Rise in Coffee Prices Attributed to Shortage of the Prized Arabica Coffee Beans
United States (Mar. 3, 2011) – The world’s top coffee companies – Nestle, Kraft (e.g., Yuban and Maxwell House coffees), and J.M. Smucker Company (e.g., Dunkin’ Donuts, Folgers and Millstone) – have been forced to raise prices due to the increasing cost of green coffee beans.
Coffee is just one of a basketful of commodities that have seen price spikes in the last year, and in particular in the last six months. Furthermore the increases, in the majority of economic analysts’ opinions, will continue to rise.
Arabica Coffee Beans Are In Demand Leading to Coffee Price Increases
In the world of coffee the biggest price increase has come for the higher quality Arabica beans though the lower quality Robusta beans have also been increasing in price.
Coffee stockpiles are low worldwide while demand is growing fast. Disappointing harvests last year and poorer harvests expected this year have caused speculation in coffee futures that has further driven up prices.
Coffee Futures Climb On Increasing Coffee Prices
On February 28 of 2011, Benchmark May futures contracts in New York reached a 34-year high at $2.784 per pound, and increase of 145% in the last year.
The spike up in coffee prices has now firmly made its way to retailers and supermarket shelves, yet coffee is showing itself once again to be very inelastic with respect to price increases. In other words price increases don’t decrease consumption, and thus higher prices also have little effect in easing the coffee shortage of 2011.
Coffee Price Increases in 2011 Due To Coffee Shortage continued:
Coffee Price Increases – A Brief History
Coffee has seen price spikes before, most notably in 1975-1976, in 1985-1986, again in 1994 and finally in 1997. All of these episodes of marked coffee price increases were due to frost affecting Brazilian coffee crops.
Worldwide coffee stockpiles are at their lowest since records started being kept by the International Coffee Association in the 1960s.
The current coffee shortage is based on fundamental factors including a structural change in the coffee market. While countries are struggling to increase their crops, at least to previous levels, demand is surging ahead led by a string of developing countries.
Emerging Markets Create Demand That Increases Coffee Prices
These emerging economies have large and growing middle class populations who have taken a liking to Arabica coffee, often called specialty coffee or gourmet coffee. They also appreciate a good shot of espresso as well as espresso coffee drinks such as a cappuccino or a latte.
A series of bad crops in Colombia due to heavy rains also harmed crops, as have coffee diseases and pests. Also hindering Colombia’s harvest is a large replanting effort that will take some years to pay off.
Two years ago Colombia’s coffee production was just 7.8 million 60-kilo bags which was the lowest in more than three decades and more than 30% below 2008 production. Colombia’s 2010 production hit nine million bags though hopes for this year’s harvest are being dampened by La Nina and current projections are about nine million bags.
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Disappointing Coffee Crops Spur Further Increases In Coffee Prices
Brazil’s harvest is also expected to be disappointing this year, as is Mexico’s coffee crop. The December, 2010 monthly average of the International Coffee Organization composite indicator climbed to $1.97/pound in January of 2011 from $1.84/pound.
Kenya Coffee Price Increases Due to Poor Production
Last season Kenya saw decreased coffee production due to an extended rainfall when it wasn’t needed and not enough rain when it was needed, severely hurting the coffee plant flowering.
Kenya’s coffee crop also suffered from real estate pressures in central and western Kenya that led to many coffee plants being uprooted to make way for homes.
Coffee plant pests, including the green scales that draw out the sap of the coffee plants, also have been harming coffee production.
Kenya’s coffee industry has been somewhat re-energized of late despite the problems, with a high demand for the newer, desired coffee plant varietals including Ruiru II and Batian. In about three years improvements in Kenya’s coffee industry should make a difference on the world coffee market with more of the country’s well-respected high-quality coffees.
Coffee is the second most valuable traded commodity behind oil and a major mainstay export of many countries. But producers meeting in Guatemala this week are in a state of panic over the impact of warming on their livelihoods.
Coffee Price Increases – Coffee Shortage 2011 continued:
Global Climate Change Contributing to Coffee Price Increases
The cooler, higher elevations where Arabica coffee grows best has been increasingly hard to find, and in such countries as Guatemala they are lamenting the apparent global climate change that has been driving farmer’s to higher elevations.
Coffee-growing countries have seen an average temperature increase of about one-half of one degree over the last 25 years. El Salvador and Costa Rica are still trying to recover from a half-decade of bad harvests from the years 2000 to 2005.
All of these factors point to the likelihood that you will be paying more for your cup of coffee in 2011.