Coffee Prices 2011 – Coffee Price Increase 2011

by Dan Harrington on April 1, 2011

Coffee Market Report: Strong demand for coffee by emerging markets, disappointing harvests in major coffee growing regions, and speculative trading driven by an infusion of money from hedge funds in an inflationary environment with investors benefiting from easy money policies – have all contributed to rising coffee prices and a distinct shortage of the higher quality Arabica coffee beans.

Food Commodity Prices Rising – World Food Price Index Reaches Record High

When farm ministers from forty-eight countries met in January of 2011 in Berlin they issued a joint statement saying that global food security was being threatened by “excessive price volatility and speculation.”

During the last month the index of world food prices maintained by the United Nations reached a new record high and this is widely seen as a major contributor to the unrest in the Middle East and Africa including Tunisia and Egypt where the leaders were pushed from power.

Of concern regarding future food production is the general shortage of arable land.

Arabica Coffee Futures Nearly Double In Last Year

The price of Arabica coffee futures (traded in New York on the Intercontinental Exchange, or ICE), has nearly doubled in the last twelve months. This comes after coffee prices tripled from 2002 to 2005, and rose 500% from 1992 to 1994.

Many commodity industry analysts are forecasting continued increases in many agricultural commodities including five hundred to one thousand percent increases in cocoa, sugar and coffee by 2014.

These steep price increase predictions are based upon fundamental shortages amid rising demand in the markets, combined with widespread food-price inflation in general.

Coffee Price Increase 2011 continued:

Sugar, Cocoa and Coffee Spiraling Upward In Price

Sugar already saw steep price increases in the last decade including a four hundred percent increase from 2002 to 2006 and then tripling from June of 2007 to February of 2010. Cocoa also saw increases in the past including a nearly 250% increase from 2000 to 2003.

Coffee’s current price spike was in part due to speculative trading on coffee futures markets led by an infusion of money from hedge funds driven by easy-money credit policies. Speculative trading driving up prices has been a factor in commodities markets across the board.

Weather and Other Problems Hurt Production Leading To Price Increases

The underlying and more fundamental reason for coffee price increases along with other commodities is the inclement weather along with consequent coffee plant diseases and pests leading to disappointing harvests in the major coffee growing countries of Brazil and Colombia as well as a host of other coffee growing regions.

Floods in Australia and Pakistan drove up sugar prices while cocoa rose upon news of unrest in the largest growing region, the Ivory Coast.

Coffee production in Indonesia decreased 12% in 2010 with lower production also expected in 2011. In Guatemala, and Costa Rica there were also disappointing harvests.

Tanzania coffee production decreased 9% causing a spike in prices for Tanzania Peaberry coffee. In Kenya there were land pressures causing coffee plants to be pulled up and a steep rise in price for the highly esteemed Kenya AA Coffee.

Coffee Prices 2011 – Coffee Price Increase 2011 continued:

Arabica Coffee Beans Increasingly Desired Creating Arabica Shortage

Large coffee chains as Starbucks and Peet’s, and premium coffee sellers like Green Mountain Coffee Roasters, sell only 100% Arabica coffee. A growing number of gourmet coffee lovers worldwide has taken a liking to the fine whole bean, fresh-roasted coffee from the world’s premium Coffee Growing Regions.

And they like not only brewed coffee but also a variety of specialty coffee beverages including Cappuccinos and Lattes.

Growing Demand By Emerging Markets Driving Up Commodity Prices

Food commodities have been particularly vulnerable to supply disruptions due to their need for land and water and their dependence upon cheap labor, something increasingly hard to come by in emerging economies with growing middle classes.

Meanwhile the growing world population – around seven billion and climbing – creates ever higher demand for food.

Also see: Quotes About Coffee

Demand For Coffee Growing Rapidly In Emerging Economies

Coffee consumption is increasing worldwide at about two percent annually, but growing much faster in emerging markets such as Brazil, India, China and Latin America.

China has seen recent coffee consumption growth of nearly twenty percent annually (which is why Starbucks, which has a 70% market share there, announced it would be opening 1,000 new stores in the country).

Brazil is increasing its coffee consumption by about seven percent annually and is set to surpass United States coffee consumption by 2012. Brazil is forecasted to be keeping half of its own coffee crop by 2015 to meet its own demand.

Best Coffees – Best Gourmet Coffee Beans You Never Tried

Coffee Prices 2011 continued:

Growing World Competition for Premium Coffee Beans Driving Up Prices

Emerging economies have growing middle classes with more disposable income and they are willing to compete with the U.S. and Europe for the best coffee beans.

Europe and the U.S., meanwhile, sustained their traditional very high demand for coffee even during the years of the economic downturn, and so demand could increase markedly in a rebounding economy, even with higher prices.

Inelasticity of Coffee With Respect To Price Rises Sustains High Coffee Prices

It seems that higher coffee prices do little to deter consumers, who so far have ended up paying only around ten cents more for their beverage (this may increase soon).

Coffee has shown itself to be very inelastic with respect to price increases, and so the coffee price spikes we are seeing now may not do much to ease the coffee shortage overall since consumption will remain strong.

Coffee Price Increase 2011 – Coffee Prices 2011 continued:

Farmers Slow To Increase Production – World Coffee Stockpiles Depleted

Coffee farmers are wary of boom-bust cycles they have seen in the past and so are in general reluctant to make major new investments in expanding production, even amid very high prices for the product.

Meanwhile world coffee stockpiles have been severely depleted, some countries have refused to sell their stocks, and other factors have come into play with the overall effect of further driving up prices for green coffee beans (unroasted coffee beans) on world coffee markets.

Thank You for Visiting Gourmet Coffee Lovers and Reading Coffee Prices 2011 – Coffee Price Increase 2011

Love Your Coffee and Espresso!


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