A trifecta of forces is causing coffee prices to reach the highest they’ve been in nearly a decade. Supply chains disruptions, increased demand, and poor weather have all resulted in a costlier coffee bean.
It's always interesting to see what's going on in markets for chocolate and coffee. It feels like we regularly hear stories of increasing prices of both beans, but prices at checkout rarely seem to ever spike. There's so much going on in the supply chain, that even doubling the price of beans has a much smaller impact on our final purchase.
That the price of the cup of coffee remains pretty much the same.
I thought perhaps it is because the proportion of the cost of coffee to the final cup is small. (after you factor in sugar, milk, café rent, barista wages, marketing)
I spent some time on work placement with a Milanese coffee trader in 2023.
And heard about some of the struggles that had threatened their very existence during and post covid.
With shipping costs going up multiple times, credit being tied up much longer and what that meant for interest.
Then rumours last year of Vietnam withholding coffee from the market (they are major Robusta producers)
Who is paying for all these things?
And then when further complications are introduced (like EUDR deforestation regulation from the EU)
And the price of coffee on a street in Milan will remain pretty much the same.
Is there oversupply, perhaps?
There's trouble somewhere though (Mercon did go bankrupt a few weeks ago)
But for the life of me I cannot make sense of the fact that the price of a cup of coffee doesn't seem bothered about all this.
Do you think it’s possible we’ll see a shift in the increase demand for tea as a substitute good to coffee if the price consumers pay does increase substantially within the upcoming months?
We use those as examples of substitutes when teaching, but I'm curious how much actual substitution occurs between coffee and tea, especially in the US.
Now do iced tea! But for real, it's interesting to see everything affected by this pandemic and global supply chain issues. Some great supply/demand questions could be written on this post.
Some of what ended up happening, looking back now...
With some of the previously negotiated contracts, importers had problems with producers reneging on the deals.
As prices rose, producers were unwilling to supply at the previous low prices.
And when this happened with major producers like Colombia, it left quite a mess.
Because the supply curve shifted once again with producers only willing to supply at the higher price.
The Colombia situation:
https://www.reuters.com/world/americas/exclusive-major-coffee-buyers-face-losses-colombia-farmers-fail-deliver-2021-10-11/
It's always interesting to see what's going on in markets for chocolate and coffee. It feels like we regularly hear stories of increasing prices of both beans, but prices at checkout rarely seem to ever spike. There's so much going on in the supply chain, that even doubling the price of beans has a much smaller impact on our final purchase.
I do find all this very confusing actually.
That the price of the cup of coffee remains pretty much the same.
I thought perhaps it is because the proportion of the cost of coffee to the final cup is small. (after you factor in sugar, milk, café rent, barista wages, marketing)
I spent some time on work placement with a Milanese coffee trader in 2023.
And heard about some of the struggles that had threatened their very existence during and post covid.
With shipping costs going up multiple times, credit being tied up much longer and what that meant for interest.
Then rumours last year of Vietnam withholding coffee from the market (they are major Robusta producers)
Who is paying for all these things?
And then when further complications are introduced (like EUDR deforestation regulation from the EU)
And the price of coffee on a street in Milan will remain pretty much the same.
Is there oversupply, perhaps?
There's trouble somewhere though (Mercon did go bankrupt a few weeks ago)
But for the life of me I cannot make sense of the fact that the price of a cup of coffee doesn't seem bothered about all this.
Do you think it’s possible we’ll see a shift in the increase demand for tea as a substitute good to coffee if the price consumers pay does increase substantially within the upcoming months?
We use those as examples of substitutes when teaching, but I'm curious how much actual substitution occurs between coffee and tea, especially in the US.
Now do iced tea! But for real, it's interesting to see everything affected by this pandemic and global supply chain issues. Some great supply/demand questions could be written on this post.
Surprisingly, tea prices have hovered between $2 and $4 per kg pretty consistently: https://tradingeconomics.com/commodity/tea