Inflation is coming for your cup of coffee next
The blame for the coffee spike falls in large part on severe drought and unusual frost conditions in Brazil, the world’s largest supplier of coffee beans.
This extreme weather has threatened coffee supply and set off alarm bells in financial markets.
“It created a panic in the market,” said Carlos Mera, head of agricultural commodities research at Rabobank.
“The weather has been atrocious for coffee, especially in Brazil,” said Mera.
At the same time, analysts pointed to the ongoing supply chain turmoil that is causing issues around the world, including the lack of shipping containers.
Covid hasn’t dented demand
Demand, on the other hand, has remained robust despite the changes set off by the pandemic. People are still drinking plenty coffee, though consumption shifted during Covid-19 from offices and coffee shops to at-home.
“We were all very afraid. But demand is very steady, surprisingly enough,” said Jorge Cuevas, chief coffee officer at Sustainable Harvest Coffee Importers.
The National Coffee Association, the industry’s trade group, also said demand didn’t get dented by Covid.
In a statement to CNN, the trade group blamed rising coffee prices on shifts in supply.
“For many years, the world grew more coffee than we drank, but the US Department of Agriculture forecasts that this year we’ll consume more coffee than farmers grow,” the National Coffee Association said. “We don’t expect current conditions to change coffee’s status as America’s favorite beverage.”
‘Imminent’ price hikes for coffee drinkers
Retail coffee prices are on the rise, but they have not increased as dramatically as many other items.
The bad news is that if prices stay high, they will eventually translate to higher prices for coffee drinkers.
“It is imminent,” said Cuevas.
“But we are taking price and we will continue to take price in an inflationary environment,” Starbucks CEO Kevin Johnson told analysts during a conference call.
The industry is also facing the same inflationary pressures hitting other businesses, including higher wages and elevated transportation and energy costs.
“It is absolutely inevitable that the costs will have to be passed on to consumers,” Ceuvas said.