Global coffee prices
Brazilian coffee harvest volumes are one of the main driving forces for the price of coffee worldwide. In 2021 the harvest was smaller, which meant that there was a deficit in global supply and demand that year. Along with this, there were two frost events in Brazil in both 2021 and 2022, which damaged trees and affected the price of future harvests. The international coffee market prices changed to counteract this issue immediately, in the knowledge that there would be multiple deficit years back to back.
This has resulted in the commodity price soaring (which is used as the base level for coffee buying). Now that the base level has moved up, speciality prices have followed.
Due to purchasing ahead and forward contracting coffee, we have been able to protect our partners from price rises earlier than others in the industry. However, these contracts are now closed and we have taken delivery and roasted all of that great coffee, so we now find ourselves in the reality of a new global coffee market.
There is also another really important factor affecting the price of coffee, which is the USD. All coffee is traded in Dollars so a weaker Pound Sterling means that the exact same coffee becomes more expensive to a British business. This poor exchange rate July 2021 £1 = $1.39 August 2022 £1 = $1.22 this has a dramatic effect on the price of green coffee. Producing countries are battling with worse rates of inflation than we are, and these rising costs are going straight onto the price of the green coffee.
Both of these variables are constantly moving, but right now compared to 2 years ago we would estimate that there has been a 50% increase in green costs. This does not include increased costs attributed to sea freight, road freight, electricity etc.
Although this is the price on commodity coffee (not speciality coffee), the market has moved so much in the last 12 months compared to previous years that it is having a dramatic impact on future speciality coffee pricing. Looking at the past c-price shows that it has increased from $1.26 USD / lb in Jan 2021 to $1.71 today and it peaked at $2.58 this year!
Other factors affecting coffee prices globally:
- Less coffee pickers are available - this is especially affecting Central America. We are seeing low yields with many cherries not being harvested, and at the same time with lower pickers, plants are not always able to be pruned and given the right attention at the right time.
- Brazil - Always has a high yield year, followed by a lower yield the following year. 2020 was a huge year in Brazil, so it was always expected that 2021 would have a lower yield, however with the challenges of frosts in both 2021 and 2022, there has been a continued low yield every year.
- The frost in Brazil was detrimental to the 2022 harvest. Producers have found that up to 30% of their plants have frost damage and therefore need to be taken out and re-planted with young plants (which will only start producing coffee in 3-4 years). This has increased prices on this year's crop, as they need working cash to keep them going through next year and the years to come with lower production.
- Colombia - Starting with protests in May and then the producers defaulting on 1 million bags, the price of Colombian coffee is higher than ever. Producers are seeing the price increase and are not willing to keep selling their coffee for under market value - even if contracted. This is something we can see going on for a long time, with more producers in other countries starting to do the same. This comes back to the age old problem of if a producer increases their price, then traders just buy from the farm next door. Boosted by the worldwide C-market price, there is no longer a farm next door selling lower cost coffee, so prices across the whole country go up.
- Ethiopia - This has been an area of some conflict for a long time, but things are getting much worse. Although the main areas of conflict are in the North, it means there are transport issues getting to the ports and also for food coming into coffee producing areas.
- West Africa in general - has a reduction in ships available for transport due to a higher demand for goods from China to the US. The ships are full and are skipping stops where they would have usually collected containers of coffee. Break bulk ships (without containers) taking foods such as rice from Asia to Africa have increased , meaning a container shortage in Africa.
- Demand for coffee across the globe is increasing - China is starting to drink more and more coffee and already has more coffee shops in 1 city than anywhere else in the world (6000 cafes in Shanghai).
- Fertiliser - Fertiliser prices have risen nearly 30% since the start of 2022, following last year’s 80% surge. Although farmers will use little amounts, or will try not to use fertilisers at all, there is still a huge increase in costs for them, damaging their profits. So they have added additional costs onto the green coffee to cover these costs.
How this has affected us:
By purchasing ahead and forward contracting of our green coffee, we have shielded our partners from rising green coffee prices during 2022, despite seeing prices increasing across the industry. We have also absorbed the increased costs in running the business, with the continued rises in gas, electricity, logistics and other aspects.
However, with our existing coffee contracts now coming to a close, it has become a reality for us to evaluate our pricing. Ultimately our main goal is to maintain our coffee quality for everyone involved and we have therefore decided rather than compromising on the quality, we have had to make the decision to make a small £1 increase on each kilo of coffee - circa 6-7% price increase. This equates to an additional cost of approx 1.8p per espresso made.
In order for us to continue to support farmers and their families, maintain supplier relationships and stay true to our ethos and quality of responsible sourcing, we need to ensure that money is shared along the supply chain.
We appreciate your understanding and you can rest assured that we would never compromise our coffee quality, or our environmental and ethical ethos.