Exchange rate fluctuation is a common occurrence in any country. With coffee exports, it can have an impact on the income of producers and may result in an overall decline in coffee production throughout the world.
The economic policies and international trade agreements make the exchange rate fluctuates, affecting many aspects of the economy https://www.nyse.com/index. A key question is how exchange rate fluctuations affect business and coffee producers specifically.
Exchange rates and you
Coffee is an import and export product with local merchants in your country. This means only a few people are able to trade in it, while the majority cannot. The majority of people do not know how to enter the market or do not have the money to increase their capital to compete against established traders.
From the beginning, we’ve built our business at ELNA on the simple idea that great coffee is more than just a product, it’s a way of life. And for us that means taking care of those who work at every level of our supply chain — from the people who grow, harvest and roast our coffee down to the farmers who grow their own crops.
The impact of Exchange rates on coffee producers
Coffee producers traded on the international market are in fact vulnerable to exchange rate fluctuations. The situation is exacerbated by the fact that most coffee is produced in developing countries. And these countries usually have less diversified economies and currencies, which makes them more exposed to exchange rate changes.
The coffee market is closely linked to the currency exchange rate. An increase in the exchange rate leads to an outflow from developing countries, as well as from developed countries, which may become more competitive.
Why we need to worry about exchange rates
Our coffee sales fluctuate with exchange rates, which complicate sales forecasts and financial management. Coffee exporters are often worried about exchange rates because it can impact the price of their exports. For example, if the dollar gets stronger against the euro, then it will cost more for US consumers to buy products made abroad.
How you can insulate your business from exchange rate fluctuations?
The business of coffee production is a global commodity, which means exchange rate fluctuations affect your bottom line. You can protect yourself from some of these risks by insuring against them in the form of forward contracts or futures.
Another way you can protect your business from exchange rate fluctuations is to hedge by locking in an exchange rate at a future date. If the foreign currency moves against you, your contract will protect you financially, so that your goods remain competitive in the export market.
The Bottom Line
The exchange rates impact the coffee export business especially when trading with countries with a significant exchange rate movement. It is necessary to understand the currency fluctuations of coffee producing countries and other countries where you sell in order to create realistic forecasts and the different methods of hedging against exchange rates fluctuations.