Coffee Prices Rise in 2011 Due to Increased Demand, Reduced Coffee Supply

by dan on January 28, 2011

UNITED STATES (Jan. 28, 2011) - In 2010 coffee futures prices increased more than fifty percent and the price of coffee rose considerably.

At the same time the world’s storehouses of green coffee beans (unroasted coffee beans) decreased considerably and the higher cost of coffee worked its way through the long chain of custody from soil to sip and began to be seen on American supermarket shelves and in coffee houses and cafes across the country as well as worldwide.

For example, Starbucks raised its prices in China as well as the United States. A few days ago Starbucks announced that it has purchased all of the coffee it needs for 2011 and will not be raising prices during this year. However McDonalds, one of Starbuck’s rivals, did announce price increases due to the increased costs not just of coffee but also other commodities such as beef and bread as well as milk.

Esteemed Arabica Coffee Beans In Short Supply

In particularly short supply are the Arabica coffee bean varietals that are used for what many call gourmet coffee, premium coffee or specialty coffee. These are the beans used by Starbucks, Peet’s and other major coffee roasters and retailers, many of which serve not only brewed coffee but also espresso coffee drinks such as lattes, cappuccinos and mochas.

Around the world emerging markets with large numbers of young professionals have significantly increased their demand for premium coffee. It seems that all around the world there are legions of gourmet coffee lovers joining the coffee drinking ranks each day.

In Brazil, India and China this trend is particularly notable, placing a large new demand on premium coffee beans. Starbucks controls about seventy percent of China’s market share in the coffee industry and from 2004 to 2009 tripled sales in the region.

As a result of increased domestic consumption Brazil will be keeping much more of its own coffee bean production, and this will likely be true in India as well (known for its famous India Monsooned Malabar Coffee and India Mysore Coffee). Indonesia recently saw a nearly twelve percent drop in coffee exports.

Demand for Coffee Inelastic in Regard to Higher Coffee Prices

Even though the last few years have seen a significant downturn in the economy of the United States and Europe the people of those regions showed no signs of slowing their demand for fine coffee.

Since the already strong demand for gourmet coffee in these major regions has been sustained amidst the financial problems, it begs the question about what will happen if their economies begin to significantly rebound as an increased demand for coffee from these regions could put added pressure on world coffee supplies.

This sustained and/or increasing demand shows every sign of continuing despite coffee price increases due to a general worldwide shortage of coffee beans. For the specialty coffee market in particular the demand has shown to be rather inelastic with respect to price increases. In other words will pay more, they just want their cup of coffee.

World Coffee Supplies Plagued By Various Issues

On the supply side there have been various issues affecting coffee harvests worldwide. Columbia and Central American countries have seen inclement weather affect coffee production and a La Nina weather pattern may continue this trend in 2011.

Columbia is now in its second straight year of lower production and higher prices due to lower supplies were announced by the Columbian National Federation of Coffee Growers. Decreased coffee crops have also been reported in Costa Rica and Guatemala.

Brazil also saw coffee crop damage due to rainfall. Meanwhile Brazil is keeping more of their crop due to increased demand for coffee among the country’s people. Brazil’s crop is alternately strong and weak every other year, and 2011 is a weak year for coffee in Brazil which only exacerbates the worldwide coffee shortage.

In Kenya there has been an increased demand for real estate, particularly in western and central Kenya, and this has displaced some coffee farmers and led to the uprooting of many coffee plants. That was at least in part responsible to steep prices increases at the end of 2010 for the premier Kenya AA coffee beans on the Nairobi Coffee Exchange.

While some countries such as Tanzania (which recently had large numbers of coffee plants devastated by drought) are replanting coffee at a rapid rate, coffee plants take at least three to five years to mature and thus relief for world coffee supplies will not come soon enough if demand continues to grow.

Tanzania plans on increasing coffee production from about 70,000 tons annually to 100,000 tons by 2015. The country is known for several top world gourmet coffees including Tanzania Peaberry and Tanzania Kilimanjaro.

Also affecting world coffee crops is the continuing problem of coffee plant diseases and pests which periodically claim large percentages of coffee crops and must be dealt with in each case.

Adding to the worldwide increase in coffee prices is the influx of money into coffee futures on the Intercontinental Exchange. Coffee price speculation is just one more contributing factor in addition to the supply and demand issues.

Coffee and Supply and Demand Disparity Shows No Signs of Easing in 2011 and 2012

Coffee industry experts have predicted that the supply/demand disjunct will continue in 2011 and into 2012 when coffee consumption will exceed production by about five million bags.

Though much uncertainty remains in both the worldwide coffee supply and coffee demand arenas, it seems fairly certain that coffee prices will sustain the significant price increases that occurred in 2010, and may continue to rise in 2011.

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