the US. Meanwhile, global warming is partly blamed on the US continuing to operate coal-fired power plants, which account for about 30 % of its electricity generation.
   
   
4. Rising temperatures and uncertain weather have affected plant growth, ruined harvests and led to pests and diseases. The amount of land suitable for growing coffee, which is Honduras’s most important agricultural export, will probably fall by over 40 % before 2050. Already, the number of coffee producers has declined by 25 % in some areas. Furthermore, reduced yields of subsistence crops like corn and beans could significantly increase malnutrition.
   
   
5. Foreign aid from the US includes humanitarian aid and grants to non-governmental organizations (NGOs) that have projects helping farmers adapt to climate change. However, the US administration has threatened to stop all foreign aid to Central America, claiming that its governments are failing to reduce the flow of migrants to the US. Between 2016 and 2019, the total annual aid budget for Central America had already dropped from US$750 million to US$530 million. The biggest reductions were in projects assisting rural economies and agriculture, while there was a small increase in funds for drug control and border enforcement, in order to reduce the number of migrants to the US.
   
   
6. There is concern among local coffee growers that if aid is stopped there will be more unemployment, leading to more migration and abandoned farms.
   
   
7. NGOs are helping coffee farmers to cope better with droughts and to diversify into other crops, such as avocados or timber. Global coffee sellers, including Starbucks, are supporting some projects in the hope that they can ensure the future supply of coffee. However, coffee farming in Honduras may never be profitable again.

Question

Using a demand and supply diagram, explain why the global price of coffee beans dropped when “countries such as Vietnam, Indonesia and Ethiopia increased their exports” (paragraph [2]).