Commodities pricing- not the typical coffee shop chatter. Or at least it wasn’t. We have found ourselves regularly checking the Financial Times and the Bloomberg.com site. Over the past six months or so we have seen coffee prices steadily rising. The commodities price is not only at a 14-year high it is also the longest sustained high price since the mid- 1970’s.
Why is this happening? Most analysts agree that it is a combination of factors including: increased demand by high-end coffee consumers (like you all), decreased supply expectations (Brasil, the world largest producer is expected to have a 20% drop in production in 2011, wet and warm weather in Colombia is expected to effect their yields, and harvests in Kenya are looking bad too), and speculation on the commodities markets.
Is this a temporary phenomena? Honestly, we don’t know. One coffee importer we trust is predicting a doubling of current prices before it stabilizes at a new high reality. This importer sees the trends of urbanization, climate change, increased transportation costs (high fuel prices) and increasing numbers of high end consumers straining both supply and demand sides of the market. Others are saying that prices will ease in about 3 years, with farmers, with high prices as an incentive, increasing their plant stocks and with it production.
While the coffee we buy is a higher grade than the commodity grade coffee traded on the market, specialty and above grade coffee is rising with the tide. One reason for this is that many of the same supply and demand pressures are playing on the higher grade coffees as well. Another factor is that with the expectation of prices rising even higher, people who grow/ process/ distribute coffee are holding stock, waiting for prices to rise further (decreasing supply available on the market) and roasters, making the same bet, want to purchase as much as reasonably possible before the prices rise even further.
Coffee prices effect companies like Victrola a great deal. Unlike many items that we buy in the United States (unlike in the developing world), from frozen food to breakfast cereal, where the price of the actual commodity is but a small percentage of the overall price you pay for the good (once you take out marketing, packaging etc.), the price you pay at an artisan roastery for a bag of coffee is largely reflective of the green bean cost plus the cost of roasting the coffee. Price increase effect artisan producers, not just in coffee, but bakers etc., more than they do companies that are selling highly produced, packaged, or marketed goods.
Whether this is indeed a new reality or a whether it is a relatively short-term phenomena, at Victrola and places like us around the world in the near future we will have much higher costs. The reality for everyone who enjoys great coffee will be that their daily ritual or special treat is going to cost a little more.