
The Mystery
(and misery)
of Rising Coffee Prices…
No Mystery!
No doubt if you drink coffee you may have read about or experienced higher and higher coffee prices during the past year, and even more so in recent weeks. One might think that the recent rise in gas and oil prices is the reason why we are paying more for our favorite coffee(s). Today, at last check, according to a published report coffee prices appear to be in what investors call a “correction period” with the future price for coffee falling slightly after a wild, six-week ride upward. The long-term, though, still shows indicators of still higher prices.
Certainly a cause for concern, the rise in fuel prices is, in itself, only a very small part of the issue. There is actually much more to the story.
The Columbian affect 2010 = $$$
Last year during 2010, Columbia, the source for all Columbian coffee, experienced a significant fungus infestation, the result of which was the loss of equivalent to some 240,000 bags of raw coffee beans (equal to about 3.6 million pounds of coffee). With this catastrophe coffee importers all around the world scrambled and turned their attention to other coffee producing countries in South and Central America to fill this void. This crisis placed tremendous upward pressure on the price of coffee from these other countries, and still continues to reverberate as Columbia continues to recover.
The World economy – past and present = $$$
Prior to the collapse of the world economy, huge swathes of the world’s investment money had been plowed by investors and speculators into real estate investments, real estate and mortgage backed funds. As we all know many of these funds collapsed. Given the instability and/or shaky practices that have since come to light, these same investors and speculators were looking around for other safe places in which to invest. Given the rising popularity of coffee and, for the most part, the stability of the supplies of coffee, huge pools of money have been invested in speculating, buying and trading coffee futures.
The law of supply and demand = $$$
Anyone who has taken or studied economics is familiar with the Law of Supply and Demand; the more demand than supply, prices will rise; less demand than supply, prices will fall. One only has to look at the real estate market in the United States or increasing world demand for oil for examples of this – the result of which we are experiencing at the pump.
As the world economy continues to show signs of recovery and with the emergence of predominantly China and India as new, thriving economic powers, demand and interest in coffee as a beverage of choice in these countries is placing increased demand on current supplies and driving prices higher.
The Brazilian influence 2011 = $$$
This year, in addition to China and India being regarded as emerging economic powers, Brazil, the world’s largest producer of coffee, has also been added to this list. It may seem strange to read this, but Brazilians are also now drinking more coffee than ever. I say this because historically, due to the world demand for coffee and the money that could be earned from it, not to mention foreign interest or ownership in many of the major coffee plantations, most of the coffee grown around the world was grown for export only and rarely consumed in the countries where it was grown. As the standards of living improve around the world and coffee becomes affordable and a beverage of choice, these practices in many countries are changing which adds more demand to an already pressured supply.
In addition to the fact that Brazilians are drinking coffee at unprecedented rates, the Brazilian government has also gotten wise to the Law of Supply and Demand. Again keeping in mind that Brazil is the world’s largest producer of coffee though, typically, due to its extreme affordability and mild flavor is considered ideal for blended coffees, the Brazilian Government through regulating the quantity of coffee that can be sold and exported at any one time creates even higher prices.
The current oil and gas prices = $$$
As expressed previously, there is no doubt that any increase in oil and gas prices places even more upward pressure on the cost of anything that involves transportation – coffee included. Coffee once harvested and processed needs to be shipped to whatever location where the coffee is to be roasted and packaged. Once roasted and packaged, the finished, packaged coffee needs to be transported or shipped to either a warehouse, and/or its final destination, the retailer.
So, yes, the current oil crisis is, pardon the pun, negatively fueling things, but as I shared above, there is far more to the picture.
Where will it stop?
No one has the answer to that question. Certainly the recent events in Japan with the tsunami hitting did, momentarily cause a free-fall of coffee prices and prices for other goods for a few days. However once everyone had an opportunity to reflect on what happened and what this event may mean going forward, coffee prices along with those for other goods have resumed their upward surge with no end in sight.
Final sentiments
To encapsulate the world coffee situation in a very succinct way I will quote something I read a few weeks ago about the future of coffee prices, “Prepare for the worst; Hope for the best”.
Despite the upward market challenges Grains of Sense® will continue to select and roast the most distinguished coffees that can be obtained from the world’s coffee growing regions. We will also continue to support the farmers, farmers’ communities and all Fair Trade products globally as a registered and certified partner of Fair Trade-USA (formerly TransFair-USA).
Despite the factors above that have precipitated any increase, we hope you will continue to purchase, enjoy and recommend our coffees. It has been and is our pleasure to serve you!