Coffee is becoming a luxury, and there’s no escaping it

By Erika Tulfo, CNN

(CNN) — Tucked away in the mountainous highlands of Chiapas in southern Mexico, around 150 coffee farmers on the Edelmann family farm work with their hands for hours on end. The shade of tree canopies is the only barrier between their bodies and the summer sun.

Tomas Edelmann, a fourth-generation coffee farmer and vice president of the international Coffee Farmer’s Co-op, told CNN that while their shade-grown method of producing coffee is more drought-resistant, a longer-than-normal dry season that he blames on climate change still caused crops to suffer this year.

“If you don’t have the right weather, you will not have the right production,” he said. “And with low yields, obviously your cost of production goes up.”

Those higher production costs could lead to coffee price inflation: Coffee lovers may have to shell out more in the future as prices surge. Roasters and coffee experts are also signaling that prices could remain higher for longer, as factors like climate change reduce the coffee global supply.

The International Coffee Organization (ICO), an intergovernmental organization established in 1963 with the support of the United Nations, reported last month that the ICO Composite Indicator Price – a key reference price for the global coffee industry – hit a 13-year high, averaging 226.83 cents, or around $2.27 per pound.

“Coffee’s a very complicated commodity. Part of that reason is because you have multiple supply and demand frameworks impacting the price,” said Ryan Delany, founder and chief analyst at Coffee Trading Academy.

And, he said, there’s just not enough coffee in the world.

Climate change drives prices up

“Coffee is more sensitive to changes in temperature than many other crops,” said Michael Hoffmann, professor emeritus at Cornell University’s College of Agriculture and Life Sciences. And recent climate-related events aren’t helping production.

“Climate change is getting worse. Just imagine more severe weather, rising temperatures, and the direct effect to the people working in the coffee plantations,” he said. “Probably for (consumers), the coffee’s just going to get more expensive.”

Coffee insiders often say that when Brazil sneezes, the rest of the world catches a cold – a reference to its status as the number one producer of Arabica, the premium coffee variety that makes up over 60% of all coffee production.

So, when an unusually strong frost decimated its crops in the summer of 2021, the coffee market was hit with an immediate supply shock as US coffee futures, which track Arabica, hit a high of 260 cents per pound. According to Delany, coffee prices are typically between 100 to 140 cents, but have stayed consistently above that range for the past three years.

But the frost’s impact didn’t end at Arabica.

Delany explained that it’s not uncommon to see buyers switch between Arabica and Robusta, a cheaper type of bean used in instant coffee. And with more people pouring into the market for Robusta, that affects the price, too.

“Generally speaking, when Arabica goes up, Robusta goes up as well,” he said.

Still, Delany noted that it’s rare for Robusta demand to outpace Arabica – but thanks to continued elevated Arabica prices, that’s exactly what happened.

As its name implies, Robusta is a much hardier plant than its counterpart, but despite its ability to withstand longer dry spells, recent yields have still suffered from droughts and higher-than-normal temperatures.

In particular, the US Department of Agriculture reported in May that Vietnam, Robusta’s top producer, suffered several years of adverse weather that’s seen export levels drop by 7%. It noted in its 2023 annual report that it expected such weather conditions to become more frequent “due to climate change.”

Neil Rosser, director and commodity consultant specializing in coffee at Bison Luxley Commodities, noted that while Arabica is typically the dominant force in coffee, this year it’s rising Robusta costs that are driving the overall price of coffee up.

“There’s a drum beat in the background that is climate change, and that is causing problems,” he said. “That will affect the stability of the market and that’s not going to go away for a long time.”

What does this mean for your coffee?

Coffee retailers have already been feeling the pressure.

Italian coffee maker Lavazza told CNN in a statement it raised prices this year for a variety of reasons. “A combination of poor harvests, climate change, the war in Ukraine, conflict in the Red Sea, the intervention of speculators and the strong dollar has created a ‘perfect storm’ for the coffee industry that has seen prices spiral since the pandemic,” the company said.

And the company’s president, Giuseppe Lavazza, said in comments reported by the Financial Times in June that he anticipated the price of supermarket coffee in the UK to rise by an additional 10 percent.

Meanwhile, Nescafe owner Nestle attributed a drop in its 2023 profit margin to an increase in Robusta costs. The company reported in June that it was faced with a more challenging pricing environment as budget-conscious consumers pulled away after previous price hikes. Nestle declined to comment for this story.

Starbucks lovers, on the other hand, probably won’t see a higher price tag on their drinks just yet, as the company buys coffee far in advance, using what’s known as fixed-price contracts where it agrees to buy coffee at a certain price over a long period of time, and employs hedging strategies to lock in prices, protecting customers from market swings.

“If there’s a spike in coffee prices, companies like Starbucks can just sit out the spike for a while because they have so much fixed-price contracts on hand and so much coffee already on hand,” said Sharon Zackfia, head of consumer equity research and restaurants analyst at William Blair.

But even then, Rosser says that if costs continue to stay high, paying for a pricier cup of joe is inevitable.

“Roasters like to keep the retail price stable. They don’t like upsetting their consumers. But sometimes it’s impossible if the price rises too much,” he said.

Despite the price hikes, there’s one thing experts can be sure of: Demand for coffee isn’t going away anytime soon.

“I would argue that there are no alternatives to coffee. If you have your coffee every morning, then you have your coffee every morning,” Delany said. “Whether prices for that coffee are $3 or $1, you’re not changing the number of coffees you’re drinking in the morning based on that price.”

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