By Rachel Beebe
What is happening with coffee prices?
It’s not news that the price of most things have been going up and up over the last few years. Ever since the pandemic it seems like necessities from food to fuel just keep getting more expensive. The story in coffee is no different. In 2022 the price reached a 10-year high, up from just under US $1 per lb in early 2019 to above $2.50 in February 2022. Recently the news from the coffee markets seemed to reach a fever pitch when, in late August of this year the price per pound topped out at just shy of $2.60. So, like everything else it seems, coffee is getting expensive. Really expensive.
While we all open our wallets a little wider to pay for our morning flat white, it’s worthwhile taking a closer look at why prices are spiking, what effects the situation has on different parts of the supply chain and what that reveals about the status quo of specialty coffee. If prices are up, who is making more money? How are coffee prices set and, importantly, will this upward price trend continue?
It’s a big topic so we’ll start with a primer on what is going on with coffee prices. Next we’ll dive into what the situation means for farmers, importers, roasters like us, and coffee lovers like you. And finally we’ll talk about why prices matter and try to draw some conclusions about the best way forward.
The sharp increase in coffee prices has been caused by a few things: mainly weather events caused by climate change, but also increases in costs for shipping and new EU regulations on deforestation that were meant to come into effect at the end of this year (in October they were delayed due to industry pushback).
The Factors Affecting Coffee Prices
Weather
This last summer Vietnam experienced the worst drought the country had seen in a decade. Several provinces declared emergencies and UNICEF reported that as of April over a quarter of a million people were affected, women and children in particular. Vietnam is the largest exporter of Robusta coffee, which began hitting record high prices due to the projected low volume of the harvest. Arabica and Robusta are traded on different markets but the two are interconnected. The spike in the Robusta market caused knock-on nervousness in the Arabica market. A Cafe Imports blog explained it this way:
Speculators believed the market was on the rise and took long positions, further fueling the market momentum. This introduced more uncertainty and volatility into an already bullish ride. Based on weather concerns, the market decoupled from the previous boost and was purely driven by speculative action.
So, in early summer things were already getting tense. Then, in June, Arabica harvest reports started coming from Brazil where there had been heatwaves and less rain than usual over the previous year. The news reported a widespread decrease in the screen size of the beans as well as a decrease in the volume of pulped natural process coffee.
To understand why these two things happened you have to understand a bit about coffee plants. An explanatory post by Algrano quotes Allan Botrel of Sancoffee, a cooperative, mill and exporter in Minas Geras, “The winter hasn’t been cold, so this might have accelerated the plant’s metabolic process, speeding up maturation and yielding seeds that didn’t fully form. So we end up with lower screen sizes.” Smaller beans mean that it takes more of them to fill a sack, meaning that farmers have to put more work into producing the same amount of coffee. Also, smaller beans, although they don’t necessarily have lower cup quality, tend to be worth less on the market.
The decrease in volume of pulped natural coffee comes down to uneven cherry maturation. The same Algrano post explains that there was more time than usual between the two main flowerings. Coffee trees aren’t like apple trees, where the whole tree flowers and then grows fruit. A single coffee plant can have flowers, unripe coffee cherries and ripe coffee cherries on it at the same time. This presents a particular problem in Brazil, where most harvesting is done mechanically. “If you wait for the cherries of the second flowering to ripen, those of the first one will be overripe. But if you harvest based on the first flowering, you end up with too many green cherries.” Most farmers chose the former option and the result was that many of the cherries harvested late had already lost too much moisture to be processed as pulped natural lots. Again, farmers had to put more time and effort into processing in other ways to salvage as much exportable material as possible.
Logistics
This June we roasted a coffee from Migoti Hill in Burundi that we’d expected to be in the UK in October 2023 and were planning to release around that time. It didn’t actually arrive until May 2024. In August we rejected a lot that would have been our first ever Malawi coffee because it had been in transit for such a long time that it had degraded significantly in quality due to moisture loss. In early October we launched a Guatemalan coffee that we were told would land in early July but that didn’t get to us until the last week of September. You get the picture. Coffee is taking a long time to get to the UK.
We first saw problems develop in global shipping and logistics during the pandemic and in the coffee market the problems have continued and worsened since then. This is especially true of coffee shipping from East Africa and Asia, which normally would be routed through the Red Sea. Since attacks on container ships in the Red Sea began in November 2023 those shipments have been delayed by several months. They’ve either had to take the longer route around the southern tip of Africa or take on the higher insurance cost and risk passage through the Red Sea. Both these options significantly increase costs.
EU Deforestation Regulations
The last factor impacting price is a little less straightforward. New European legislation, which was supposed to come into effect at the end of 2024 but was recently delayed for one year, will prohibit importing products into the EU that cannot be certified as deforestation-free. Coffee traders importing into the EU must demonstrate that the production of the coffee has no connection with deforestation.
Why would EU regulations impact the price of coffee in the UK? Because the price of green coffee on the commodity market is impacted by how much coffee is stored in warehouses licensed by the exchange that can be sold against futures contracts. These sacks of coffee, known as certified stocks, are the link between global market value and physical beans, and the licensed warehouses are in Europe. So, the volume of coffee stored in European warehouses will impact prices everywhere.
According to a Cafe Imports blog posted in May of this year 99.7% of all certified coffee stocks were being held in EU warehouses between Antwerp, Hamburg and Bremen. “If coffee cannot be imported into the EU without EUDR certification, this poses a threat to current and future certified stock levels.” If it costs more to meet these regulations the amount of certified coffee will go down and the C price will go up.
In addition, because some origins are better equipped to meet the new regulations than others there’s likely going to be a shift in how coffee from different origins is valued after regulations go into effect. “Some coffee origins with strong sustainability credentials and deforestation-free practices may prevail in the EU market, gaining market share as importers prioritise compliant sources,” reports Coffee Intelligence. Countries including Brazil and Costa Rica seem well prepared, while some African countries like Ethiopia and DRC are less so. In particular, smallholder farmers who aren’t organised into cooperatives or associations will likely be most affected. No one really knows how this particular factor will shake out, so it’s adding even more uncertainty in an already anxious market.
For the time being, if you go by the headlines in the blog posts being written by importers, the major factor on everyone’s mind is the weather in Brazil. Will it rain? But this obsession with the weather and what it means for prices is a myopic way of looking at the issue. As we turn to examining prices we’ll look more closely at how coffee prices are determined and how that affects different stakeholders and creates a fundamental flaw in our industry.
Impacts on Producers
What impact are the high prices having on producers, importers and roasters like us? If prices are higher, who is making more money? Also, it’s tempting to assume that once the weather and the other factors we covered settle down the coffee market will stabilise and prices will go back to normal, but is that true?
Let’s start at the beginning, with producers. Are they earning more for their coffee in the current market? The short answer is, yes, some are. But remember, some producers have lost their crops or had volumes severely impacted due to drought, so those folks are definitely not making money. In addition, the long term impact of drought on coffee plants means that the beans they produce might be lower quality. The plants are stressed, which causes damage and degraded bean quality in future harvests. So, there will be less coffee on the market and more of it will be of a lower quality. And obviously the drought isn’t only affecting coffee crops, it’s withering food crops as well, which means for some producers it’s not about whether they can make a profit, it’s about whether they can eat.
Alex Flores whose coffee we roasted this Autumn
Also, the volatility in the market is bad for producers who want to be able to plan and have the assurance of a profit. A recent email newsletter sent by Algrano, a coffee trading platform, points out, “Of course, producers have higher profitability when the market is high - but only when people actually buy their coffees. Often it’s the speculators who make money in these circumstances, which is detrimental to producers.”
As a commodity most of the volume of coffee traded is not by companies who want to buy and sell actual coffee, but by commodity traders who use coffee contracts as a holder of value. In a volatile market there’s an influx of cash into the industry from traders and hedge funds who see an opportunity to make money. This influx causes the market to rise even higher. The long term winners in this scenario aren’t producers. In fact, despite record high prices, some producers still don’t earn enough to cover their cost of production and many more aren’t earning a sustainable living income.
Impact reports from importers, like this one from Caravela, make the shortfall between the money earned by producers and the cost of production clear. Another, more general example, is from a recently published social impact report about Ugandan coffee farmers. According to the 2024 Coffee Farmer Thriving Index more than one third of coffee farmers reported no profit in the previous year, with 21% reporting financial losses. Widening the lens a bit geographically, surveys by Enveritas, a data-driven sustainability nonprofit, showed in 2019 that 44% of smallholder farmers were living in poverty, mostly concentrated in East Africa.
Impacts on Importers
This disconnect—between what coffee is worth on the market and what it costs to produce it—is also a problem for importers and roasters. When the market is very high, as it is now, producers can earn more than they have previously by selling to the market, which disincentives the production of specialty grade coffee. It’s important to understand that the thing that differentiates commodity from specialty is the level of quality control and processing. Specialty grade coffee doesn’t come from “specialty plants” or “specialty farms”, which don’t exist. It’s created by producers investing time and money into separating out the best coffee. But if a producer can earn almost as much for the whole volume of their crop by selling it as commodity coffee, why would they put the time and money into producing specialty coffee?
A recent newsletter from Nordic Approach talked about this problem:
The incentive for producers to meet the endless quality demands of specialty coffee are no longer sufficient. We will need to pay more to incentivise this level of work and attention to detail. The relationships with producers, which deepen every year, are also more important than ever.
This is a sentiment that I heard from more than one importer.
One mitigating factor is that some of the importers we work with have multi year agreements with producers, and despite being able to sell for a higher price elsewhere, these producers still decide to sell to the importers they’ve worked with for years. One case of this is Rwamatamu Washing Station in Rwanda. The importer that brings us this coffee, Omwani, has a multi year agreement to pay them $3.75 per lb. They paid this last year when the market was at $1.80 and they paid it this year when the market had risen to $2.30. If the market keeps going up, they’d obviously have to renegotiate the agreement, but while the price is within an acceptable range for both Omwani and Rwamatamu, it’s worth it for them to have a longstanding agreement. Rwamatamu has a reliable buyer who will pay enough for them to make a profit, and Omwani has a coffee they know they can sell to their customers at a price that allows them to meet their margin.
This is also an example of an alternative way some smaller importers work together with producers on price discovery. This is how it works for Omwani, who specialises in East African coffees and Indochina, who focus on Asian coffees like the Myanmar Padah Lin and China Banka we’ve roasted for the last two to three seasons. If an importer wants to be able to work with the same producers year on year, price discovery is a negotiation. Unlike larger importers, who use the C price and country- and quality-specific differentials to figure out how much they pay producers for coffee, the discussion starts with the producer’s cost of production. If the price the producer asks for is workable for the importer given their costs, margin and what their customers (roasters like us) can pay, then they strike a deal.
The Impact on Roasters
As roasters, the current prices mean that we’ve had to change how we buy coffee from all the importers we work with, big and small. It’s become too expensive for importers to store a lot of coffee in warehouses in Europe and the UK, so there has been a push to work more closely with them to secure lots before they’re shipped from origin. James Wilkinson, director of Omwani told me, “It doesn’t make sense anymore to hold big stock positions. We don’t want to have all that money held up in coffee.” Again, this is something I heard from more than one importer.
Previously, buying green coffee was kind of like going to the supermarket and picking out what you wanted. Importers had lists of coffee available in their warehouses and roasters were able to request samples and choose. There was always fresh coffee available in newly landed containers, so seasonality wasn’t really an issue. Nowadays, the cost of the coffee itself, but also the costs related to shipping, warehousing and financing are so expensive that importers are pushing to sell their coffee before it lands in the UK.
There are definite benefits to roasters in buying coffee this way. For one thing, we’re certain we’re roasting fresh, seasonal coffee. Also, it means we’re building stronger relationships with our importers because we have to communicate more about what we need and trust that they’ll deliver on that. Arguably, they also have to trust us more too because initially we agree to buy coffee on what’s called a soft contract. A soft contract stipulates that we will approve the coffee once it lands in the UK, so potentially we could refuse a lot we’d previously agreed to buy. The main benefits of working with importers this way is that the bigger importers can help us navigate the volatile market and the smaller importers can connect us to producers we want to buy from year on year.
What Does the Future Hold?
But what if the market stabilises and prices go back down? First it’s unlikely that the weather will stop being an aggravating factor for the C price. Climate change is happening, and it’s happening most severely in the places where coffee is grown. Second, if you look at historical price data the recent prices are not actually wildly high. Despite the panic and anxiety current prices are causing, this isn’t the first time the price of coffee has reached more than $3.00/lb. Actually, as of this writing, recent prices are still lower than the highest price ever. In 1977 coffee reached the equivalent of $3.19/lb, up from just $0.85 in only 12 months. Like the recent increase, that spike was caused by multiple factors including a climate event (a frost in Brazil that wiped out most of the previous year’s harvest) and soaring costs of fuel, which made shipping super expensive. For folks who love primary historical documents, there’s a great New York Times article from the time here.
According to Mike Ferguson in his 2022 article for Spruge, A Brief History of the Price of Coffee, the C price has gone through several cycles of dips and spikes since coffee was first traded as a commodity in 1972. Ferguson argues that, “When we look back over 200 years and adjust for inflation, $3.00 as the floor price for a pound of green coffee is more normal than not.” He goes on to say:
History teaches us that coffee prices can be volatile, certainly; but more to the point, in recent decades green coffee has been relatively inexpensive. Even with the C-market breaching $2.50 in early 2022, coffee prices have still remained historically low when we adjust for inflation.
This is going to sound crazy for anyone who got into the coffee market in the last 20 years or so, when prices have been slowly recovering from their all time low of $0.54/lb in 2001. It just so happens that there’s been a massive boom (third wave coffee) in specialty coffee since 2000, so most of the roaster retailers buying coffee today have been habituated to think of $3.00/lb as really high and their budgets for green coffee have reflected that.
It’s clear that we’re all going to have to adjust our expectations when it comes to how much we pay for coffee. This reality is clear if you compare what Steampunk paid for coffee in 2019 versus what we’re paying this year. The coffee we roast for our shop espresso is a low-to-medium specialty grade coffee with some gentle acidity, lots of sweetness and a medium to full body. On average we paid about £2/kg more this year than we did in 2019 for the greens for this product. The C price has gone up the equivalent of about £2.30/kg in that time. However, what we paid for Kenyan coffees has gone up nearly £5/kg in the same time. How to make sense of these numbers? Importers are taking losses on medium grade specialty coffee. They’re making up for it in the higher quality lots, like Kenyan coffees, but that can only happen for so long. The specialty coffee industry is at a tipping point.
In Conclusion
It would be easy for coffee consumers to not be aware of the broader impacts of the coffee market. Many have enough money to simply absorb the price increases we’ll inevitably see. Even more will just switch to less expensive, more commercial options. But what’s going on in coffee is a microcosm of what’s going on in our world more generally. Climate change and economic instability are impacting people in equatorial regions significantly more than us in the UK. When thinking about the coffee market it’s easy to lump all coffee farmers together into one group called “producers” like I have in this post. We do this because we relate to them as consumers of their product. These aren’t just words. They disconnect us from our shared humanity and the fact that we’re collectively sharing this planet and its resources.
The 1975 New York Times article I mentioned above, chronicling one of the biggest coffee price increases in history included this: “The incredible rises in coffee and cocoa prices are merely another way of telling us that the 4 billion souls on this planet must compete for a steadily shrinking supply of farm produce. Our seas are being fished beyond capacity. Hardly any productive cropland is idle anywhere and increases in one crop must be at the expense of another.” Since then the world population has more than doubled. If we don’t change the framework through which we see things like the price of coffee then we will not get another 50 years to make the same mistakes. Understanding the impact of what we’re doing in our corner of the world, which happens to be coffee, on the people around us is a starting point for change.
Sources, in no particular order:
https://youtu.be/PadVr8DSHSQ?si=z2xqH_dv-3O0FGsq
Coffee Prices Explained: A Beginners Guide to Green Coffee Prices | by Genuine Origin | Medium
Coffee prices are high. Should I contract now or wait? (algrano.com)
Are there crop failures hiding in Brazil? The 2024 harvest update (algrano.com)
Brazilian-exports-global-logistics-and-the-c-market (royalcoffee.com)
https://www.cafeimports.com/north-america/blog/2024/05/03/a-look-at-todays-coffee-market
Hedging, The C-Market, and New Opportunities Covoya Coffee
A Brief History Of The Price of Coffee - Sprudge Special Projects Desk
Coffee Dec '24 Futures Interactive Chart - Barchart.com
https://algrano.com/post/will-there-be-enough-rain-in-brazil-to-put-out-the-fire-in-the-c-market
https://www.transparency.coffee/about/
There's Worse to Come in Coffee - The New York Times
Cover Photo credit: Aquiares Estate/Rainforest Alliance