Global coffee lovers who were hoping that the price of their favorite beverage would soon stop rising are in for a rude awakening: it’s going to get worse. This is according to Bloomberg, whose report has been taken over by FFN.
Prices of higher-quality Arabica, preferred by coffee chains like Starbucks, and the more affordable Robusta variety have skyrocketed. The reason is a disruption in supplies from Vietnam to Brazil. Companies in the supply chain are raising prices and canceling discounts to protect their margins, and many are warning of further price increases.
Robusta prices, used in instant coffee production, have soared to their highest levels since the 1970s. Higher-quality Arabica beans were the most expensive in over two years at the beginning of this month. Some of these price increases are linked to bad weather. Droughts in Vietnam, a major robusta producer, have resulted in the fourth consecutive year of lower global harvests, while dry weather in Brazil has reduced Arabica harvests. The difference between futures contracts for the two varieties is near a record low. This is forcing processors to raise prices for cafes and stores.
But it’s not just the weather that’s driving coffee prices up. Emerging demand in markets like China signals that supplies will be tighter.
On the other hand, higher profits are encouraging farmers to grow coffee rather than other crops. It also allows them to reinvest sales revenue to increase the resistance of trees to diseases and climate risks. At the same time, some coffee traders and roasters have long been underpaying farmers. Some buyers are trying to reverse this “underfunding” to make the industry more sustainable. After all, if coffee prices for growers don’t increase, they won’t have a reason to maintain long-term production.
This happened in the cocoa market, where prices jumped to unprecedented levels this spring when production fell sharply after decades of underinvestment.
All of this is exacerbated by the fact that roasters importing coffee into Europe will soon have to prove that the beans were not grown on recently deforested land. Few countries are fully prepared to meet European Union deforestation regulations, which will further reduce supplies to the Old Continent.
Buyers are therefore trying to get coffee to Europe before the new regulation comes into force, further exacerbating the tense situation on the market.
