What’s causing the rise in coffee prices?
In November 2024, Arabica coffee prices reached a 13-year high. GCR explores what caused this surge and the impact of coffee market fluctuations on global roasters.
YPAK has translated and sorted out the article, with details as follows:
Coffee not only brings enjoyment and refreshment to the world’s billion drinkers, it also occupies an important position in the global financial market. Green coffee is one of the most frequently traded agricultural products in the world, with a global market value estimated at between $100 billion and $200 billion in 2023.
However, coffee is not just an important part of the financial sector. According to the Fairtrade Organization, about 125 million people worldwide rely on coffee for their livelihoods, and an estimated 600 million to 800 million people are involved in the entire industry chain from planting to drinking. According to the International Coffee Organization (ICO), total production in the 2022/2023 coffee year reached 168.2 million bags.
The steady rise in coffee prices over the past year has attracted international attention due to the impact of the industry on the lives and economies of so many people. Coffee consumers around the world are abuzz about the cost of their morning coffee, and news reports have further fueled the discussion, suggesting that consumer prices are about to soar.
However, is the current upward trajectory as unprecedented as some commentators claim? The GCR posed this question to the ICO, an intergovernmental body that brings together exporting and importing governments and promotes sustainable expansion of the global coffee industry in a market-based environment.
Prices continue to rise
"In nominal terms, current Arabica prices are the highest they have been in the past 48 years. To see similar figures, you have to go back to the Black Frost in Brazil in the 1970s," said Dock No, Statistics Coordinator at the Statistics Department of the International Coffee Organization (ICO).
"However, these figures must be assessed in real terms. At the end of August, Arabica prices were just below $2.40 per pound, which is also the highest level since 2011."
Since the 2023/2024 coffee year (which begins in October 2023), Arabica prices have been on a steady upward trend, similar to the growth the market experienced in 2020 after the end of the first global lockdown. DockNo said the trend could not be attributed to a single factor, but was the result of multiple influences on supply and logistics.
"The global supply of Arabica coffee has been impacted by multiple extreme weather events. The frost experienced in Brazil in July 2021 had a knock-on effect, while 13 consecutive months of rain in Colombia and five years of drought in Ethiopia also hit supply," he said.
These extreme weather events have not only affected the price of Arabica coffee.
Vietnam, the world's largest producer of Robusta coffee, has also experienced a series of poor harvests due to weather-related issues."The price of Robusta coffee is also affected by changes in land use in Vietnam," said No.
"The feedback we have received suggests that coffee cultivation is not being replaced by just one crop. However, China's demand for durian has increased significantly over the past decade, and we have seen many farmers pull out coffee trees and plant durian instead." In early 2024, many major shipping companies announced that they would no longer pass through the Suez Canal due to attacks by rebels in the region, which also affected the price increase.
The detour from Africa adds about four weeks to many common coffee shipping routes, adding additional transportation costs to each pound of coffee. While shipping routes are a small factor, their impact is limited. Once this factor is taken into account, it cannot put sustained pressure on prices.
That continued pressure on major growing regions around the world means that demand has exceeded supply in the past few years. This has led to the industry becoming increasingly dependent on accumulated inventories. At the beginning of the 2022 coffee year, we started to face many supply issues. Since then, we have seen coffee inventories start to decrease. For example, in Europe, inventories have decreased from about 14 million bags to 7 million bags.
Fast forward to now (September 2024) and Vietnam has shown everyone that there is absolutely no domestic stock left. Their exports have dropped significantly over the last three to four months because, according to them, there is no domestic stock left at the moment and they are still waiting for the new coffee year to start.
Everyone can see that stocks are already low and the extreme weather events of the last 12 months have impacted the coffee year which is due to start in October and this is affecting prices as demand is expected to outstrip supply. YPAK believe that this is the root cause of why prices have been pushed higher.
As more and more people pursue specialty coffee and high-quality flavored coffee beans, the low-end coffee market will gradually be replaced. Whether it is coffee beans, coffee roasting technology, or coffee packaging, they are all manifestations of the high quality of specialty coffee.
At this point, it is necessary for us to emphasize how much effort is put into a cup of coffee. From this perspective, even if the price has risen recently, coffee is still cheap.
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Post time: Nov-29-2024
