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Coffee Prices and the Changing Times -
3/22/2011
Posted By:
Steve Hawthorne
If you read the newspaper, or follow any coffee people on Twitter, you’ve undoubtedly heard about the rising world coffee prices. Arabica coffee futures, which set the benchmark for world coffee futures, have risen 85% in the last 8 months to a new 14 year high.
Why is this happening? A few reasons…
First, coffee supplies around the world are at all time lows. During my coffee travels this year, I’ve seen quite a few empty coffee warehouses. Demand for specialty coffee is higher than ever. We are seeing countries such as Brazil, Indonesia, Korea and China drinking more coffee. The first Starbucks opened in El Salvador this year and I’m told that there will be two opening in Guatemala in the next year. These countries have historically not consumed much in the way of specialty coffee. Now that they are, demand is on the rise and supply is disappearing fast.
Second, climate change is impacting crop yields. In countries like Colombia, unseasonable rains hve washed out crops, reducing harvests as much as 70%. Increasing temperatures in Central and South America have created environments where crop destroying insects can thrive. Africa may face water shortages, impacting their ability to process coffee. If I think back to my college economics course, increased demand coupled with decreased supply equals…high prices.
As if the coffee industry didn’t have enough to worry about, we have the added complication of speculative day traders have begun pouring money into commodities markets…including coffee. Ever since the bank and housing markets tanked, speculators have looked to other markets to try and earn a quick dollar. Coffee has caught their attention and this money is the market price up, which ultimately impacts how much roasters like us have to pay for coffee.
Now for the good news…Coffee producers are receiving higher prices for their product, allowing them additional money to reinvest in their farms. Many farmers are planting new trees which will eventually help to increase supply and normalize the market prices. This will take a few years since a newly planted coffee tree will take 2-5 years to begin producing a usable harvest.
Over the past several months, we have done our best to control costs and hold prices on our coffee. As coffee prices and other costs continue to rise, we can no longer sustain at current price levels. Beginning March 23, whole bean coffee prices will be increasing by an average of $1.00 per pound in our retail stores. Bulk coffee prices for our wholesale customers will increase as well. We will also have slight increases on our brewed coffee and espresso beverages in our stores.
This is an interesting time in the coffee world and we are continuing to strive for improvements in our coffee and our service to our customers. We would like to extend a heartfelt thanks to all of the customers that have supported us over the years and the customers that will continue to support us for the years to come.
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