Fundamental Supply and Demand Issues Underly Structural Changes in 2011 Worldwide Coffee Market
United States (March 19, 2011) – Coffee Market Watch: Retailers will now be paying up to twelve percent more for packaged coffee from Starbucks which is trying to preserve its profits during a time of rapidly rising prices for green coffee beans (unroasted coffee beans).
Seattle’s Best Brand and Starbucks Coffee Brand Both Increasing in Price
As the world’s largest coffee chain Starbucks has already purchased all of the coffee beans it will need for 2011 and had been trying to stave off any more price increases in an effort to retain market share. However last week they announced the new coffee prices rises for retailers on both the Seattle’s Best Coffee brand as well as Starbucks brand coffee.
A twelve-ounce package of Seattle’s Best Coffee now has a suggested retail sail price of $7.99 (up from $6.99) while the Starbucks Coffee will rise to $9.99 (up from $8.99). Starbucks said that while these are the suggested prices the stores will have the discretion on how much of the price increase they wish to pass on to consumers.
Major Coffee Companies Increasing Prices to Protect Profit
Since the middle of 2010 major coffee companies have been announcing price increases. Kraft (Yuban and Maxwell House coffees), J.M. Smucker Company (Dunkin’ Donuts and Folgers), Green Mountain Coffee Roasters (with their popular Coffee K-Cups) and the Sara Lee Corp all have raised prices at least once in the last six months.
This is the first increase in price for packaged coffee by Starbucks since March of 2008.
Coffee Supply and Demand Issues Exacerbated By Speculative Trading
While coffee prices are being driven up primarily by a rising world demand and short supply, many industry analysts as well as coffee companies have blamed speculators for driving up prices on coffee futures markets placing a large burden on importers and exporters who can’t afford the margins.
Despite the exacerbation of the problem by speculators – including large infusions of money from funds seeking profits in an inflationary environment – the fundamental structural supply and demand issues in the coffee market show no signs of easing.
Finer Arabica Coffee Is Driving Demand and Coffee Price Increases
The demand is primarily for the higher grade Arabica coffee which is served by Starbucks and other gourmet coffee chains and increasingly desired by a new breed of specialty coffee lovers worldwide.
Driving the demand are the emerging markets of Brazil, India and China where large and growing middle classes want their fine cup of coffee. These up-and-coming professionals want their fresh-brewed whole bean Arabica coffee and also enjoy a variety of specialty coffee drinks such as Lattes and Cappuccinos.
Starbucks Increases Coffee Prices in 2011 On Starbuck Packaged Coffee
China and India Seeing Surging Coffee Demand Driving Up Prices
In China demand has been rising an estimated twenty percent each year and Starbucks has a seventy percent market share, planning to open one thousand new stores in the country.
The demand for coffee in India is rising at an estimated five percent each year, more than double the worldwide increase in demand which is about two percent.
Despite rising coffee prices, such as those announced last week by Starbucks, most analysts don’t expect consumers to stop buying and thus demand will not ease significantly in the coming year, and supplies will continue to struggle to meet this strong demand.
Brazil Is Emerging Market With Rising Coffee Demand
Of all of the world’s coffee producing countries, Brazil has the fastest growing demand for coffee and is expected to surpass U.S. consumption in 2012, and by 2015 Brazil will be keeping more than half of its own coffee crop.
Brazilians increasingly enjoy the finer Arabica coffee and they are willing to compete with the U.S. and Europe for the best beans.
United States and Europe Sustain High Coffee Demand During Recession
It should be noted that Europe and the United States sustained their already very high demand for coffee during the years of economic downturn and recession, so a rebounding economy could further increase demand and place more upward pressure on coffee prices. In 2012 the world supply of coffee is expected to be about five million bags less than demand.
Also exacerbating the coffee price spikes is the declining value of the U.S. dollar which many attribute to the vast amounts of new debt that have been taken on by the U.S. government in recent years. A lower dollar has the direct effect of creating higher commodity prices for Americans.