Coffee Price Increase – Worldwide Coffee Shortage Predicted for 2011
UNITED STATES (Jan 16, 2011) – The demand for coffee is relatively inelastic with respect to price increases. Translation: People will pay more for their cup of coffee. With supply pressure on coffee beans worldwide and a steady increase in demand, get ready to do just that!
On the supply side the issues with coffee are manifold. Inclement weather has shrunk harvests in Columbia, Brazil and other major coffee growing countries. Smaller coffee crop harvests have also occurred in Guatemala and Costa Rica.
In Brazil, for example, estimates place the decrease in yield at about 23%, down to 37 million bags down from the previous yield of 48 million bags.
Columbia has now had two years in a row of sub-par production of coffee and predictions of the La Nina weather pattern do not bode well for 2011. The shortage in supply of Columbian coffee beans as well as an increase in prices was announced by none other than the Columbian National Federation of Coffee Growers.
In Kenya the supply is down due to real estate pressures that have driven farmers from their fields and many coffee plants have been uprooted. The end of 2010 saw record prices for the highly respected Kenya AA Coffee sold on the Nairobi Coffee Exchange (as high as $721 for a 50-kg bag, an increase from $604). The outlook for the 2011 harvest forecasts a continued lower yield for coffee compared to previous years.
A twelve percent drop in exports was experienced by Indonesia while the crop of Vietnam was damaged by bad weather. In Tanzania massive replanting is underway in the hopes of increasing production in coming years.
Some areas have also seen significant coffee crop damage due to coffee plant diseases and pests which when unchecked can take out a large percentage of a crop. Overall the worldwide coffee exports fell by more than five percent in July of 2010 compared to one year earlier.
Coffee Demand Remains Strong and Growing Worldwide
On the demand side the issues are manifold as well. Emerging markets such as India and China with growing middle classes also have legions of young professionals who have become gourmet coffee lovers and taken a liking in large numbers to coffee, and in particular what is considered specialty coffee, premium coffee or gourmet coffee.
In other words, whole bean coffee of the Arabica coffee bean varietal which is used by Starbucks, Peet’s, Seattle’s Best and other major coffee houses and retailers. For many their fondness is for a espresso coffee drink such as a latte or cappuccino.
Also affecting the demand side of the coffee equation is that Brazil where many young professionals have begun to acquire a taste for fine coffee. Brazil is a powerhouse in the world of coffee production and now is seeing a marked rise in coffee consumption. As a result Brazil will now be keeping more of its own product and this contributes to worldwide coffee bean shortage.
Supply and Demand Pressures Lead to Coffee Price Increases
In the last year the price of green coffee beans (unroasted coffee beans) has risen from 30% to 70% depending upon the sources and types of coffee beans.
By all accounts the price of coffee will continue to rise through 2011 and into 2012. Eventually production should increase in an attempt to meet demand but it will take time because new coffee plants take about three to five years to being producing coffee crops. The weather also remains an unpredictable factor.
Global Warming and Coffee Hoarding
A separate issue affecting supply are the global temperature increases – about half of one degree in the last twenty-five years according to the International Coffee Organization- which is causing farmers to move to higher elevations where the Arabica beans grow best in the cooler temperatures.
Meanwhile Senator Charles Schumer (D-NY), asked the United States’ trade representative Ron Kirk to tell the major coffee growing nations not to hoard their green coffee bean stockpiles though it was already happening and U.S. stockpiles had reached a ten-year low.
Coffee Futures and World Markets
Coffee Futures went up more than fifty percent in 2010 and are expected to keep going up possibly into 2012. Coffee commodity prices found a thirteen-year high in September of 2010 as the coffee shortage began to make its way through the supply chain from soil to sip.
The imminent – indeed already occurring – coffee shortage is being felt throughout the world markets where there has been a major influx of funds in the buying and selling of futures on the Intercontinental Exchange. Based largely on speculation, this has had a significant effect in driving up worldwide coffee prices in 2011.
Coffee Demand Remains Strong and Growing
Meanwhile demand is expected to continue its increase in the emerging markets, while the sustained strong demand for coffee in the United States in Europe during the recent years of major economic downturn could potentially surge if the world economy improves.
Since the coffee shortage has now been going on for more than one year the global stockpiles of coffee are now relatively low, and the time period for price increases to work their way through to the retail coffee suppliers and coffee houses has arrived.
Starbucks, Kraft Foods (Maxwell House and Yuban), Peet’s and other major coffee retailers have already implemented at least their first round of price increases on a worldwide basis. Also going up is the price of instant coffee – no corner of the coffee world is being spared.
Major Coffee Retailers Raising Prices
Last August the J.M. Smucker Company began their price increases by raising coffee product prices about nine percent on their major brands including Folgers, Millstone and Dunkin’ Donuts. Their stated reason: the continuing price increases on green coffee beans (unroasted coffee beans).
Green Mountain Coffee Roasters raised their prices in October in North America up to fifteen percent on their Coffee K-Cups which work with Keurig single serve brewing systems which are sold under the brands Tully’s Coffee, Newman’s Own Organics, Timothy’s Coffee, Caribou Coffee and Green Mountain.
Despite the ever-higher coffee prices demand shows no signs of letting up. The fundamental shift can be seen in Starbucks’ worldwide statistics that show an increase in average number of customers visiting a store in one day from 408 in 2007 to 424 in 2010.
Starbucks sales in China, where they have a whopping seventy percent market share, tripled from 2004 to 2009.
Retail Coffee Prices Continue to Creep Upward
To date the retail prices have only been creeping upward slowly, apparently not enough to dampen demand even for the higher end gourmet coffees and coffee shops serving whole bean coffee from the Arabica coffee bean varietal.
Meanwhile the retail establishments are also experiencing increased rents and labor costs which are expected to contribute to slimmer profits. Coffee Roasters are also feeling the pinch.
Stock Up on Coffee? Probably Not Since Coffee is Best Fresh Roasted
Unlike many other products which consumers may stock up on in advance if they know the price will be increasing, the finer coffees are best soon after they have been roasted and thus you need to buy it fairly fresh to appreciate the finer flavors and aromas which degrade rapidly within weeks after roasting.
The only alternative is to buy green (unroasted) coffee beans and then roast them yourself, something most gourmet coffee lovers are not willing to do.
The problem with stocking up on coffee is that it does not store well and once roasted begins to lose its finer flavors and aromas rapidly. If you want to roast your own coffee then you can stock up on green coffee beans but otherwise you are subject to a marketplace where the price is trending upward.
With depleted coffee inventories, increasing demand for coffee, and continued uncertainty in regards to the world’s coffee crops, expect your cup of coffee to cost a bit more though it will likely still be well worth it!
Gourmet Coffee Lovers Delight!
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