Coffee prices soar to 13-year high amid climate change
The International Coffee Organization (ICO) has reported a significant increase in the global coffee industry's key reference price, the ICO Composite Indicator Price. Last month, it reached a 13-year high, averaging approximately $2.27 (₹188.41) per pound. This surge in prices is primarily attributed to escalating production costs driven by climate change and market forces.
Climate change impacts coffee production, increases costs
Tomas Edelmann, vice president of the International Coffee Farmer's Co-op and a fourth-generation coffee farmer, highlighted the role of climate change in coffee production. He explained that extended dry seasons have led to crop suffering. Edelmann pointed out that unfavorable weather conditions lead to reduced production, which in turn increases the cost of production due to lower yields.
Coffee's sensitivity to temperature affects global supply
Ryan Delany, founder and chief analyst at Coffee Trading Academy, emphasized that coffee is more susceptible to temperature changes than many other crops. This sensitivity has resulted in a global shortage of coffee due to various supply and demand factors influencing the price. Delany noted that the global coffee market is being significantly impacted by a shortage of coffee supply.
Brazil's frost and rising coffee futures
Brazil, the leading producer of Arabica coffee, experienced a severe frost in 2021 that devastated its crops. This event caused an immediate supply shock in the coffee market. As a result, US coffee futures tracking Arabica reached a high of $2.60 (₹215.80) per pound. Delany noted that while coffee prices typically range between $1 to $1.4 (₹83 to ₹116.2), they have consistently remained above this range for the past three years.
Robusta coffee affected by climate change and market shifts
The frost that hit Brazil's Arabica crops also affected Robusta, a less expensive bean used in instant coffee. Delany explained that it's not unusual for buyers to switch between Arabica and Robusta when prices rise. He explained that, generally, an increase in the price of Arabica coffee typically leads to an increase in the price of Robusta coffee as well. Despite being more resilient than Arabica, Robusta yields have been impacted by droughts and higher-than-normal temperatures.
Adverse weather reduces robusta export levels
The US Department of Agriculture reported that Vietnam, the top producer of Robusta coffee, has seen a reduction in export levels by 7% due to several years of unfavorable weather. Neil Rosser, director and commodity consultant specializing in coffee at Bison Luxley Commodities, noted that these rising Robusta costs are contributing to the overall increase in coffee prices. Rosser indicated that climate change is an ongoing issue that is causing various problems.
Coffee retailers feel the pressure of rising costs
Coffee retailers are already grappling with the rising costs. Italian coffee maker Lavazza has increased its prices this year due to a combination of factors including poor harvests, climate change, conflict in the Red Sea, the war in Ukraine, speculators' intervention, and a strong dollar. Similarly, Nestle, owner of Nescafe, has attributed a decrease in its 2023 profit margin to an increase in Robusta costs.
