UNITED STATES (March 9, 2011) – Coffee Market Business Report. As coffee prices spiral upward with no end in sight many people are wondering what exactly is causing such steep coffee price increases beginning about one year ago.
Coffee prices then rose forty percent from May to December of 2010 and then kept climbing. Still there is no end in sight as various supply and demand issues as well as other factors lead to increased coffee prices.
Here are the five main reasons that coffee prices have been climbing:
Rising Demand for Coffee Driving Up Prices
The world’s emerging economies – including China, Brazil, India and Latin America – are driving increased demand for coffee along with other commodities. These emerging markets in developing nations are fueled by growing middle class populations with more disposable income for luxuries including gourmet coffee.
Demand for coffee in China has surged about 40% just in the last 2 years, and Starbucks, which has a seventy percent market share in the country, increased sales there 300% from 2004 to 2009. Some say the Chinese are drinking fine coffee to emulate Americans and Europeans.
Brazil, the world’s top coffee producer, is another huge emerging economy that is driving up demand for premium coffee. By 2015 Brazil will keeping about half of its own coffee crop just to supply its own internal demand for coffee. Within two years Brazil is expected to surpass the United States in annual coffee consumption.
In 2010 Brazil’s per capita consumption was 4.81 kg which is equivalent to about 81 liters of brewed coffee. This broke the 1965 record for per capita coffee consumption.
In many regions worldwide there is a new breed of specialty coffee lovers emerging and they enjoy their freshly brewed whole bean coffee which is made with the Arabica coffee bean varietal.
Also increasingly popular, thanks to Starbucks, Peet’s and other top coffee chains, are specialty espresso-based coffee drinks including Caffe Lattes, Cappuccinos, and Mochas as well as other fine coffee beverages.
Coffee demand in the United States and Europe has also maintained its very high levels through the years of the economic recession and now with a rebounding economy demand for premium coffee products may rise.
The worldwide demand for coffee is particularly for the higher grade Arabica coffee that is served by Starbucks as well as Peet’s and Caribou Coffee and now McDonald’s, Dunkin’ Donuts and many other vendors. Arabica is also the type of coffee exclusively sold by Green Mountain Coffee Roasters and other fine coffee providers.
In 2011-2012, worldwide coffee demand is forecasted to be about 135 million bags (sixty-kilogram bags) while the total worldwide coffee production is estimated at 131 million bags of coffee. Worldwide demand for coffee is expected to exceed coffee supplies by about 30 million bags during the next decade, at current rates of coffee production.
Coffee Shortage: Why Coffee Prices Are Rising in 2011 – Five Main Reasons continued:
Lower Coffee Production Amid High Demand Leads to Increase in Coffee Prices
Coffee crops of major growers around the world have seen disappointing harvests placing strong upward pressure on coffee prices. Strong rains in Vietnam in 2010 hurt the harvest there while Brazil and Colombia also had decreased harvests as well as outbreaks of coffee disease and pests damaging crops including coffee leaf rust.
The coffee crop of Brazil, which is about 75% higher grade Arabica coffee plants, was about 41.9 million to 44.7 sixty-kilogram bags of coffee in January of 2010, a decrease from 48.1 million bags in the previous year. The world’s second largest Arabica coffee grower is Colombia which also and also has lower coffee production in 2010.
Other countries with lower coffee production last year include Guatemala, and Costa Rica as well as Indonesia which suffered a 12% decrease in exports of coffee.
Tanzania, known for its AA Arabica grade, saw coffee price increases due to drought and is now engaged in replanting hoping to boost supplies in the future, including the renowned Tanzania Peaberry coffee.
Panama had lower coffee production in 2010 due to bad weather and mold created by high humidity damaging the country’s coffee plants. Panama is held in high regard for its Panama Geisha coffee.
In Kenya the coffee production has suffered due to real estate pressures causing the price of Kenya AA Coffee to surge on the Nairobi Coffee Exchange.
High Demand and Low Supply – The Five Main Reasons Why Coffee Prices Are Rising in 2011 – Coffee Shortage continued:
Declining Stockpiles Cause Tight Supply Chain Driving Up Coffee Prices
The world’s coffee stockpiles have dwindled in the last year which makes it more likely that coffee prices will stay high and any new supply disruptions will take a shorter time to show up on store shelves.
Coffee stockpiles reached a record low of about twelve million bags of coffee last year. Green Arabica coffee beans on the New York exchange decreased from 3.1 million bags at the start of 2010 to 1.7 million bags by the end of the year. Most analysts predict an impending Arabica coffee bean shortage until new planting efforts take hold and supplies increase.
Speculation Buying Drives Up Coffee Futures Prices
In 2010 coffee futures shot up sixty-five percent, the most since 1994. From fall to summer of 2010 coffee futures shot up forty-four percent as traders speculated on higher future prices, which in turn had the effect of helping to drive the prices higher.
As coffee futures were climbing, coffee exports around the globe were going down more than five percent. At the end of 2010 there was a large infusion of money into the coffee futures markets from speculative funds and hedge funds. Underlying the bet on higher prices is the supply and demand disjunct created by lower coffee production amid rising coffee demand.
The swift rise in prices and inflationary fears have also caused countries to withhold their green coffee bean stocks from sale which also pushes up coffee prices on the worldwide market. For example, Brazil is withholding about 1.2 million bags of Arabica coffee that has been in storage since 2009.
This is exacerbating the coffee shortage and has put pressure not only on the Arabica coffee that is most in demand and the varietal desired for the specialty coffee market, but also Robusta coffee bean prices which have been increasing due to the worldwide growing demand for coffee.
Coffee Shortage, High Demand – Reasons for Increasing Coffee Prices continued:
Declining U.S. Dollar and Inflation Driving Up Commodity Prices
High levels of U.S. debt and an economic recession have weakened the U.S. dollar which has the effect of raising commodity prices for everyone in the country. Low interest rates maintained by the U.S. Federal Reserve have exacerbated the situation by driving investor funds into commodity markets, which in turn drives up prices.
High Demand and Low Supply – Why Coffee Prices Are Rising in 2011 – Five Main Reasons continued:
At the end of 2010 and into 2011 large amounts of money flowed into commodities markets from hedge funds and speculative buying in anticipation of future higher prices. This continues to place upward pressure on prices of a whole range of commodities including coffee, and in particular Arabica coffee amid a worldwide shortage of Arabica green coffee bean stocks.
Arabica is the exclusive coffee plant varietal that is brewed Starbucks and other top coffee retailers such as Peet’s, Green Mountain Coffee Roasters , Caribou Coffee, McDonald’s and many fine coffee houses.
Arabica is also the coffee bean varietal in demand by Brazil, India and China and these countries are willing to compete with the United States for gourmet coffee beans.
Arabica beans comprise most of the specialty coffee market which also includes Organic Coffee, Fair Trade Coffee, Bird Friendly Coffee and Shade-Grown Coffee.
Thank You! for visiting Espresso Coffee Guide and Reading Why Coffee Prices Are Rising in 2011 – Coffee Shortage and High Demand. Savor Your Coffee and Espresso!