Rising costs of energy, utilities, raw materials and freight are pushing up prices across the board – but what specific challenges are facing coffee? And how can we keep the cost of the daily cup of Joe from spiralling?
Certain global issues have contributed to inflation. As a commodity, the price of coffee is dictated by local, national and international issues, whether they are environmental, logistical or even political.
To keep you clued up about what’s behind the rises, here’s our top-level summary of the five key drivers – plus some smart ideas about keeping costs down.
1. Demanding to know what’s happened with supplies
First, there is the issue of supply and demand. The Wall Street Journal had already predicted that 2021 coffee consumption would outweigh production by approximately 200,000 (60kg) bags. For those using Colombian beans in their blends, a change in government impacted delivery times and costs when street protests delayed transport of farmers’ crops.
Meanwhile in Vietnam (the biggest producer of Robusta coffee in the world), prolonged Covid-19 lockdowns also meant setbacks in getting coffee on its way to the roasteries. And for coffee houses waiting on beans from Brazil – the country responsible for roughly a third of all consumer-bound coffee beans – another crisis was brewing …
2. Iced coffee, but not as we know it
Frost in Brazil may sound like an oxymoron, but a short yet serious bout of it hit the country in July 2021. The inclement cold snap damaged much-needed coffee plants, significantly shrinking the annual harvest. The effect of frost (temperatures of around -2 to -4 degrees celsius) on a coffee plant differs depending on the condition of the plant. At best, the only evidence is a few brown spots on the leaves, at the very worst, the plant needs to be cut back completely and replaced with seedlings that can take another 3-5 years to start bearing fruit.
In Brazil’s frost of 2021 – reported as the worst since 1994 – an estimated third of all crops were affected. To add insult to injury, this frost came at a time when Brazil had been experiencing a prolonged period of very dry weather, putting stress on the coffee trees. Although it was initially anticipated to impact the market for about 12 months, the repercussions lasted a lot longer; causing lead times that were 30% slower than usual, while demand for the product was peaking.
3. Less bean for your buck
When importing goods from overseas, we have to look at the exchange rate. Coffee beans are bought in US dollars, and the dollar has gained strength against many currencies, not least the sterling. At its peak in 2014, a pound was worth around $1.70; at the time of writing this blog it’s worth 32% less (at $1.16). Simply put, as the dollar strengthens vs the pound, the cost of coffee increases.
Back in the summer of 2021, the price of coffee surpassed $2 (per lb) for the first time since 2014, but this was only the beginning. It continued to climb over subsequent months (hitting $2.49 at one point during February 2022), sitting at a little more than $2.2 (per lb) or $5.11 (per kg) as of August 2022. Rising prices can also lead to farmers holding back stock; not ideal when overseas retailers are running out of ‘common man’s gold’ in the process.
4. Adding more fuel to the coffee inflation fire
The mileage that coffee has to cover from source to shop versus the rising costs of fuel and freight has its own part to play. Rising fuel and freight costs have repercussions across all sectors, and coffee is no exception.
This started with the Covid-19 pandemic, when container ships were stuck in the wrong places due to lockdowns and travel restrictions. Even when things were able to start moving again, many containers were in the wrong places. This increased costs, as they had to be moved back before goods could even start their journey.
Although Covid restrictions have now eased, the situation has been further compounded by the war in Ukraine and pressure on fuel costs to move goods around.
When you have a product that can only come from exotic places (depending on which bean you buy), you have no choice but to pay the going rate for getting it to you. The price of packaging, paper and printing are doing nothing to offset the rising raw materials’ costs.
5. Everything everywhere all at once
As hard to swallow as it may be, the price of coffee is going up because the price of everything is going up. According to insights specialist Kantar, the average annual grocery bill is already up £454, and predicted to rise further.
Shoppers are paying more than ever for their instant coffee in the supermarket and for their coffee pods online, so of course they are paying more for their coffee to go as well. A cup of coffee on the high street has risen by around 50p a cup; with only one high street chain selling the popular flat white for less than £3 in July 2022.
For retailers, a silver lining to this final point may be that with prices on the up across the board, consumers seem to understand and appreciate that we are all in the same boat.
A spoonful of sugar may not help, but we can …
Ross Schofield, Commercial Director here at Lincoln & York, is keen to remind customers that options are available for anyone who is worried about getting into hot water when it comes to inflation.
“We’ll try, wherever possible, to mitigate costs. But inevitably there comes a point where we have to pass this on, as we operate in a global commodity market.
“It’s a tough time for everyone, of course, with the price of energy and fuel also on the up, plus other in-store bills rising. Ultimately, it’s your decision how much of these price rises you want to pass on to your customers, but everyone must be able to make a living and remain competitive and sustainable.
“With such a wide range of factors behind the coffee price inflation, it’s impossible to predict where the costs will go from here.
“That’s why we’ll always work with our customers to help find a solution to the price pressures where possible. There are many ways to look to lower prices, including the option of a fixed price agreement, where we commit to buy a volume for the next six months to a year; protecting customers from further financial volatility in the coffee market, through to re-blends & alternative pack sizes, still maintaining the quality our customers expect. Get in touch with our coffee experts and Q Graders who can suggest alternatives.
“We’re 100% committed to making sure that when coffee lovers buy a brew, it’s just as delicious to drink and worth every penny.”