Why coffee prices are soaring (again)

Thaleon Tremain is a coffee trader. As far as he is concerned, he has never been obsessed with market fluctuations.

CEO and co-founder of Pachamama Coffee, of Sacramento, California, Mr. Tremain sells his fair trade and premium coffee beans for more than the world price. He wants his customers to view his coffee as a luxury product and pay accordingly. Its business model means that its producers in Peru, Nicaragua and Ethiopia can make a living from their land.

The price rises with the temperature

But today, prices are rising and Mr. Tremain fears a new and unhealthy dynamic. In recent years, droughts and floods have weighed on the global supply of coffee and boosted prices, as have climate changes in the case of other commodities such as cocoa, olive oil and juice. ‘orange. This coincides with rising global demand that appears to be resisting increases. Last month, futures prices reached their highest level in nearly half a century.

Even if prices eventually fall, their volatility threatens the viability of fair-trade businesses like Mr. Tremain’s and the livelihoods of the farmers who grow his grains. Your latte may cost more, he says.

“Ultimately, the price will rise, and by a lot,” predicts Mr. Tremain. Demand exceeds supply. »

Growing coffee – one of the most consumed drinks in the world – requires very specific conditions: foggy, humid and tropical climate; rich, disease-free soils. Besides small production in Hawaii, coffee cultivation in the United States is marginal. The country is the world’s largest importer. The scarcity of sources greatly exposes global prices to the effects of extreme weather events.

According to the U.S. Department of Agriculture, 57% of global coffee production in 2023 consisted of Arabica beans, and Brazil is the largest exporter. But a severe drought last summer devastated the harvest, which lasts from May to September. There could be another one this year.

In Vietnam, the main producer of robusta, a drought then heavy rains damaged the harvest of this variety, second in popularity. It is used in particular for instant coffee blends.

Concern over the coffee harvest has recently manifested itself in a typically erratic surge in this volatile market. The price has jumped 30% since the 1^is november. The futures price for Arabica beans – what buyers pay for the beans to be delivered by a certain date to ports in the United States and Europe – has risen above $3.30 US pound in mid-December, breaking a 47-year-old record.

“History suggests that the price of coffee will only fall when supply increases and stocks replenish,” David Oxley, chief climate and commodities economist at Capital Economics, wrote in late November.

Increasingly extreme weather contributes to price volatility. Already in 2011, prices had skyrocketed after harvests were ruined by droughts and heavy rains in several countries.

The drop in production was accompanied by an increase in consumption in China (by 60% in five years according to a recent report from the US Department of Agriculture).

Other factors come into play. In 2021, supply chain disruption during the pandemic and political instability in South America slowed exports; prices have soared.

Increases expected in 2025

Although inflation has since slowed, several large companies, better placed to absorb price shocks, are planning increases in 2025. Nestlé, n^o 1 world coffee maker, announced in November that it would increase the price and reduce the size of its packages. JM Smucker (Folgers, Medaglia d’Oro, etc.) announced price increases in October.

According to Kevon Rhiney, a geography professor at Rutgers University and a coffee expert, it may take up to two years for Brazilian production to recover from the drought.

But he fears that coffee prices will not come back down, like other crops affected by climate change. Coffee trees will produce less as temperatures rise and deforestation continues to harm the crop.

Price volatility worries Scott Conary, president of Carrboro Coffee Roasters, an independent roaster in Carrboro, North Carolina. “From the point of view of the sustainability of the sector, this is bad. »

In the past, Mr. Conary has responded to volatility by gradually increasing his prices — less than a dollar each time for a cup at the counter and for a bag of beans. For the years to come, he is especially worried about sharp increases in transport and storage costs.

But Mr. Conary adds that the increase in prices has the advantage that it allows people to know the conditions of coffee production and can encourage consumers to buy from artisanal roasters, like him.

“People need to understand that coffee is an agricultural product,” he says, adding that the consumer “doesn’t pay enough for coffee.”

This article was published in the New York Times.

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