World Coffee Consumption Expected to Exceed Consumption by Five Million Bags in 2012 Causing Severe Price Spike
The premium gourmet coffee market is growing while the production of this high quality coffee is not. The logical conclusion is that there will eventually be a shortage of specialty coffee. Ergo the price will go up.
Coffee industry experts say that this will occur in the not too distant future though they disagree on how severe the price spike will be for specialty coffee.
Nevertheless, the basic free market laws of supply and demand dictate that soon there will not be enough supply for the demand and this will affect everyone from coffee consumers to roasters, green coffee bean buyers, businesses selling coffee and even baristas.
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The general expectation among coffee industry experts is that the price of specialty coffee may double or even triple. This will lead to a dilemma among major coffee roasters who will have to decide whether to pay these higher prices or to switch to lower quality commodity coffees.
The looming higher prices for specialty coffee will also have an effect on the prices paid at your local coffee shop for a latte or cappuccino. Coffee shops too will have to make decisions about whether to significantly raise prices or instead to buy cheaper coffee.
Conversely, from the coffee production side, there are debates about what is the best way to increase the production of specialty coffee. Is the best way to do this by improving the quality of coffee currently growing on plantations, or instead to begin planting coffee in new areas.
Some say that the shortage will be felt not just in the specialty coffee market but also among lower grade commodity coffees. Some credible industry experts have said that total worldwide production of coffee will be outstripped by consumption by an estimated five million bags in 2012, resulting in a severe price spike for all coffee.
The issue is somewhat complicated by the fact that commodity coffee prices are often subjected to price swings based purely on speculation and specialty coffee prices often fluctuate based solely upon the commodity price swings.
Some coffee industry experts that in the future the specialty coffee prices will hinge less on these speculative price swings and more on fundamental factors such as costs of production and actual quality determinations baed upon coffee cupping scores and other evaluative measures. This already occurs to a large degree in the specialty coffee market but it may occur on a much larger scale in the future.
Some of the largest coffee producers such as Columbia have traditionally provided incentives to farmers to grow lower quality coffee plant varietals that are disease resistant and produce high yields and are harvested mechanically rather than the hand-picking that ensures only ripe coffee cherry are picked to ensure high quality coffee beans.
These incentives have made it hard for growers to rationalize the increased costs involved in producing high quality specialty coffees. Coffee industry experts generally agree that coffee production will not increase significantly in the next two years.
Complicating the issue is the fact that indeed many producers are marketing coffees as specialty or high quality coffee yet the standards are low and the coffee would not be considered to be a premium coffee by any respected coffee cupper (professional coffee taster).
The supply chain of coffee may need to be more closely watched in the future in order to ensure high quality, and the sophisticated consumer may demand higher standards possibly including assurances about the coffee such as a guarantee that only the ripe coffee cherry were hand picked to produce the coffee.
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However some coffee insiders predict that coffee suppliers will lower their standards in terms of what may be considered as a “speciality coffee.” This has led to concerns about maintaining the integrity of the specialty coffee market. An alternative view is that the coffee price spike that many are predicting will actually lead to an increase in supply, another basic tenet of free market supply and demand economics.
When specialty coffee importers and roasters begin to anticipate an imminent scarcity of specialty coffee there may be a significant increase in investment to improve the quality of coffee on some existing plantations.
Coffee in general has historically demonstrated an “inelastic” quality which means that even a severe increase in price will still only result in a moderate decrease in demand.
For more information see All About Coffee.