ERM responses

Enterprise Risk Management

Deirdre Jablonski

Tonya Miller

University of the Cumberlands

Emerging markets are similar to other markets, but not as developed. Emerging markets generally have lower levels of cash flow and lower levels of per capita income as they have not yet flourished. Emerging markets, whether a country or a company, are important for the global economy and for investors because when the emerging market grows, they provide a positive impact on global economics and trade (Fraser & Simkins, 2010).

An example of an emerging market is the country of Brazil. Although Brazil is ranked high by its gross domestic product (GDP), it is still transitioning to ‘developed’ status. Brazil’s top industries include the service industry, the manufacturing industry and the agricultural industry. Brazil’s agriculture industry is responsible for 5.6% of the GDP. Brazil’s commodities are their big exports, as they are the world’s leading harvester of soybeans, coffee, sugar and cocoa (Cattlin, 2019).

One risk that may impact Brazil’s emerging market within their agriculture industry is loss of crop due to plant disease. Brazil’s coffee production for 2019 was 49.3 million 60-kilogram bags but projected to be 60 million 60-kilogram bags in 2020 (Alves, 2020). Brazil tree inventory is slightly over 6.93 Billion trees (USDA, 2019). Should Brazil experience an uncontrolled country wide spread of the coffee berry disease (CBD), the disease could wipe out as much as 80% of the crop (Coffee, n.d.). This would be devastating for Brazil and the resulting loss of product would impact most of the world’s countries and their populations.

A loss of Brazil’s coffee bean crop in a devastation of that size would cause many microeconomic concerns among the country of Brazil. The crop devastation would impact profits for the coffee plantation owners. The lack of profits would impact the amount of taxes and services the plantation owners paid out. The lack for the need to harvest and bag the coffee beans would impact the workers who would not be needed and therefore, would not earn pay. The workers lack of pay would impact their entire local economies trickling down the line to utility suppliers, grocery stores, property owners, etcetera, whom the workers may not be able to pay. Additionally, only portions of the massive warehouses used to store the coffee beans awaiting transport would be needed.

A loss of Brazil’s coffee bean crop would have large scale effects on macroeconomics too. The transportation chain used to move the coffee beans to various countries would not be needed. Many businesses that rely upon the coffee beans will be without the raw supplies to make their products. A major business that uses Brazilian coffee is Starbucks. Therefore, the 31,256 Starbucks locations around the world would be without Brazilian coffee until they could source the proper quantities of coffee needed from another supplier (Andre, 2020). This resulting in a large-scale decline in coffee sales for Starbucks, as well as many other industries who sell brewed ready to go coffee, and stores who sell coffee to make at home. Millions of customers from around the world who drink Brazilian coffee will be without.

The economic laws of supply and demand would apply to the surviving 20% of coffee bean crop production remaining. Coffee bean prices would increase due to the high demand for such little product. The higher prices would result in market demand and those wanting Brazilian coffee would either pay the higher prices or not be able to receive it. The price increase would impact both the microeconomic markets in Brazil and the macroeconomics across the industry.

It is difficult to think that a plant disease located hundreds or even thousands of miles away in an emerging market country could have such a devastating impact on both that country’s microeconomic state, but also the macroeconomic state of the world. However, this plant disease scenario is exactly the type of risk that organizations need to develop risk management strategies to address. Through implementing the right enterprise risk management, organizational leaders in the entire coffee industry should have a plan in place to address the risk of loss of crop or unavailability of product in the production cycle. Every organization that relies upon the coffee bean as a main source of their revenue, such as Starbucks, should address all risk factors, from the top of the supply chain, to the coffee bean plants, all the way to the ground in which the product is grown.

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