Analysis: Coffee Prices to Level Out Amid Inflation Setbacks

With inflation remaining stable, many businesses are currently facing challenges.

Some businesses are doing everything possible to absorb the higher operating costs and maintain low prices. Others, however, have been able to pass on increased costs to their customers without much resistance – at least for the time being.

The coffee industry is a prime example of this issue. The commodity benefits from consistent high demand, but it is not immune to the effects of changing consumer preferences and the dreaded post-pandemic supply chain problems. Consider the price increases overseas.

The recent news that coffee prices in the European Union increased by nearly 17% in August made international headlines, as consumers and business owners everywhere face rising costs. In this industry, staying ahead of consumer expectations and maintaining production flexibility can be crucial.

Since late summer, there has been some improvement, thankfully. CNN Business reports that arabica coffee futures have decreased approximately 35 percent since August to $1.59 per pound. Yet, while prices in the U.S. might see a modest decline, factors like labor and distribution costs are still making coffee roasts expensive to produce.

Producing coffee, whether for home brewing or local cafes, is a lengthy and labor-intensive agricultural process. Coffee beans are harvested and processed in a variety of ways around the world, but each involves a number of intricate steps in which timing is crucial.

Numerous economic disruptions have made it more difficult for the industry to export high-quality harvests. Larger coffee companies sometimes secure long-term contracts with suppliers, leaving them more insulated from drastic price changes, but smaller sellers are feeling the brunt.

London-based coffee shop owner Oli Baise has experienced price hikes firsthand.

“According to some of our suppliers, this price increase is the result of droughts. This has caused the cost to grow a bag of coffee (60 Kg) to rise around 33 percent,” Baise told The Food Institute. “Since the U.S. imports the majority of their coffee from Brazil (as does the rest of the world, barring parts of Southeast Asia) we should expect prices to rise in these areas, as well.”

According to Bloomberg, Vietnam, the world’s second-largest coffee producer, is experiencing significant decreases in output of the export throughout this year. Disruptions to global coffee supplies are just one piece of the puzzle affecting prices.

Changes in coffee consumption are also a strong factor. In 2020 – like most things – the morning coffee ritual became a strictly at-home activity amid the Covid-19 pandemic, and consumers shifted their demand to quality coffee they can brew in their kitchen. Units of single-serve coffee brewers saw a spike in demand, but with many remote workers returning to offices or going hybrid in 2022, coffee shops are suddenly back in a big way.

While coffee sellers have the benefit of these two robust markets (at-home brewers and coffee houses) the challenge they face is maintaining supply levels within a changing workforce. Some workers are simply never returning to office life, while some offices are stocked on coffee products as an employee incentive.

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