Coffee Prices Going Up In 2011-2012 Due To Coffee Shortage

With coffee prices reaching $3 per pound and attaining a 34-year high it is likely you have noticed by now that your morning cup of coffee has gone up in price during the last six months. That’s when low supplies and depleted coffee stockpiles caught up to consu

mers and price increases began cascading upward.

Also see: The Top Ten Coffees in the World

Major Coffee Companies All Raising Prices

Green Mountain Coffee Roasters raised prices for their popular Coffee K-Cups which are brewed in Keurig single serve brewers and sold under the brand names Green Mountain, Newman’s Own Organics, Caribou Coffee, Tully’s Coffee, Timothy’s Coffee and others.

The J.M. Smucker Company, which produces Dunkin’ Donuts, Folgers and Millstone, raised their coffee prices. as did Yuban and Maxwell House on ground as well as instant coffee.

Also raising prices was Peet’s Coffee & Tea and Starbucks. All of these prices rises were due primarily due to the steep price increases on the world coffee market for green coffee beans.

Bad Weather Hurting Coffee Production in Major Growing Regions

Heavy rains and inclement weather in Central America and South America are partly to blame for the price of coffee beans spiraling upward. Also exacerbating the problem is speculative trading on commodity markets which has had a significant effect in driving up prices.

Last but not least is the surging demand for coffee, particularly in emerging markets such as Brazil, India and China where the overall demand for Arabica coffee is growing rapidly.

Consumers Apparently Willing To Pay More for Fine Coffee

Meanwhile coffee is showing itself to be extremely inelastic with respect to price increases meaning that even when people have to pay more for their coffee they don’t reduce their consumption. This means that rising coffee prices will not significantly reduce demand, and thus any supply disruptions will continue to place upward pressure on coffee prices.

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Profit Margins are Slimming Amidst Rising Price of Green Coffee Beans and other Commodities

Coffee shops are struggling to maintain profit margins without raising prices, and not just because of rising coffee prices but also the increases in a range of commodities used in other products they serve from pastries to milk and sugar.

Sugar prices have doubled since the beginning of the year and other food crops have also suffered due to the inclement weather. Commodity prices have been going up for a variety of reasons including the aforementioned speculative trading fueled in part by easy-money credit policies and the low interest rates being maintained by the Federal Reserve.

Also creating higher prices for Americans for all commodities is the devalued U.S. dollar which is largely blamed on the massive amounts of new debt the United States has accrued in the last few years.

Arabica Coffee Supplies Being Outpaced By Demand

The lower supplies are being led by the world’s major coffee growing countries including Brazil, Colombia and Vietnam. While the coffee shortage is largely in the specialty Arabica coffee market, this is affected mostly by Brazil and Colombia since Vietnam grows primarily the lower grade Robusta coffee. The coffee crop of Brazil is around 75% Arabica.

Colombia has seen several years of declining production due to bad weather, coffee plant diseases and pests and also replanting efforts. Brazil has seen infrastructure and crop damage due to heavy rains as well and this has significantly affected production.

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Coffee Production Problems Are Widespread

Also seeing decreased coffee harvests were Mexico, Panama, Kenya, India, Costa Rica, Guatemala and Uganda.

Tanzania has seen a steep price increase for its respected AA Arabica grade coffee due to a 9% drop in production, though the country is undergoing a major effort to increase harvests by nearly 50% by 2015 by massive new plantings. Tanzania is perhaps most revered in the coffee world for its Tanzania Peaberry coffee.

Real estate pressures hurt coffee production in western and central Kenya where coffee plants were pulled from the ground in some areas and consequently the esteemed Kenya AA Coffee rose steeply in price.

Panama saw record rains in 2010 leading to lower coffee production in part due to outbreaks of mold as a result of the high humidity. Panama gained much respect in the specialty coffee world last year with the record prices earned by Panama Geisha coffee.

Global Climate Change A Concern for Arabica Coffee Crops

The weather in coffee growing regions remains an unpredictable factor and there remains a great deal of concern about global climate change having long term effects.

Rising temperatures amounting to about one half of one degree in the last 25 years according to the International Coffee Organization. Arabica coffee plants need cool temperatures and this is driving farmers to higher elevations.

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Emerging Markets Driving Demand for Specialty Coffee

Meanwhile the surging worldwide demand for coffee, particularly in emerging markets, is coming at a time of lower supply which is placing strong upward pressure on coffee prices.

Brazil is one of those emerging markets and its demand for coffee is growing about three times as fast as the worldwide annual increase in coffee demand which is about two percent. Brazil will also soon surpass the U.S. as the world’s biggest coffee consumer, and by 2015 Brazil will be keeping more than half of its own crop just to meet internal demand.

China is another emerging market with a rapidly growing demand for Arabica coffee. Starbucks has announced plans to open one thousand new stores there and the country’s growing middle class has more money for affordable luxuries such as fine espresso coffee drinks including lattes, mochas and other coffee beverages.

China’s demand for coffee has been growing perhaps more rapidly than any other emerging market and may be as high as 20% annually. Some say the Chinese are drinking more coffee and visiting upscale coffee shops in part to emulate Europeans and Americans.

Stocking Up On Coffee To Protect Against Future Price Increases Unlikely

Consumers of specialty coffee generally would like that coffee to be freshly roasted because soon after roasting the coffee’s fine flavors and aromas will begin to degrade.

For this reason coffee lovers cannot stock up months in advance on their coffee but must continually acquire the fresh roasted beans unless they want to buy green coffee beans and practice home roasting, which most people are not yet willing to do. Thus consumers will remain vulnerable to any future increases in the price of green coffee beans on the world market.

Coffee prices are likely to remain high at least well into 2012 due to the severely depleted world stockpiles and continued concerns over inclement weather in major coffee growing regions at a time of surging world demand for gourmet coffee and a steadily rising world demand for coffee overall.

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