With prices on everything from groceries, to fuel and utilities, as well as houses climbing month on month in 2022, one commodity which has really felt this is coffee – both fresh and instant (dried). We’ll look at the reasons why.
The International Coffee Association which tracks global prices has seen its wholesale benchmark price above 200 cents per pound (USD) this month, when it was trading at around 125 cents this time last year – an increase of around 60%! This is on top of a jump between 2020 and 2021 which had already added a not insignificant amount, and means coffee wholesale price has doubled within 2 years.
There are a number of factors contributing which have created a ‘perfect storm’ for the coffee industry. These include:
Reduced Production in Brazil & Mexico
The largest producers of coffee in South America by volume is Brazil. Extreme weather by Brazilian standards kicked their coffee industry in the teeth. First came the drought, and then the frost – just one of these can heavily dent Brazilian coffee output but the two together was disastrous.
Meteorologists are keeping a close eye on the La Niña weather pattern and hoping it brings more hospitable conditions for the Brazilian coffee producers in 2022, as well as other exports which rely on the weather being kind.
There has been serious civil unrest in Ethiopia over the last year, another producer of low cost coffee for some of the biggest brands in the world, with Vietnam struggling with high covid-19 case rates early 2022 which reduced production.
This reduced output means less supply, and higher demand for the coffee which does make it to market.
Increases Shipping Prices
The Baltic Dry Index, a service which monitors and measures global sea shipping rates saw an increase of over 50% in 2021 alone; this index has increased further and currently sits 39% higher than it did on January 1st 2022. You can partly thank Mr Putin for this most recent hike – global shipping rates have increased considerably as a result of the Russian invasion of Ukraine.
Increasing Demand
As the world economies recover from the turmoil of Covid-19, so has consumer confidence, bringing what the ICO labelled a ‘brighter prospect for demand’. Consumption within established markets has recovered to pre-pandemic levels, and growing markets such as China are helping to fuel the overall growth in demand.
What does this mean?
Put together, this means that your coffee is going to be getting more expensive, whether talking about a fresh brew from your local coffee house, or a cup of instant at home or work. Of course the fresh coffee side is likely to feel this worse – when shipped, fresh coffee beans weigh far more than dried and therefore are going to feel the brunt of the shipping increase, with one expert believing this is likely to add around 25 pence on to the price of your coffee in a local cafe. Larger chains like Starbucks may be insulated for the time being having secured a contract for their coffee at a set price for a fixed period of time (“futures market”) however once this period runs out, they too will have to pass this increase on to customers.
Instant coffee drinkers may notice the difference but is unlikely to be quite as punishing – prices per mug of premium instant coffee may increase from around 8 pence to closer to 14 pence per mug by the end of 2022.
Will prices come back down? Potentially, but certainly not in the short term. Analysts expect both the shipping index and the wholesale coffee prices to remain high throughout the duration of 2022. Whether these actually drop in the future or simply stagnate and wait for the rest of the market to catch up is a matter of opinion… if we knew, we’d be stockbrokers or futures traders and not coffee connoisseurs!
Hope you’ve enjoyed the read :-D
