The global coffee market is experiencing a perfect storm, pushing prices to unprecedented heights. According to Judy Ganes, President of J. Ganes Consulting and a soft commodity market analyst/strategist for over 40 years, the cost of unroasted coffee beans has hit a “historically high level."
This surge is attributable to several factors, including crop failures, market forces, depleted inventories, and the unexpected influence of Durian --- the world's smelliest fruit.
DURIAN DILEMMA
In 2021, a severe frost destroyed coffee crops in Brazil, the world's leading producer of Arabica beans, commonly used in specialty coffee. This shortage forced buyers to seek alternative supplies from Vietnam, the primary source of Robusta beans, typically used in blends and instant coffee. However, Vietnamese farmers grappled with the region's worst drought in nearly a decade.
In an interview with the BBC, Will Frith, Coffee Consultant and Founder of Building Coffee, noted that climate change has adversely affected the growth of coffee plants, leading to reduced bean yields. In response, Vietnamese farmers shifted their focus to the durian, a highly profitable but notoriously smelly fruit.
Despite its pungent odor, which has led to bans on public transportation in Thailand, Japan, Singapore, and Hong Kong, the durian is gaining popularity in China. Vietnamese farmers are abandoning coffee crops in favor of this lucrative fruit, capitalizing on the growing Chinese market. Vietnam's durian market share in China nearly doubled between 2023 and 2024, with some estimating the crop to be five times more profitable than coffee.
GLOBAL IMPACT
According to Will Frith, Vietnamese growers have a history of overcommitting to new crops in response to market price fluctuations, flooding the market. As they shifted their focus to durian, Robusta coffee exports from Vietnam plummeted by 50% in June compared to the previous year. Stocks were nearly depleted, according to the International Coffee Organization.
Exporters in Colombia, Ethiopia, Peru, and Uganda have increased their production, but their efforts have been insufficient to alleviate the tight market. The surge in demand for Robusta beans coincides with a global scramble for supply, driving prices for both Robusta and Arabica beans to near-record highs on commodity markets.
CONSUMER BURDEN
Will Frith notes that the impact of rising coffee prices will be most pronounced in sectors like instant coffee and supermarket coffee, which are more susceptible to market fluctuations. While some industry experts caution that higher market prices may not necessarily lead to higher retail prices, Felipe Barretto Croce, CEO of FAFCoffees in Brazil, acknowledges that consumers are experiencing the pinch. However, he attributes this primarily to general inflationary pressures, such as increased rent and labor costs, rather than solely to the rising cost of coffee beans. According to consultancy Allegra Strategies, coffee beans contribute less than 10% to the final price of a cup of coffee, suggesting that high-quality coffee may offer better value compared to lower-quality options.
ROAD AHEAD
The upcoming spring crop in Brazil, which accounts for one-third of global coffee production, is crucial to the coffee market. If rain arrives early, it could promote healthy crops and stabilize prices. However, if rain is delayed until October, yield predictions for next year may decrease and could prolong market stress.
In the long term, climate change poses a significant threat to the coffee industry. A 2022 study by PLOS ONE forecasts that even with drastic reductions in greenhouse gas emissions, areas suitable for coffee cultivation could shrink by 50% by 2050. To address this challenge, some advocate for a "green premium," a small tax on coffee that would be allocated to farmers for investment in regenerative agricultural practices to help sustain coffee farming.
To conclude, the rising cost of coffee is a stark reminder of the interconnectedness of global markets and the vulnerability of agricultural commodities to various factors. By understanding the underlying causes and taking proactive steps, the coffee industry can work towards a more sustainable and resilient future.
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