Coffee prices have surged in recent weeks as severe weather conditions have hampered crops in key coffee-growing regions.

The commodity prices have been volatile in the last few months, as Fairtrade sustainable sourcing manager for coffee Max Millward tells Just Drinks.

He said: “From the bustling streets of Melbourne to the trading floors of London and New York, the price of coffee has experienced unprecedented volatility, from $1.80/lb in February to a high of $2.45/lb on 15 April, an increase of 65 cents per pound, then going back down to $2.25/lb, a decrease of 20 cents per pound, in just a week.”

A report from GlobalData, Just Drinks’ parent company, showed that coffee futures prices surged in March and early April, with cheaper Robusta beans closing as high as $3,700 per tonne and more premium Arabica hitting $2.10 per pound, the highest level in over a year and a half.

The data research group has now predicted total coffee production will reach 172.7 million bags, down from the previous estimate of 176 million.

Shortage in coffee supply

In coffee group Lavazza’s full-year results for 2023, CEO Antonio Baravelle said: “In 2023, the macroeconomic scenario for the industry was extremely complex due to the sharp increase in the cost of the raw material, with prices at record levels for green coffee and Robusta in particular.

“Nevertheless, we chose to limit price increases on our products to protect consumers, maintaining volumes but sacrificing our profitability.”

The company “faced some major challenges” throughout the year due to “rising raw coffee costs, particularly for Robusta, which peaked during the year at close to $3,200/ton and extremely high prices persist”, the company wrote.

However, despite recording “record” revenue which rose 13% to €3.1bn ($3.3bn), profits took a hit. Higher green coffee prices led Lavazza’s group EBITDA to fall from €309m in 2022 to €263m last year. EBITDA margins fell from 11.4% to 8.6%.

Meanwhile, EBIT amounted to €97m, falling from €160m in 2022. Net profit totalled €68m, compared to €95m last year.

The Italy-based business said: “Group strategy was to limit consumer price increases in an inflationary environment, absorbing part of the cost increases within its margins.”

Higher Robusta coffee prices have evidently taken their toll on coffee companies as beans have been in short supply, which is having a ripple effect on Arabica prices, according to analysts.

Thijs Geijer, an economist at ING Research, said: “For Robusta the current price levels are extraordinary, for Arabica we have seen similar spikes in recent years (like 2022).”

Why the surge in prices?

Vietnam is the world’s largest producer of Robusta beans, which are mainly used for instant soluble coffee, while Brazil produces more higher-end Arabica beans than anywhere else.

The Southeast-Asian country emerged as a major player in the coffee world only in the last few decades after the Communist Party listed the crop as a strategic focus in the 1980s.

According to the US Department of Agriculture (USDA), Brazil and Vietnam collectively account for more than 55% of global coffee production. Other significant coffee-producing countries include Colombia, Indonesia, Ethiopia, Honduras, Peru, India, Guatemala and Uganda.

Millward said that adverse weather conditions in these two key growing regions have led to fears of shortages, “exacerbating the already delicate balance of supply and demand”.

He added: “Prolonged heatwaves in Vietnam, a key producer of Robusta beans, have damaged crops, while Brazil, the world's largest producer of Arabica beans, has faced challenges from heavy rainfall impacting its harvests.

“These climatic disruptions, compounded by geopolitical tensions disrupting shipping routes, and the speculative nature of futures contracts across investment portfolios, have created a perfect storm of uncertainty in the coffee market.”

A GlobalData market insight report added: “While El Niño continues to recede, Southeast Asia was hit by a prolonged heatwave in March which has been particularly intense in Vietnam, where it could negatively affect next year’s crop currently in flower.”

It also reported that Vietnamese farmgate prices for coffee reached highs of VND100,000 ($3.95) per kg as of early April.

Weather conditions were not the only reason for fluctuating coffee prices in Vietnam and Brazil as ongoing conflicts in Ukraine and Gaza continue to play their part in commodity inflation as well.

Demand grows and grows

Around three billion cups of coffee are consumed around the world every day, according to the International Coffee Organization (ICO).

The ICO also reported coffee production has failed to match consumption levels in the past two years, primarily attributed to severe cyclical weather patterns and ongoing impacts of climate change.

GlobalData predicts that consumption will increase year-on-year in global coffee consumption to 170.2 million bags: “The roasting industry has been running down green coffee stocks at an unprecedented pace, seemingly to avoid having to pay up front in the futures market.”

However, the group has now forecast that total world consumption will be two million bags below the lower than previously estimated, stating that “underlying demand remains anaemic”.

It cited coffee major Keurig Dr Pepper’s full-year results from last year where it reported a 10.7% drop in coffee sales volumes in the final quarter, with pod shipment volume falling by 2.7%. Coffee sales volumes for the full year were down 7.9% year-on-year, with pod volumes declining by an estimated 5%.

“KDP’s sluggish sales volumes in recent quarters seems to be tied up with continuing stagnation in domestic coffee consumption, particularly in the at-home sector,” the report wrote.

“Net import volumes remain consistently negative, and we have revised our estimate of [US] 2023/24 consumption down to 26.4 million bags, which would represent a second consecutive drop in annual consumption.”

Is the end of price rises in sight?

Millward tells Just Drinks that Fairtrade, the global sustainability initiative for developing countries, has seen that the jump in coffee prices has surprisingly not proved beneficial for coffee farmers.

He said: “In fact, the sudden surges and drops in coffee prices can cause significant strain and hardship for farmer organisations. If prices soar, after a contract price has been fixed, the cooperative may still need to purchase coffee at prices competitive with what local buyers and middlemen are offering, and that could be far beyond what the contract will compensate for.

“But if the cooperative is unable to bring in sufficient coffee from its members, due to the intense local competition that invariably accompanies high price moments, it risks significant fines and reputational damage that comes with contract defaults.”

World Bank said the global coffee market anticipates a significant increase in supplies, with an estimated increase of nearly seven million bags for the current season, mainly from Arabica producers like Brazil, Colombia and Ethiopia.

However, the Robusta struggles could still lead to significant supply shortages, according to the report.

Major coffee business JDE Peet’s CEO Fabien Simon discussed how the group has prepared for further commodity inflation going into 2024, stating it will be “very disciplined”.

He added: “We are entering an important season on the coffee side, that’s why it’s a bit too early to call out what the evaluation will be.”

Soaring coffee prices come as cocoa suffers a similar fate. GlobalData predicts a fall in supplies of around 8% in the 2023-2024 season compared to the previous 12 months, with the losses primarily attributable to problems plaguing the two biggest suppliers – Cote d’Ivoire and Ghana.

Millward said: “Only through collective action and a commitment to building fair and transparent relationships across the supply chain that lead to positive results can we address the negative impacts caused by increasing coffee prices and build a more resilient and inclusive coffee sector.”