Coffee prices: Climate conditions, tariffs could push cost of beans higher this year

Key Concepts:

• Global coffee consumption, coffee prices, tariffs, trade war, coffee bean suppliers (Brazil, Vietnam), coffee production, green coffee exports, US dollar impact, fillers in coffee, coffee blends, single-origin coffee.

1. Global Coffee Consumption and Price Increase:

• Global coffee consumption is projected to reach historical highs this October, according to a US Department of Agriculture report.
• Coffee prices rose 38.8% in 2024 and are expected to increase further by the end of the year.
• This price increase affects consumers whether they buy coffee from cafes, coffee shops, or make it at home.

2. Impact of Tariffs:

• US President Donald Trump's tariffs are partially responsible for the rising coffee prices.
• A 10% duty was imposed on most countries, including major coffee bean suppliers like Brazil and Vietnam.
• Levies are set to rise to 46% in July, creating uncertainty for roasters who cannot grow their own beans.

3. Coffee Bean Supply and Production Issues:

• Coffee plantations thrive near the equator and at high altitudes.
• Vietnam and Brazil are the two main coffee bean suppliers, accounting for about half of the world's supply.
• Prolonged dry weather in Vietnam caused a 20% drop in coffee production last year.
• Brazil was hit by severe droughts, leading one bank to estimate a 6.4% decrease in production.
• Global green coffee exports were down about 14% year-on-year in February.
• Lower supply led to a record price for raw coffee at about $9.70 per kilogram.

4. Cost Components Beyond Coffee Beans:

• The price of coffee beans is not the only factor; the cost of fertilizer, milk, packaging, wages, and rent has also increased.

5. Trade War and US Dollar Impact:

• The trade war is weakening the US dollar, which directly impacts the coffee market.
• Coffee is traded in US dollars, and when the US dollar drops, exporting countries are less willing to sell.

6. Use of Fillers in Coffee:

• Some suppliers are using fillers such as corn, wheat, and barley in ground coffee mixtures.
• The average consumer may not be able to distinguish these mixtures from real coffee.
• These mixtures are often marketed as coffee powder mixtures.
• Mr. Lim notes that while his roaster doesn't use fillers, some coffee shops are already using them, with estimates suggesting that some coffee may contain 30% to 40% fillers.

7. Strategies for Cafes to Manage Rising Costs:

• Cafes that prioritize quality are looking for alternatives to absorbing the rising costs entirely.
• One strategy is to use coffee blends instead of single-origin coffees.
• Example: Echo cafe uses a blend where 50% of their house blend comes from Brazilian beans and 50% from Papua New Guinea.
• This approach keeps costs down and makes the supply chain more resilient.
• If costs continue to rise, cafes like Echo may be forced to raise prices.

8. Notable Quotes:

• Mr. Lim: "...if you go outside the coffee shops now right if you drink a cup of coffee or is probably about 30% to 40% fers right now..."
• "...absorbing it 100% I think is definitely not the way to go..."

9. Technical Terms:

• Tariffs: Taxes imposed on imported goods.
• Green Coffee Exports: Exports of unroasted coffee beans.
• Single-Origin Coffee: Coffee beans sourced from a single farm, region, or cooperative.
• Coffee Blend: A mixture of coffee beans from different origins.

10. Synthesis/Conclusion:

Global coffee consumption is increasing, but rising prices due to tariffs, production issues in key supplier countries, and a weakening US dollar are impacting the coffee market. Some suppliers are resorting to using fillers in coffee mixtures, while cafes are exploring strategies like using coffee blends to manage costs. If these costs continue to rise, consumers may ultimately face higher prices for their daily coffee.