It is estimated that over 62% of Americans drink coffee every day and, surprisingly, the USA is ranked 25th in the world for coffee consumption. It’s a drink that is loved and craved by many and fortunately, coffee has been relatively affordable for all household incomes. So why are coffee prices going up all of a sudden?
In short, one of the main reasons that we are seeing an increase in coffee prices is due to drought and low supplies. One of the largest coffee supplying countries, Brazil, has seen a terrible drought and according to many sources, crop production has been damaged by over 10%.
Unfortunately, this could impact consumers in the coming years. Due to supply and demand, coffee companies are having to fork out more money to keep their inventory of coffee beans. Due to many business models, this could result in a consumer-level price increase in the near future.
At the time of this article, there is still severe weather impacting the crops in Brazil, so the price increase could continue to rise, and we could witness a global shortage of coffee.
The Major Coffee Suppliers in the World
It’s useful to understand who the top suppliers of coffee in the world are. When you understand these locations and the natural devastation that can happen to coffee farms, it’s easier to understand why prices might increase.
The top 5 coffee suppliers in the world are ranked per metric tons of coffee produced per year. These countries are generally located across the coffee belt, where conditions are perfect for growing and harvesting coffee.
The number one spot in the top coffee-producing country is Brazil. With over 3000 metric tons of coffee produced each year, Brazil is the largest coffee supplier. The coffee is in Brazil is regulated by the Brazilian Coffee Institute.
It is estimated that Brazil produces over 40% of the coffee supply in the world. Popular coffee regions in Brazil include Minas Gerais, Bahia, Rondonia, and Espirito Santo. The primary coffee bean grown here is Arabica.
Being the top producer of coffee, you can see how damaged or weathered crops can affect prices and cause shortages around the world.
The second-highest coffee-producing country is Vietnam, with over 1600 metric tons of coffee produced. Most of the coffees produced in Vietnam are Robusta and only a small portion goes to Arabica.
You may not have expected this country on the list, especially as their preferred drink is tea, but Vietnam is heavily investing in the coffee industry.
The 3rd coffee country is Columbia with about 885 metric tons of coffee produced in a year. Coffee accounts for 90% of Columbia’s exports. The best part about the coffee producers in Columbia is that 95% are family-owned.
The 4th country to take a spot in the top 5 coffee-producing countries is Indonesia. Indonesia produces about 760 metric tons of coffee per year and is home to one of the most expensive coffees in the world, Kopi Luwak.
With roughly 482 metric tons produced each year, Ethiopia is up there in the top 5. Ethiopia is the original home of coffee with Kaldi, a goat herder, to thank for the discovery. Not only do the people in Ethiopia see coffee as a thriving business venture, but they regard as part of their culture and deem it as an essential part of their social gatherings.
Why Are Coffee Prices Increasing?
Coffee prices are increasing due to severe drought and weather conditions in Brazil. As the world’s largest coffee producer, they have lost over 10% of their annual crop. Ultimately leading to worldwide shortages and increased demand.
There are of course other factors that can impact the price of coffee. As a natural commodity, coffee can be impacted by the environment, politics, and the economy.
Is coffee getting more expensive for consumers?
Coffee will end up getting more expensive for consumers if there is a lower supply and a global shortage. Aside from inflation and individual pricing changes, coffee companies are paying more for coffee beans and could increase floor level prices as a result.
Exactly how much this could increase by, is unknown. It will depend on the level of shortage, the company selling, and of course the price they purchase at. Companies would need to raise prices to maintain a profitable business model.
There are of course other factors that can impact the price of coffee. As a natural commodity, coffee can be impacted by the environment, politics, and the economy. So let’s take a look at the 3 main reasons why coffee is becoming more expensive.
3 Main Reasons to Why Are Coffee Prices Going Up
1. Low Supply of Quality Coffee Due to the Drought in Brazil
Brazil is now under a major agricultural and economical threat due to drought. The Brazilian authorities already declared a drought emergency until November this year. As mentioned earlier in this article, one of the top areas that produce coffee in Brazil is Minas Gerais, which is part of the badly affected areas.
With the lack of rain and continuous dry spell, the coffee economy is sure to be affected badly if not taken care of. The unending drought could lead to long-term agricultural tribulation and might become a catalyst for the collapse of the coffee industry.
2. The Demand for Coffee Has Increased
The International Coffee Organization (ICO) noted that despite the decrease in coffee supply, demand for coffee consumption has increased by a 1.3% with over 166.3 million bags of coffee consumed in 2020/21.
With this, it is expected that coffee consumption especially at home will continue to rise despite the challenges in the coffee supply. This is a classic example of supply and demand. As demand increases and supply shortens, prices will rise.
3. Issues in Transportation Prices in Major Coffee Producing Countries
Aside from the low coffee supply, coffee producers in Brazil are also faced with transportation issues. The vessels that used to carry out the coffee crops are not available at the moment, and the lack of containers for coffee exports accounts for the transportation issue of Brazil.
Another reason is the worker’s rights protest in Columbia hindering the coffee shipment to be exported and the increase of shipping cost in Vietnam due to the global pandemic are contributing factors as to why the coffee prices have increased.
Key Take Away
Due to drought issues in Brazil causing a low supply of coffee and an increase in demand for coffee, the coffee prices have reached a five-year record high price increase. As reported by the ICO (International Coffee Organization), due to the current situation in Brazil, the country has lost about 30% of its Arabica production for the year 2021-2022.
It is a reminder that coffee is a naturally grown item and can be impacted by thousands of factors from planting all the way to landing on the grocery store shelf or in your cup.