For the foreseeable future, it is going to cost you more for your cup of your favorite coffee as green coffee prices are at a two year high. Most of this can be attributed to the supply and demand caused by the leaf rust epidemic and now a major drought in Brazil, who produces one-third of the World’s Arabica Coffee crop. As most of us know, Coffee is the number two traded commodity behind oil, and there needs to be no mention of how volatile the gas prices are. Fortunately, coffee is a bit more stable since there are more regions in the world where it can be grown, and there are less politics involved.
For instance, Colombia is producing coffee at an all time high, and some other regions are up to par as far as production, but that does not hedge the speculators on Wall Street. From an article published by the Motley Fool, who in fact is a share holder of Starbucks, and has a unique point of view. “Starbucks announced its increase earlier in the year, bumping bagged coffee prices by 8%. Keurig took a similar line last week, saying that it will raise prices up to 9% on all of its portion packs beginning in November. Keurig said that its green coffee prices have increased 55% in the last year.”
With coffee prices at a two year high, it puts everyone in a predicament. The big guys need to stay in line with the smaller coffee shops and vice versa. The bigger players have raised prices at retail on the grocery store shelves which is not so easy for smaller roasters since they do not buy on futures; meaning that large companies buy green coffee by the ton and have more access to lower prices that can hedge an increase due to a drought, etc. The smaller more local shops are trying to remain competitive in line with the larger companies who are able to maintain their lower costs at the counter since they have increased their retail end.
2014 has seen a huge spike in coffee prices
The dance begins…. Keurig has had it’s lion’s share of the market, however with other roaster’s being able to produce cups that are compatible with their machines, they must walk a fine line and be competitive as well. Also From the article by Andrew Marder,” Part of the future of pricing depends on how soon Starbucks and Keurig lock in 2015 prices. On its last earnings call, Starbucks’ CFO Scott Maw said that the company had locked in 60% of its 2015 supply at prices that were relatively in line with 2014, but that pricing would depend on how that last 40% ended up. If the company waits too long and the drought is forecast to take a toll on next year’s supply in Brazil, you can be sure Starbucks will be talking about a potential increase. Keurig is actually locked in for all of 2015, according to the company, so its price increase is probably a reflection of its pricing forecasts beyond next year. Betting on higher prices seems like a good call. The drought in Brazil may be an early sign of El Nino, which is bad news for growers. The weather system delays the return of wet weather, often setting in during the rainy season.”
To the point of El Nino, we as Jamaica Blue Mountain Coffee Farmers, Reggie’s Roast Coffee can attest to the effects of changing weather patterns. Jamaica has seen a very dry season in 2014 which, coupled with the Coffee Leaf Rust epidemic last year and the Berry Borer infestation in 2012, we have seen how prices will rise due to short supply and high demand. The Japanese have also come in to bid with high numbers, forcing the price paid for a box of coffee cherries up by almost 20%. This has driven all related costs up which will end up falling into the consumers wallet, which will affect their buying decisions. Will you trade down? Will you buy another brand? Try a blend instead of a single origin? These are all pertinent questions to ask with coffee prices at a two year high; from producers to roasters to sales related topics, and eventually to the end of the chain.
“How do coffee prices at a two year high affect the consumer ?” is the question needing most attention. The simple answer is in your wallet. But you may also be sacrificing on taste as well. There are ways to lessen price by unfortunately compromising on quality by substituting higher priced Arabicas for lower quality Robusta coffees. As consumers, you should be familiar with your coffee roaster, and look for any and all transparencies as to what you are in fact purchasing.