London. First drought, then frost: freak weather conditions hit the world’s largest coffee producer Brazil hard and caused bean prices to rise dramatically. The price planned for later trade for Arabica coffee, one of the South American country’s most important raw material exports, was just under 3.50 euros per kilo on Friday – and thus at its highest level since 2014. Consumers will therefore have to expect higher prices in the future to calm down.
The price of Arabica coffee has soared 60 percent since January. And the price of Robusta coffee – which is used for instant granules and is mainly grown in Asia – has also seen a price increase of almost 40 percent in the year to date.
“There are several reasons for the astronomical rise in the price of coffee,” says Rabobank analyst Carlos Mera. The main reason is the devastating weather conditions in Brazil, but rising transport costs and political unrest in the third largest production country, Colombia, also play their part.
Brazil suffered an historic drought earlier this year. Last week, frost followed on key plantations in Minas Gerais – an inland southeastern state that is where 70 percent of the country’s arabica beans come from. “The freezing temperatures have led to leaf fall and destroyed the youngest plants,” says Mera. However, these are crucial for future harvests.
Arabica is also so badly affected because the plant has a two-year cycle, in which low-yield production in one year is followed by a bumper harvest in the next. At the same time, global coffee demand picked up again sharply after the effects of the corona pandemic, while café and restaurant operations were partially restricted.
Consumers are currently not aware of any of this, but that can change: The rising prices would only be passed on to consumers slowly, says Mera. “The roasters use the price planned for later trading to hedge against short-term increases,” says the expert. Therefore, it usually takes three to nine months for the effects to be felt in retail.
In addition, the cost of coffee has been particularly low in recent years, as raw materials economist Philippe Chalmin explains. He recalled that a kilo of Arabica cost over five euros in May 2011.
In the end, it was not the consumers but the producers who suffered, says Valeria Rodriguez from the fair trade association Max Havelaar. You would have experienced a very long price crisis. “In the past four or five years, most of them have worked at a loss,” she says. The new crop damage made the situation even worse. AFP / nd