The Importance of Coffee in the Brazilian Economy - Essay Example

This paper demonstrates the importance of coffee production in the economy of Brazil. There is two figures in the essay which graphically illustrates the production of coffee over the recent years. Brazil is not only the largest producer of coffee and produces an estimated one third of world’s total coffee produce, and is also the world’s second largest consumer of coffee behind USA. Coffee is a key ingredient of the economy of the country on three main counts – a key economic activity contributing to the GDP, a major export item, and an important industry for employment.

Agriculture accounts for 36% of Brazil’s exports, with coffee being the biggest exported agricultural item at $4.7 billion, by value. Coffee contributes to 0.27% of the total economy in Brazil and 2.1% of total exports. Brazil has 2.1 million hectares of land under coffee cultivation (ICO) with an estimated 350,000 producers spread through 14 states, and 160 firms exporting coffee. The production and processing of coffee is highly labor intensive industry and the coffee industry provides direct and indirect employment to nearly 8.

5 million people in Brazil. This translates to almost 5% of the total population working in the coffee industry in Brazil. Historically, coffee has been an important component of the economy in Brazil. Brazil was the largest producer of coffee in the world and it accounted for 75% of Brazil’s total exports. Although this weight has reduced significantly over time, the contribution of coffee to the economy is still significant. In the 1990s, coffee was a key pillar of the economy in Brazil by supporting it in four ways – contribution to the economic activity, contribution to exports thereby increasing the foreign reserves, contribution to employment, and a key area of foreign investment.

The coffee market was under government control until the 1990s, when the government decided to convert it to free market. This led to a lot of foreign investment in the sector and therefore helped the economy build its foreign reserves. The production and export trend of coffee is shown in Figure 1 below. It is evident that the coffee production overall has been increasing over the years. Also, the exports of coffee have been increasing constantly in accordance with the production. The peak production reached was in 2002 when it reached 2.

65 million metric tons (MMT). However, although the coffee exports have been generally increasing, the weight of coffee in exports (by value) has been generally decreasing over the years, and over the last few years has stabilized at 2.1%. This is evident in Figure 2 where it is seen that the weight of coffee in exports has continuously reduced from a peak of 5.2% in 1997 to 1.8% in 2004 where after it has almost stabilized to 2.1%. Coffee is clearly a key part of the Brazilian economy - it forms a large part of the agricultural produce of the country and is a major export item for Brazil.

It provides employment to nearly 5% of the Brazilian population and has historically been an important driver for foreign investments. Over the years, its relative weight in exports has been decreasing indicating that the dependence of the Brazilian economy on coffee is decreasing slowly; however, coffee still continues