Do you think D&F Limited should stop producing coffee and grow more fruit instead? Justify your answer
Answers
Advantages:
-Since they will be focusing in this market only, now their accuracy in terms of decisions on which fruits to grow, which techniques to improve (when harvesting, managing pests, irrigating plants, managing weeds,etc.) will decrease more the costs of production and will improve the yield of their fruits.
-The trend of healthier diets for higher income households both in the developed and developing countries could easily continue and even increase, therefore the long term price should be increasing.
-Another trend that could continue is that the harvest of these fruits is seasonal and labour intensive, plus the fact that the world population is growing together with more capital intensive production in extensive agriculture and manufacturing industry, then the labour cost for D&F will keep in the long run not increasing.
Disadvantages:
-They will face more risk because usually the changes in prices in both markets depend on different factors (changes in income, in trend, in technology, in climate), so taking world prices for both markets usually spread the risk. Usually the bad years of coffee will alternate with the fruits ones.
-Another fact is that coffee consumption is connected with wants, cultural and social reasons plus its addictive consumption, therefore is highly probable that its demand will increase in the long run. So sales will never shrink in the long run.
-Something else wich make coffee production more interesting than fruit is that its storage cost is lower and is cheaper to keep it safe and fresh without selling it. Therefore is easier to wait to sell always that you face lower prices than expected.