Your coffee is gonna get more expensive

We’re truly sorry to be the bearer of bad news, on a Monday no less, but we figured you’d prefer to find out via your favourite newsletter rather than on your next café visit:

Prices for robusta coffee beans (used in instant) are now hovering near half-century highs, while the fancier arabica variety (used for your espresso) just hit a 13-year high.

So what’s going on? With World Coffee Day just around the corner (October 1), let’s take a peek at this half a trillion dollar sector, and what’s driving the current price spike.

First, we’re drinking more coffee, and one driver has been tea-mad China, where coffee demand has doubled in a decade. But it’s still only the world’s 7th market, with folks there only drinking an average of 13 cups a year (there are Intrigue team members who drink that much before 8am). By way of comparison, the US average is 380 cups per year.

Second, supply is under pressure for all kinds of reasons, but let’s look at the two countries that together supply half the world’s coffee: Brazil and Vietnam.

Brazil has had four consecutive years of tough harvests, starting with a brutal frost in 2021 and then the country’s worst drought in decades. That’s sent prices for Brazil’s arabica beans soaring, with buyers shifting to Vietnam’s cheaper robusta instead.

But… Vietnam has faced its own drought, driving its lowest harvest in four years, while last week’s Typhoon Yagi might’ve hit yields too. Interestingly, many local coffee farmers are also now pivoting to grow durian fruit to meet soaring demand in neighbouring China (fun fact: durian is so stinky, it’s widely banned on public transport across the region).

Third, the EU’s sweeping new deforestation rules enter force on December 30. That means coffee importers will have to prove they’re not sourcing their beans from farms that’ve contributed to deforestation. It’s a worthy cause, though compliance costs (using satellite imagery and historical data) will be prohibitive for many smaller farmers, meaning the EU (which buys 40% of the world’s coffee) will be off-limits for many. So before that happens, some EU buyers are now stockpiling beans and driving up prices further.

Fourth, even once you grow the coffee and prove it didn’t cause deforestation, getting it to market is now tricky. We’ve explored previously how Houthi attacks on commercial shipping have caused cargo and container rates to spike just about everywhere.

And then finally, all the above pricing signals are attracting speculators, who are driving prices even higher, in turn attracting even more speculators, and in turn encouraging farmers to hold onto their stockpiles longer to sell later at even higher prices.

So it’s all a bit of a perfect storm. But… does it matter?

• Higher prices have been a bonus for producers (many of them low-income), who are staying profitable even as yields drop. That’s been good for farmers from Uganda to Indonesia, who are now hitting – or on track to hit – new records.
• Big chains use fixed-price contracts, but end consumers will eventually feel the pinch – as Intriguer and international coffee consultant Stuart Ritson told us, “already we see many roasters opting for slightly lower qualities where possible to save money – so either your latte will be more bitter or more pricey (or possibly both).“
• The multinationals are getting nervous too, with Nestle, Lavazza, Illy, and beyond all warning of tighter margins or even losses.
• And G7 leaders even highlighted coffee as a key commodity earlier this year, partly reflecting nervousness around how price spikes in yet another daily staple might fuel more voter discontent.

So that pumpkin spice latte of yours is, dear Intriguer, also spiced with some serious global volatility.

INTRIGUE’S TAKE

Researchers out of Zurich say as much as half the world’s coffee plantations could become unusable by 2050 – that’s because coffee (particularly arabica) needs finely calibrated levels of heat and water to thrive, and climate change is scrambling both.

So against that backdrop it’ll be interesting to see the adaptive role science and tech can play. One opportunity is in selective breeding, which has massively increased the durability and yield of other crops, but it’s still a relatively new journey for coffee.

Another development is in the realm of cellular agriculture: Finnish researchers just produced real coffee using a bioreactor rather than a farm, but ditto, it’s still a way off.

So for now, there might be more turbulence ahead for coffee.

Also worth noting:

• Vietnam’s harvest season is due next month, and the seasonal rains in Brazil are due to have started in September, so there’s some wait-and-see happening.
• A shout-out to Intriguer and international coffee consultant Stuart Ritson for sharing some of his reflections with us today.