Why the price of your morning coffee could get more expensive

Consumers can likely expect to pay more for coffee if growers set a minimum price on beans to help struggling farmers get paid for their work.

Dozens of coffee growers from Brazil to Colombia want to set a limit on how low buyers can get coffee beans for to ensure farmers get paid amid the lowest global market price on coffee in a decade, The Wall Street Journal reported. And some industry experts estimate if a substantial floor price does hit, consumers could potentially be paying up to $2 more for retail bags of coffee.

“According to the general consensus we will most likely see a $1 to $2 increase,” Sal Santuccio, director of coffee at Pan American Coffee Co., a Hoboken, N.J.-based coffee manufacturer for national retail chains told MarketWatch.

Coffee growers are taking inspiration from cocoa buyers and are considering setting a minimum price on cocoa, the main ingredient in chocolate, according to WSJ.

‘The problems that coffee farmers face when it comes to maintaining profitable operations are complex and will not be solved simply by consumers paying more for their coffee.’

—Yannis Apostolopoulos, the executive director of the Specialty Coffee Association

The conversation surrounding coffee growers not being able to afford their own production because of historically low prices has been an ongoing one. A coffee farm must charge roughly $2.50 per bag in order to be profitable, according to 2017 data from The Speciality Coffee Association. Coffee buyers need to be willing to work better with coffee producers in order for conditions to improve, industry insiders say.

“The problems that coffee farmers face when it comes to maintaining profitable operations are complex and will not be solved simply by consumers paying more for their coffee,” Yannis Apostolopoulos, the executive director of the Specialty Coffee Association told MarketWatch in an email from the World Coffee Producers Forum Wednesday in Brazil.

“A systemic change is needed in the relationship between coffee producers and coffee buyers and, we at the Specialty Coffee Association, are exploring solutions to make this happen,” he said.

Coffee experts don’t expect consumers to be paying more for their coffee anytime soon, however, and say it could take six months to a year to see a significant price change if a minimum price on beans is locked in. ­­­­

A pound of wholesale arabica coffee beans, the type of bean used by big coffee chains including Starbucks SBUX, +0.37% has been hovering around $1 since March, the lowest price point in more than a decade. One pound of ground coffee will make about 48 cups.

While wholesale coffee prices have been dropping, coffee prices for consumers have actually been going up.

But experts say consumers will still be paying the same price for a cup of coffee or latte in stores and cafes. While wholesale coffee prices have been dropping, coffee prices for consumers have actually been going up.

The average price consumers are paying for a cup of coffee across all restaurant categories (quick and full service) is $2.99, up 8 cents from last year, according to market research firm NPD Group. At gourmet coffee shops, it’s $4.24, an 8 cent hike from last year. Some of the fanciest coffee drinks, like one from Eleven Madison Park in New York City that’s made with a rare coffee variety called Wush Wush, sourced from a farm in Colombia, can cost up to $24 per cup.

At Starbucks, the country’s most well-known coffee chain, customers pay between $1.95 and $2.15 for a tall (12-ounce) brewed coffee, depending on the location — a 10- to 20-cent price hike was implemented in 2018.

There are many varieties of arabica grown around the world and they taste differently from each other.

—Brice Jones, co-founder of Freehold, a coffee shop and gastropub in Brooklyn

What makes arabica coffee beans different from other kinds

At Freehold, a coffee shop, bar and gastropub in Williamsburg, Brooklyn, a bag of its proprietary Stumptown blend sourced from Africa and Costa Rica sells for much as $10 per pound, co-founder Brice Jones told MarketWatch. Customers pay $2.50 for a regular cup of coffee, and $4.25 for a latte.

“You don’t know the flavor you’re getting from arabica beans,” he said. “We prefer to know where it comes from and that producers are using good farming and laboring practices,” Jones said.

‘In New York City, when you charge $10 for a vodka soda nobody blinks an eye, but when you charge $6 for a latte people lose their mind.’

Arabica beans typically have a sweeter, fruit-forward taste compared to robusta beans, which taste bitter with grain-like, earthy notes. What’s more, there are many varieties of arabica coffee beans grown around the world that taste differently depending on where they’re grown.

A latte, Jones says, costs him nearly $1 to make, estimating that it’s 35 cents alone for the milk; another 35 cents for the coffee; 10 cents for the compostable cup; 10 cents for whatever gets wasted in the process and 10 cents for labor.

“In New York City, when you charge $10 for a vodka soda nobody blinks an eye, but when you charge $6 for a latte people lose their mind,” Jones added.

Why coffee is still expensive to buy in cafes and stores

Santuccio says his company has been paying $1.34 for a pound of unroasted and unprocessed arabica coffee.

Two types of coffee are widely sold commercially: arabica, the highest quality and most affected by climate change, and robusta, which can grow in warmer conditions, but is less sought-after.

Low coffee prices have a negative impact on coffee farmers, who are unable to cover their expenses and make a profit.

And just as you can buy a cheap or expensive variety of wine like pinot noir for example, there are different varieties of arabica coffee that cost more depending on where and how they’re grown.

Pan American Coffee Co. roasts and packages coffee beans that are sold in bags in grocery stores like Walmart WMT, +0.57%  and Target TGT, +1.93% Coffee sells between around $4.99 and $8 in stores.

“Just because the price of coffee is down, it doesn’t necessarily mean the price of your retail bag will go down,” Santuccio told MarketWatch. “You still need to cover costs of labor, roasting, processing and packaging.”

Santuccio says it costs roughly $2.13 to make a bag of ground coffee for retailers, not including the cost a company will pay to ship and store its coffee.

Coffee comes a long way from plantation to the kitchen

Nearly 40% of coffee is grown in Brazil, 20% is grown in Vietnam, followed by Colombia, Indonesia and Honduras. But over-production in Brazil, coupled with currency devaluation — the Brazilian real is 60% less valuable than it was in 2011 compared with the U.S. dollar — has resulted in cheap premium coffee prices.

Low coffee prices have a negative impact on coffee farmers, who are unable to cover their expenses and make a profit, often leading to poor working conditions for coffee pickers and their families.

Last year, Starbucks committed $20 million for emergency relief to farmers impacted by low coffee prices in Central America. Noelle Novoa, a spokeswoman for Starbucks, declined to disclose what Starbucks pays for a pound of coffee beans wholesale.

But she said there are many costs associated with sourcing and roasting coffee, quality assurance, plus research and development into store design, products and packaging, and transport, distribution and labor.

“At Starbucks we buy only highest-quality, arabica green coffee,” Novoa said. Approximately 99% of Starbucks coffee is ethically sourced according to the standards we set with Conservation International.

“The other 1% comes from new origins we’re exploring,” she added. “We pay a premium for that.’

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