LONDON: The most devastating frost in decades in top coffee producer Brazil and record freight costs sparked by COVID-19 causing massive shipping logjams are expected to push retail prices to multi-year highs in the coming weeks.
A hike in coffee prices will further raise the cost of a basket of shopping following increases for other items such as bread, vegetable oils and sugar. The United Nations food agency’s index of world food prices for July showed a year-on-year rise of 31% at a time when many consumers are struggling financially due to the pandemic.
The worst cold snap in Brazil since 1994 sent the price of green coffee beans to the highest level in almost seven years and is expected to pass through to consumers when they purchase roasted beans or ground coffee in supermarkets.
Arabica coffee on the ICE Futures US exchange has doubled in price over the last 12 months with crops in Brazil already wilting after the worst dry spell in 91 years.
The extent of the damage is still being assessed but in areas where coffee trees have not survived it may take up to seven years for production to fully recover.
Shipping disruptions, caused partly by a surge in demand for consumer goods and not enough ships as people stayed home due to the global coronavirus pandemic, has also led to a sharp rise in the cost of transporting beans to major consuming countries in North America and Europe.
Traders believe while consumers will soon have to pay more to purchase coffee from supermarkets, the cost of a latte or Americano at high street coffee chains may not follow suit in the short term.
“Roast and ground (coffee in supermarkets) has only coffee and a bit of packaging. Your coffee at Starbucks might not go up (as much) cause you pay more for the shop, the wifi, the experience,” he added.
Data issued by the US Bureau of Labour Statistics show average ground coffee prices rose to a peak of $4.75 per lb in April, up 8.1% from a year earlier and the highest level since July 2015, as drought took an initial toll on Brazil’s crops.
The rise in arabica coffee prices on the ICE Futures US exchange accelerated rapidly, however, after the recent frost and retail prices appear certain to increase in response.
In Brazil, the world’s number two consuming nation after the United States, roast and ground coffee prices increased 3.4% in June, according to statistics office IBGE.
They are set to rise further. After the July frosts, Brazil’s coffee industry group Abic told roasters to analyse their costs and adjust prices accordingly, to preserve the sustainability of their businesses.