Why is the price of coffee on the rise?

Why is the price of coffee on the rise?

You may have noticed recent increases in the cost of a coffee at your favourite café. There are a number of factors that are currently driving up coffee prices around the world.

The Commodity & Specialty raw coffee prices have increased sharply

- The price of commodity coffee is up to $2.50 per pound (in the 90s this was as low as $1 per pound!). Commodity coffee is traded on the New York stock market and is referred to as the C index.
- The average price for quality coffees in small lots is now over $8 per pound.
- Companies such as Gloria Jeans acknowledge that some specialty coffees are becoming less obtainable.

Increasing consumer discernment & growing markets of demand

- Consumers are becoming more discerning of high quality beans that are roasted expertly by artisan roasters.
- The International Coffee Organization notes that in 2010 global coffee demand increased by 2.4% to 134 million 60kg bags. This is a trend expected to increase.
- Coffee consumption in mainland China is on the increase. Starbucks are planning to increase their cafes threefold in China.
- India, Brazil and Germany have also increased their coffee consumption.

Coffee Production shortfalls in the face of increasing demand

- Production of Arabica coffee in Colombia has been down for the last three crops. This has been due to a number of factors such as higher temperatures and unpredictable rains. Production in Colombia for 2006 was over 12 million 132 pound bags of coffee. For the year of 2010 it was only 9 million 132 pound bags.
- Production in Brazil for 2010-2011 was forecast to be 60 million bags, but was actually about 56-58 million bags. Brazil now faces the possibility of its worst frost since 2000. This cause of this possible frost is due to the changing weather patterns of El Nino and La Nina. And with a coffee market that is facing a reduction in supply, the possibility of frost can cause an upward spike in commodity coffee prices.