You may have noticed the reports of increasing global coffee prices, its part of a perfect storm with a number of factors contributing to this.
Trung Nguyen, who often set the benchmark for coffee pricing , has had significant price increases over the last year with one every quarter and this last one was 20%. All of our other suppliers and Viet-coffee can no longer absorb the increasing price of coffee and here's why...
Climate Change and Extreme Weather
One of the primary reasons for the spike in coffee prices is the impact of climate change. Coffee is a sensitive crop that requires specific climatic conditions to thrive. Regions like Brazil and Vietnam, which are major coffee producers, have experienced severe droughts and unpredictable weather patterns disrupting the growth and harvesting cycle of coffee. Some regions have suffered from blooms failing or reduced yields. Some have suffered from wildfires. The climate disaster in Brazil has had a significant impact on coffee prices globally. Brazil, being the world's largest coffee producer, experienced its hottest year on record in 2024, along with a record number of forest fires. These extreme weather conditions, including prolonged droughts and erratic rainfall, have severely affected coffee plantations with reduced crop yields and lower quality beans. Pests and diseases have increased with the changing climatic conditions resulting in reduced yields and droughts have also led to wells running dry.Growing Demand
As coffee becomes increasingly popular worldwide, the demand for coffee beans continues to rise. This growing demand, especially from emerging markets in Asia, puts additional pressure on the already limited supply. There used to be a reasonable match of supply to demand with occasional coffee oversupply with some farmers stockpiling but with increasing prices, decreased yield and increasing costs of production these stockpiles are dwindling putting further pressure on costs with the increased demandRising Production Costs
Farmers are facing higher costs for inputs such as fertilizers, labour, and energy. The price of nitrogen fertilizer has increased due to several factors:Rising Natural Gas Prices:
Natural gas is a key ingredient in the production of ammonia, which is used to make nitrogen fertilizers. Higher natural gas prices, especially in Europe, have led to increased production costs.Supply Chain Disruptions: The COVID-19 pandemic and geopolitical tensions, such as the war in Ukraine, have caused disruptions in the supply chain not just for coffee. Sanctions on Belarus and Russia, major exporters of nitrogen fertilizers, have also contributed to supply constraints.
Increased Demand:
The global demand for fertilizers has remained strong, particularly from countries like Brazil and the United States, which have allocated record acreage to fertilizer-intensive crops like soybeans.Production Cutbacks:
Higher input costs, such as coal prices in China, have forced fertilizer factories to cut production, further limiting supply and feeding increased prices through demandGeopolitical Issues:
Export restrictions and sanctions have played a significant role in driving up fertilizer prices. For example, China suspended fertilizer exports to ensure domestic availability, and Lithuania halted the use of its railways to transport Belarusian fertilizersPoor agricultural practices
Over fertilising and application of chemicals has led to some areas with increased acidification of the soil. This has either resulted in reduced yield or increased cost of input. Aging coffee trees have become a problem with there being no plan or funds put aside to replace older trees that have reduced production yields. New plantations have not taken into consideration the increased temperatures and so are not producing due to changed climatic conditions.Speculation in the Futures Market
Coffee prices are also influenced by speculation in the futures market. Traders buy and sell coffee futures contracts based on their predictions of future prices, which can lead to price volatility a bit like the share market’s volatility is not necessarily based on fundamentals however the news of drought and challenging climatic conditions is all contributing to price up.Deforestation and Environmental Regulations
Environmental regulations to reduce deforestation and promote sustainable farming practices can also impact coffee production. While these measures are crucial for the long-term health of coffee-growing regions, the measures limit increasing coffee production areas that can lead to short-term increases in production costs and subsequent bean prices.At home ongoing increases in input costs for cafés with almost all expense categories having increased costs
Expense Category Percentage total costs
Labour 30/35%
Cost of Goods Sold 25-35%
Rent or lease 15%
Utilities 5-10%
insurances 3-5%
Marketing / Advertising 5-10%
Equipment Maintain Repair 2-5%
Supplies & inventory 5-10%
Point of sales fees 1-2%
I can't see one of these costs that has not increased!.
The coffee component of a cup of Joe is only a small part but if the price doubles and milk price is increased and labour and utility charges are up then for café’s to stay viable they have to put their prices up!
All leading to even though the price is up it’s still a better deal to make your own.
If you have time a phin coffee can be the cheapest way to have your coffee today.