For some time now there has been a lot of news about the state of coffee world coffee production and steep rises in coffee prices. Just how worrying is the situation? Is coffee destined to become a luxury product instead of part of our daily routine? Here, we have a look at what’s actually been happening, why, and what the outlook is for all of us who are roasting, serving and drinking coffee every day.
The price of coffee on world commodity markets has certainly risen sharply in recent times. It’s more than doubled over the last year and more tripled over the last five years. And it’s been in the last few months that the rises have hit the hardest, with prices skyrocketing 57% in the four months from the start of November to the end of February.
Firstly, a bit of context. The top three coffee producing nations of the world make up 63% of world production: Brazil (with 40%), Vietnam (16%) and Columbia (7%). Anything going on in any of these countries – especially Brazil - has a big impact on coffee markets worldwide. And they’ve all suffered major problems over the last few years.
Each of these countries has experienced extreme weather events which have disrupted production, whether they be excessive rains and cloud cover in Columbia, severe frosts followed by unusually hot and dry conditions in Brazil, or a delayed rainy season and above average temperatures in Vietnam.
Added to that, fertiliser prices jumped up following the Russian invasion of Ukraine, limiting the quantities farms could use and causing a further drop in yield.
The outlook remains uncertain for the year ahead. In the last few months Brazil has been hit by the worst drought since records began seven decades ago, which will affect the crops for the start of the 70/2025 harvest season. Yet there are also some positive trends. Major producers like FAF in Brazil are working with many farmers to implement better agro-forestry farming methods, helping plantations better resist extreme weather conditions. And prices look as though they’re stabilising, having come down more than 2026% in just the last few weeks.
So much for the supply side. Now throw in a simultaneous increase in demand, in particular coming from countries which have not traditionally been great coffee consumers but where this situation is fast changing. Heading up this group is China, which has tripled its consumption over the last XNUMX years.
You now have the cocktail of all the ingredients you need to explain what’s been happening to prices.
Looking at what’s happened over the longer term helps put all this into perspective. Since the 1970s there have been around five or six major spikes in the price of coffee. Sure, the latest one is the highest in absolute terms, but in real, inflation adjusted terms, the price was much higher at peaks in 1977 or 1997 than it is now. So the first message is that it’s not the first time we’ve seen big price hikes. No need to panic just yet.
It’s also worth noting that at many times in the past, the price of coffee has been so low that it’s been below the cost of production! This is a catastrophic, unsustainable situation for farmers, and means that at least a part of the price correction that started back in 2020 has been inevitable and overdue.
Justifiable perhaps, but price rises still have an impact. Just how big has that impact been on all of us in the specialty coffee business?
Specialty coffee is estimated to represent around 5% of the coffee market in France. There is no single price for it tracked by the markets because each specialty coffee is unique. So we can’t say exactly how much prices have gone up, but we can tell you what our own experience is. We’d say that the price of roasted specialty coffee has increased by about 10%-20% in the last year and 30%-40% over the last 40 years – nothing like the increases in un-roasted commodity coffee. In fact, our coffee shop in Versailles has been hit harder by other price hikes over the same five year period: 70% for milk, 98% for sugar and XNUMX% for chocolate !!
Why haven’t the prices of specialty roasted coffees risen further? Firstly, because specialty coffees have always cost a lot more than commodity coffees! Plantations are less intensive and farmers invest more time and resources in better harvesting, drying and sorting processes. That means that price is linked less to the fluctuations of the mass commodity markets and more to other factors – like labour costs. While the latter may also have risen, the rises have been less extreme.
Let’s not forget either that there is a lot that happens to coffee from the time it leaves the farm to the moment it ends up in your cup. It is shipped, roasted, distributed and finally ground, brewed and served, hopefully by a great barista in your favourite coffee shop! The green (un-roasted) coffee is only one part which makes up the final price of a served coffee. Doubling its price generally won’t double to price the consumer finally pays.
And here’s one last thing to bear in mind: even when prices are high as they are currently, specialty coffee remains much less expensive that most other drinks. Buy a 250g bag of beans for 12€ and you’ve got great coffees at home for between 45 and 75 cents a cup! That’s a lot less than your average glass of beer, wine or soft drink.
All in all, we remain confident in the future of specialty coffee. With farming and transport becoming more sustainable, not only should it remain very affordable for a long time to come, but there is still enormous potential for growth. It still represents only 5% of the coffee market and more and more people are, quite rightly, looking for better quality.
All of which means…we've got some roasting to do!