In recent months, there has been much talk about the increase in the price of coffee due to an increase in the cost of green coffee, or the coffee bean that has not yet been roasted. As end consumers, we usually drink this beverage unconsciously without thinking about everything that is behind each single cup. Coffee is a product inserted in a very complex global market whose price is influenced by numerous factors of a different nature. In this post, we will analyze the elements that affect the cost of green coffee, focusing on the dynamics that make the cost of this product fluctuate.
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CLIMATE CONDITIONS
Climatic variables such as temperature, precipitation and humidity significantly influence the cultivation of coffee. As a demonstration of this, the producing countries are located in tropical or subtropical areas where the atmospheric conditions are similar to this crop. Coffee needs warm-mild and stable temperatures throughout the year with an oscillation that goes between 18 and 24 degrees, abundant precipitation, a high level of humidity and a good amount of hours of sunlight per day. These factors directly influence the quantity and quality of the harvest.
Extreme weather events such as drought, frost or heavy rains can seriously compromise coffee production.
For example, Brazil , which is one of the world's largest coffee producers, saw a drastic reduction in production in 2021/2022 due to sudden, very strong frosts that severely damaged crops. This caused an imbalance between supply and demand that led to an increase in global green coffee prices.
This phenomenon is not an isolated case, other key producing countries such as Vietnam and Colombia have also suffered damage from climatic phenomena, with periods of drought that have reduced the amount of coffee harvested. The scarcity of product has inevitably pushed prices up.
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DISEASES AND PARASITES
Coffee plants are vulnerable to diseases and parasites, which can affect production and reduce the yield per hectare, thus decreasing the quantity of coffee available on the market and therefore increasing the price.
The need to sustain costs to deal with these diseases and pests has added a further burden to producers who have had to increase prices to cover the new costs.
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LOGISTICS PROBLEMS
One of the main consequences of the COVID-19 pandemic has been the disruption of supply chains and the cost of transportation, coffee has certainly not been immune to this global crisis. To deal with the pandemic there have been numerous restrictions by governments, this has led to disruptions in transportation, delays in shipments, shortages of containers and widespread chaos in ports, airports and freight sorting centers. All this has slowed down the shipping processes of green coffee. In addition to this we must also add the increase in transportation costs, also due to the evident increase in the cost of oil, which has had a direct impact on the final price of coffee.
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INFLATION AND INCREASING PRODUCTION COSTS
Global inflation is affecting virtually every sector of the economy, including coffee. Pesticide, fertilizer, and energy costs have risen around the world, making it more expensive to grow, harvest, and process coffee. Costs have risen not only in green coffee-producing countries, but also in consuming countries where the beans are processed; processing and roasting require energy, and rising electricity prices have pushed up costs for roasters as well.
It is important to note that part of the increase in costs is also to be considered positive for the producing countries. In many of these countries there have been increases in labor costs and employee protections, leading to wage increases for both coffee pickers and those who work in the processing and transformation of the beans. Production costs, in some cases, have also increased due to the application of more sustainable agricultural practices and certifications that require investments in terms of time and money for the growers.
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A VOLATILE MARKET
Coffee is one of the most traded commodities in global markets and its price is strongly influenced by the fluctuations of global markets. In addition, frequent fluctuations in supply and demand for the product generate significant changes in prices.
To better understand, let's look at some cases:
In the last few years, there has been a growth in demand for coffee in emerging economies, mainly China, where until a decade ago the population drank almost exclusively tea. Today, millennials and generation Z are big coffee consumers, while older people still see it as a novelty. From June 2022 to June 2023, the demand for coffee has almost doubled; this is due to increasing urbanization and greater exposure to the Western lifestyle.
In coffee producing countries, domestic consumption has increased significantly. Until a few years ago, coffee was entirely exported and waste was used for the domestic market. Nowadays, numerous coffee shops have opened and the culture of coffee has spread, which has led to not dedicating the entire harvest to export.
We must also take into account the return to normality post-pandemic with an increase in retail and restaurant sales have led to an increase in demand for coffee and consequently to an increase in prices.
Looking at the financial markets we must observe the speculation on coffee futures, that is, an activity that allows those who play the stock market to bet on the future trend of coffee prices, which has contributed to the lack of stability of costs.
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CHANGING CONSUMPTION
Another factor that is influencing the increase in the price of coffee is the change in consumption, accelerated by the pandemic. Due to the Coronavirus, many people have started working from home and thus the demand for coffee in capsules, pods, ground coffee and beans has increased. During the pandemic, many have become passionate about the world of specialty coffee as they are unable to go to traditional bars and have more time to dedicate to coffee and its preparation; this has generated an increase in the demand for high-quality coffee and also for the tools needed for its extraction. The increase in demand for coffee for domestic use has created pressure on the supply chain to meet growing demands, but with production not always able to keep up.
The increase in the cost of coffee has repercussions on all links in the production chain. Producers, often small farmers living in developing countries, find themselves in problematic situations due to limited harvests and increased production costs. Despite this, we must say that the increase in the price of green coffee has certainly benefited coffee growers who have found themselves receiving a higher compensation for the raw material produced. By earning a higher sum, they see themselves rewarded for their efforts, can afford a better quality of life and can invest to improve or innovate their business.
It should be noted that not all the benefits resulting from the increase in prices go to the producers, a part is absorbed by the various links in the production chain.
For consumers, the impact is evident both in shops and in bars. In Italy, this increase will be particularly shocking because for years we have paid too little for coffee. It is unthinkable to want to consume a good, quality product that comes from the other side of the world without wanting to spend more than a euro. The future is uncertain, consumers' habits will probably change, more coffee will probably be consumed at home and less in coffee shops, less coffee will probably be consumed but of higher quality.
These price increases are inevitable and fair, we hope that, as happens with other food products, there will also be greater attention towards choice and consumption for coffee.