Coffee Prices:: Why the increase?

La Candelilla estate in Terrazu, Costa Rica. We bought a micro lot of coffee from this producer in 2010.

Coffee prices have risen considerably over the last year, and this trend has not escaped the attention of many coffee drinkers. Many roasters/retailers have been raising prices across the board and it may feel a little like an attempt to squeeze the consumer. However, there are very real cost issues that are directly related to the product at the heart of these businesses: green Arabic coffee. The explanation is almost disappointingly simple: basic green, specialty grade coffee costs almost twice as much today as it did a year ago. This increase in price is a direct result of the nature of coffee as an agricultural product and how it is traded globally.

Green coffee prices, like other products such as gold, oil and pork bellies, are based on the Commodities Market which fluctuates on a daily, even hourly basis depending on a variety of factors. Lately, this has created a “perfect storm” of sorts to drive up the prices of many commodities. Recently, gold has attracted the most attention with prices at record highs in over 30 years. And while largely outside the media spotlight, coffee prices have also increased sharply over the last year.  The main factors involved here are: 1. a weak U.S. Dollar 2. speculation on the part of investors 3. internal factors within coffee producing nations.

While investor speculation has born the brunt of the blame for price increases it is worthwhile to consider the two other factors as well. A shaky and weakened US dollar has chased investors to other markets that seem more “stable,” and a weak dollar means that each physical product brought to the US from another country requires more dollars. Thus the severe uptick in gold and oil prices.

Circumstances within coffee producing nations themselves also have a profound effect on coffee prices. Most recently a frost in the Minas Gerias region of Brazil along with reports of unseasonable rains in Colombia and Indonesia all negatively affect  the physical amount of coffee available to the market within the next crop year.

While this might all sound like bad news for both producers and consumers, it is helpful to remember that markets are dynamic and price swings will eventually moderate (and sometimes “bubbles will burst” by their very nature). Historically, coffee is a boom and bust crop. Arabica coffee plants (the coffee species most likely used to brew your morning cup) take roughly 5 years to produce a crop after being planted. In times of high coffee prices it is likely more trees will be planted in hopes of “cashing in,” and sometimes coffee producers overshoot demand, leading to a few years of lower prices in the future.

Our approach to ensuring value and quality for our customers is to look for smaller, more traceable lots of coffee that are not a generic commodity. There is not much we can do about the macro-economic forces at work, but we can find high quality coffee and roast it carefully in small batches. Many of our coffees come from small, family owned farms that are growing coffee the way they have for generations; picking the coffee cherries by hand instead of with a machine to ensure that only ripe fruit is picked, then painstakingly sorting each coffee cherry by hand to separate the good fruit from the bad.

Our wholesale prices have more than doubled in many cases, but we’ve kept our prices as low as possible and thus have largely absorbed the cost increases. Our typical price for a 12 ounce bag of coffee in 2008 (before the commodity price spike) was $10.95. Most of our coffees are now priced at $12 for a 12 ounce bag, so that’s a 9% increase. Our loyal customers have continued to purchase coffee from us (many on a recurring basis), and for that we are very grateful.