Coffee Shortages, Surging Prices Part Of The Industry’s Brewing Storm

ACROSS AMERICA — Coffee drinkers may soon get another jolt — and not from caffeine — when they pick up their morning cup. The daily habit could cost them close to $200 more a year as prices for America’s favorite beverage continue to rise.

Coffee drinking reached a 20-year high earlier this year, with 67 percent of respondents to this spring’s National Coffee Association survey saying they drink coffee once a day. In another recent market research survey, 87 percent of respondents said they are “somewhat or full-on coffee-obsessed.”

Right along with the increase in consumption, coffee prices are reaching historic highs. The cost of roasted coffee today is almost 30 percent higher than in 2010, according to government inflation data. The price of arabica coffee, which is used in high-end espresso and specialty coffee shops, has jumped more than 40 percent.

The national average is around $3.08 for a regular cup of coffee, with cold brews averaging $5.14 and lattes $5.46, according to a first-quarter Restaurant Trends Report.

In some places, a fancy coffee drink costs even more. The willingness of customers to spend more is sometimes baffling to the baristas who make a living making and serving caramel macchiatos, lattes, espresso drinks and the like.

“Do any of y’all ever feel guilty, sad, worried … at how much people spend on coffee at your cafés?” a barista reflected on Reddit as coffee prices surged late last year. “I have regulars who come in daily for a $7 drink, and I think what I feel is guilt for how much money I have to take from them. Like, I couldn’t afford to spend that much money.”

“Oh same,” another barista said. “Depending on the drink and add-ons, it can get up to like $10. One guy regularly spends $18 on a 16-shot latte. I cringe telling them the total.”

Price Increases Unavoidable Now

In the short term, these customers’ willingness to spend a few extra bucks for their daily indulgences helps the industry navigate a brewing storm with multiple fronts. Matching the supply with demand is a complex problem.

Labor costs are increasing and shipping has been throttled by the war in the Middle East, adding to supply chain issues. The bigger threat is climate change. Futures prices rose sharply this year as drought conditions in Vietnam are reducing robusta bean yields. Fires and other chaotic weather are wreaking havoc on Brazil’s arabica crops.

Coffee shops around the world have squeezed brand-building promotions and perks out of the budgets to avoid passing their increased costs on to customers and have pared down other costs, but soon they will have to pass costs on to customers, Bloomberg reported.

Citing increased labor costs associated with the new minimum wage law for fast food and tipped workers that recently took effect in California, Starbucks increased prices at its coffee shops, all corporate-owned, by anywhere from 50 cents to a dollar, or by roughly 15 percent, Business Insider reported.

The brands in many Americans’ pantries are seeing price hikes, too. JM Smucker, which owns the Folgers and the budget-friendly Café Bustelo brands, increased its prices this summer, Bloomberg reported.

Patrick Grzelewski, the director of coffee for New York City’s Variety Coffee Roasters, told Bloomberg that price hikes are always a last resort. Variety just increased its prices by 5 percent, its first price hike in five years.

“We’ve always triple second-guessed ourselves before we pulled the trigger,” Grzelewski told the news outlet. “But it’s just not something anyone can avoid anymore.”

The price increases could send some people back to the espresso machines they bought and learned to use to create their favorite coffee drinks when restaurants closed during the pandemic, according to Billy Roberts, a senior food and beverage economics for CoBank.

“It wouldn’t be surprising if, due to sharply higher coffee prices, some consumers turn to recreating their favorite coffee or espresso drinks at home with store-bought flavorings or inclusions.”

Same Story, Different Bean

The issues confronting the coffee industry are similar to problems roiling the chocolate industry. Cocoa prices have set new records over the past year, reaching an all-time high of $12,000 a ton in April, more than $3,000 higher than a year prior.

As is the case with coffee growers, climate change is challenging for the mostly subsistence cacao farmers, who don’t have the money to reinvest in hardening their land against the effects of a warming planet. Less predictable rainfall, rising temperatures and more frequent droughts threaten to make some cocoa-growing regions unusable.

• Related: We’re In The Throes Of A Chocolate Crisis, And It’s Not Going To End Anytime Soon

Cacao and coffee are very different plants, the former a tree and the latter a bush, but both are grown in tropical regions of the world, ideally under a dense tree canopy.

Growing demand for coffee pushed production into the sunlight because the plants grow faster, a somewhat self-defeating strategy that required massive deforestation, a contributing cause of climate change, resulting in the production of lower-quality beans that left the land polluted and eroded.

Roasters importing coffee to Europe must soon prove the beans weren’t grown on recently clear-cut land, Bloomberg reported, pointing out the European Union Deforestation Regulation could further tighten supplies.

Growing the coffee high-end roasters want to buy puts strain on the industry in other ways, requiring new cultivation and harvesting techniques and more investments in land and labor.

Experts say that even under ideal growing conditions with less threatening weather and a more stable trading environment, it will take several years for the industry to recover. Coffee is a slow-maturing plant, taking three to five years to grow before it produces the seed pods that hold coffee beans. Harvesting, processing, roasting and packaging add more time.

With coffee inventories the lowest in decades, the next crop cycle could be brutal, Shawn Hackett wrote for Hackett Money Flow Commodities Report.

“The coffee market has a set-up for all-time highs to be seen over the next crop cycle,” Hackett wrote, adding:

“What you need to do is either cut back on other expenses, earn more, or pray for a near-miracle. In the worst case scenario you could give up your cup of morning Joe, but somehow I doubt that would be possible for many.”