Why has coffee become so expensive?

For many, we will have to dig a little deeper into our pocket to enjoy our daily caffeine fix, but why?

The global coffee crisis.

In August 2021 we were fortunate to be invited to a webinar by a leading coffee expert who explained why we will see a surge in the price of coffee, and how best we can prepare for it.
Since August 2021, we have been keeping our clients up to date on the ever developing coffee crisis. If you have missed our mails and social media posts, we hope the below article will fill you in.

Brazil is the worlds largest producer of coffee. Any negative impact on coffee production affects the arabica coffee futures market.
In early 2021, Brazil was in the midst of recovering from a drought. As with all crops a drought affects the health of the coffee cherries. The plantations, already in a state of shock, then experienced a successive wave of frost. In an already dry climate, brought upon by drought, frost is the last thing you need. Brazil’s National Supply Company estimates the 2022/23 production is down by 2.3 million 60kg bags (138 000 000kg) due to drought and frost. Whilst Brazil was experiencing drought, the second largest coffee producing nation, Vietnam, was also facing issues with shipping due to the Covid-19 pandemic.  And finally, the third largest coffee producing nation, Colombia, was experiencing excessive rain, which is equally as bad for coffee production.

These factors have driven the price of coffee to record heights. For example: In February 2020 the price of coffee on the Arabica Futures Market was trading at 110,00 USd/Lbs, in February 2021 it was 127,00 USd/Lbs and in February 2022 it was trading at 256,00 USd/Lbs. As of June 2022 the price is sitting at 240 USd/Lbs.

But how does this relate in rand per kg to coffee roasters?

In the period January 2021 to January 2023 we have seen the price of coffee increase on average by R50 per kg. What is interesting to note: due to moisture loss during roasting, we lose on average 10 – 13kgs of weight from a 60kgs bag. Not only does the profit margin decrease on the sale of roasted coffee, it is also affected by coffee lost during the roasting process.

The effect of transporting coffee during a global pandemic.

Globally, shipping costs have seen as much as a 300% increase in price. To make matters worse, coffee shipments get bumped to make way for high value commodities. One of our green bean brokers was expecting a container to arrive in late December, the same shipment only arrived end February. The impact of Covid-19 have seen ports close for extended periods of time leading to a huge global demand in shipping.

The war in Ukraine and Russian sanctions.

The latest crisis to hit the scene is the conflict in Europe. The sanctions imposed on Russia has far reaching effects. Russia is a major supplier of fertilizers. Coffee producing nations that rely on Russian bought fertilizer may have to start sourcing elsewhere. Again, supply and demand will have a negative impact of the cost of fertilizer.

In Summary

You would have noticed that all coffee related products have seen sharp increases. Since September 2021 we have been educating our client base about the effects of the Global coffee crisis. We have also tried to absorb the price increases for as long as we can. As we weather the storm, we hope the price of coffee will stabilize.

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