Coffee Prices Increase In 2011 – Coffee Price Rise

by Dan Harrington on March 22, 2011

Price of Coffee Percolating Upward Giving Consumers A Jolt

United States (March 22, 2011) – Coffee Market Report: Major coffee companies have announced a series of price increases in the last six months.

The latest flurry last week we saw Kraft Foods (producers of Yuban and Maxwell House coffees) most recent price hike raising Maxwell House coffee 22%, and Starbucks raising prices on packaged coffees sold in grocery stores by 12%.

This comes on the heels of previous price increases by those two companies as well as other major companies including the J.M. Smucker Company (Dunkin’ Donuts, Folgers and Millstone), Green Mountain Coffee Roasters (makers of the popular Coffee K-Cups and Keurig single serve brewing systems) and others.

Rising Price of Green Coffee Beans On World Market Driving Consumer Price Increases

The price hikes were all attributed to the rise in the price of green coffee beans (unroasted coffee beans). With Kraft’s recently announced 22% price hike the company has raised prices about fifty-six percent since May of 2010.

So far the string of coffee price increases has not seemed to dampen overall demand with consumers still willing to purchase the affordable luxury of a good cup of coffee. In this regard coffee has shown to be extremely inelastic with respect to price increases, meaning higher prices do not deter consumers.

Meanwhile coffee futures have spiraled upward, doubling from June of 2010 to March of 2011.

Arabica Coffee Shortage Placing Upward Pressure on Coffee Prices

The rise in coffee prices has been largely driven by a shortage of the higher grade Arabica coffee bean varietal, which are the type of beans sold by Starbucks, Green Mountain Coffee Roasters, Peet’s and other premium coffee sellers and also used to make the popular Espresso Drinks including Cappuccinos and Lattes.

However the lower grade Robusta coffee, mostly used to make instant coffee but also mixed into some Espresso blends, has also shot up in price due to the upward pressure on all coffee prices due to rising worldwide demand.

Coffee Prices Increase In 2011 – Coffee Price Rise continued:

Worldwide Demand For Coffee Growing – Shows No Signs of Easing

While recent coffee price increases only translate to about an extra five or ten cents per cup of coffee, it remains to be seen if even steeper rises in the price of coffee will at some point deter consumption and reduce overall demand, perhaps relieving the Arabica coffee shortage.

Most analysts don’t see this happening for quite some time, and instead see farmers struggling to meet the demand for coffee.

Worldwide demand for coffee is growing at a rate of about two percent annually but it is growing much faster in emerging markets such as Brazil, India, China and Latin America.

Coffee Crop Damage Causes Concern Over Worldwide Coffee Supplies

Continued concern about poor harvests of coffee crops in major coffee growing regions is putting upward pressure on coffee prices. Problems with weather in South America and Central America have caused crop damage as well as increased coffee plant diseases and pests harming crops.

Columbia, the world’s second largest coffee grower, is having its third straight year of lower production. Brazil also had crop damage due to bad weather and is in an off-year of its biennial cycle of production.

Coffee Price Rise in 2011 continued:

In the country of Kenya real estate pressures pushed farmers off their land and crops were uprooted, leading to increasingly higher prices on the Nairobi Coffee Exchange, particularly for the highly esteemed Kenya AA Coffee.

Demand For Coffee Grows As Production Shrinks

Europe and America sustained their historically high demand for coffee during the years of economic recession and a rebounding economy may drive up demand further. Meanwhile the emerging economies are increasing their demand at a rate much higher than the worldwide average.

Coffee Prices Increase In 2011

China leads the charge with a growth in coffee consumption that has been estimated to be as high as twenty percent annually in recent years. Some say the growing middle class there is taking up gourmet coffee in part to emulate Americans and Europeans.

Coffee Part of Larger Commodity Rally

These emerging markets of developing nations are also driving up demand for a whole range of other commodities besides coffee. Sugar and cotton prices have been spiraling upward along with wheat, rice, and soybeans, all crops that have also been affected by inclement weather disrupting supplies.

Most commodities take about six months to work their way through the supply chain so a disruption to supply is often buffered by the existence of stockpiles. However during the last year world stockpiles of coffee and other commodities have been severely depleted due to growing demand, and so any new disruptions to supply will have more immediate affect on prices.

Inclement weather in Vietnam hurt the coffee harvest of 2010 and the country of Indonesia saw a 12% decrease in exports. A 40% drop in production in Tanzania was largely due to drought.

Rising Temperatures Create Problems for Arabica Coffee Farmers

The International Coffee Organization recently said that the average temperature of coffee growing regions has risen by about one-half degree in the last 25 years and this has caused farmers of the higher quality and more temperature sensitive Arabica coffee varietal to move to higher ground.

In addition, coffee diseases and pests, including the dreaded coffee leaf rust, seem to be significantly affecting coffee crops at higher elevations than every before.

Buying It Forward Not An Option for True Gourmet Coffee Lovers

While gourmet coffee lovers may wish to protect themselves against higher future coffee prices by stocking up on coffee, they also know that freshly-roasted coffee is best and so, unless they want to roast their own coffee, they can’t buy too much coffee in advance.

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