 "Why are coffee prices the highest in 47 years?")
Need your morning cup of coffee to get the day going?
You might have to shell out a little more soon to get your fix.
This is because, according to reports, the price of coffee has reached its highest level ever.
Brazil and Vietnam, the world’s two largest coffee producers, could potentially be facing a poor crop this year.
But what happened? Why are coffee prices reaching a record high? And what do experts think happens next?
Let’s take a closer look:
What happened?
First, let’s briefly look at how the price of coffee is set.
According to Investopedia, the price of coffee is set determined by coffee futures using Arabica beans as a yardstick.
These contracts are traded on Intercontinental Exchange (ICE).
As per BBC, the price of Arabica beans – which are most widely produced around the world – hit $3.44 (Rs 292) per half kilo.
That’s an 80 per cent hike this year – and the highest in nearly five decades.
Coffee futures previously hit an all-time high in 1977 when snow destroyed swathes of Brazil’s plantations. However, the shock to consumers was much bigger back then. If adjusted for inflation, $3.36 in 1977 would be around to $17.68 (Rs 1,500) today.
As per Bloomberg, Arabica prices spiked nearly 5 per cent on Tuesday alone.
The development comes after Brazil, the major producer of Arabica, witnessed a drought earlier this year.
“Concerns over the 2025 crop in Brazil are the main driver,” Ole Hansen, head of commodity strategy at Saxo Bank, told BBC.
“The country experienced its worst drought in 70 years during August and September, followed by heavy rains in October, raising fears that the flowering crop could fail.”
Volcafe Ltd, a major trader, has now downgraded the country’s output of Arabica.
It estimates that Brazil is likely to produce 34.4 million bags of Arabica this coming season.
However, that figure was at 45 million bags in September.
Euro News quoted the US Department of Agriculture (USDA) as predicting that Brazil will produce 66.4 million backs this season.
That’s down from 69.9 million bags it previously forecast.
“This timid growth comes in the aftermath of a strong period of adverse weather conditions in the main producing regions, which led to a decrease in initial estimates for the season,” the USDA states in its report.
Consultancy StoneX sees Brazil’s Arabica output falling 10.5 per cent to 40 million bags next year, offset somewhat by higher robusta output, thus cutting the country’s overall crop by 0.5 per cent.
Robusta hits high too
Meanwhile, Robusta beans too hit a record in September.
Arabica and Robusta comprise 60 to 70 and 30 to 40 per cent of the world’s supply of coffee respectively, as per Thred.com.
As per Euro News, Robusta prices are up 60 per cent this year.
This after Vietnam, which is the biggest producer of the cheaper variety, saw drought during the growing period and heavy rains at the beginning of the harvest, as per Bloomberg.
“Demand for the commodity remains high, while inventories held by producers and roasters are reported to be at low levels,” Fernanda Okada, a coffee pricing analyst at S&P Global Commodity Insights, told BBC.
“The upward trend in coffee prices is expected to persist for some time,” she added.
“A challenging growing season in Vietnam, the top producer of Robusta beans, has now moved to Brazil where adverse weather has raised serious concerns about the 2025 Arabica crop,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, wrote as per Euro News.
As per Bloomberg, global coffee production is set to witness a shortfall of around 8.5 million bags in the 2025-26.
That would make it five straight years of production being unable to keep up with demand.
As per Euro News, the developments come even as the demand for coffee keeps growing – spurred on by China.
However, only a few countries produce coffee beans – Brazil, Vietnam, Colombia, Indonesia, and Ethiopia.
All of these are tropical nations grappling with climate change.
Attacks by Houthi on trade routes have also resulted in price hikes.
According to Marketplace.org, coffee companies spent years trying to tamp down on prices by mixing new and older beans.
However, that strategy seems to be at an end.
As Tomas Araujo of StoneX Financial told the website, “…we went into this year with the lowest stocks in around 20 years,” he said.
What happens next?
Experts say that companies are likely to pass on any increase in prices to consumers.
As Vinh Nguyen, the chief executive of Vinh Nguyen Tuan Loc Commodities, told BBC, “Brands like JDE Peet (the owner of the Douwe Egberts brand), Nestlé and all that, have [previously] taken the hit from higher raw material prices to themselves.”
“But right now they are almost at a tipping point. A lot of them are mulling a price increase in supermarkets in [the first quarter] of 2025.”
Bloomberg quoted Nestle as saying last month that it would respond by hiking prices and shrinking packets.
“We will see more coffee price volatility and price volatility in similar sorts of perennials,” Cornell professor Chris Barrett told Marketplace.org.
Experts also say climate change could make things worse.
As per Thred.org, this is because the coffee crop needs tropical, humid environments and rich soil.
The outlet quoted a recent Intergovernmental Panel on Climate Change (IPCC) report as stating that climate change could shrink the cultivatable land for coffee in Central America to 38-89 percent by 2050.
‘Coffee is the canary in the coal mine for climate change and its effect on agriculture,’ Elizabeth Shapiro-Garza, associate professor of environmental policy and management at Duke University, told The Canadian Presse.
‘If you like your cup of coffee in the morning, climate change is absolutely going to be affecting the quality, the availability and the price of that cup of coffee.’
Roasters tend to buy coffee many months in advance, which means consumers will likely see the price spike in 6 to 12 months.
With inputs from agencies
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