Paying More for Coffee? (Part 2)

by That's Coffee on March 10, 2011

You have likely heard about the increases in commodity pricing and are probably starting to feel the pinch on your wallet.

Unfortunately coffee, and in particular Arabica Coffee, is included in these price increases. After reading through several articles, there are several explanations for the increase in coffee prices the world is facing in 2011.

Decreasing Supply

This past year has proven to have some very strange weather conditions all over the globe. The changing climate is altering weather patterns and interfering with the conditions required to grow coffee beans. Ideal conditions for growing coffee beans are periods of rain followed by sunny, dry spells. Without these conditions, the coffee plant is not able to flower, produce cherries or ripen. Consequently, harvests last year were disappointing and there is speculation that this year will be poor as well.

Increasing Demand for Commodities in Emerging Markets

For the most part, emerging economies of Asia and Latin America are the primary driver of rising commodity prices in general. The emergence and growth of the middle classes in China, Brazil and India, in particular, are fundamentally altering the commodity markets. These countries are now competing for the limited supply of coffee beans with Europe and North America; the competition and increase in demand is contributing to increasing prices.

Political Unrest

Food prices have been rapidly increasing for several months but the political unrest in North Africa and the Middle East has caused another sharp spike in pricing. The unrest brings fear of inflation. Many countries are stockpiling their food supply as a means of national food security. The result: a further increase in price.

Rising Oil Prices

The price you see at the pump reflects the prices you pay elsewhere. Because oil is used in the transportation of goods, the increase in oil affects almost every other commodity and consumer product out there, including coffee beans.

Fear of Further Increases

The increasing prices in the commodity market is instilling great fear into a lot of people, include coffee providers. This is causing traders to buy coffee and coffee contracts under the assumption that prices will continue to increase and that the supply may not be there in the future. The self-fulfilling prophecy is being fulfilled: the more traders buy coffee supply and contracts, the less coffee is available and the higher the price becomes.

Elasticity of Coffee

Elasticity is an economic term that simply refers to the ratio of change between two variables. Typically, if an item becomes more expensive, consumers buy less of it, to some extent. Economists are noticing that coffee is fairly inelastic – that is consumers are buying the same amount regardless of the price they pay. The major result is that the increases in coffee prices will not help to alleviate the falling supply of coffee beans.

For now, coffee retailers and coffee consumers are going to have to prepare for the future prices of Arabic coffee beans, which have already reached a 14 year high.

“Paying More for Coffee? (Part 2)”
courtesy of
your online coffee bean store:
Gourmet Coffee Beans

You can read more about the increasing price of coffee in these sources used:

http://news.yourolivebranch.org/2011/03/09/no-pain-no-gain/

http://www.konacoffeeroasting.com/coffee-price-increase-2011-coffee-shortage-commodity-prices-rising/

http://www.espressocoffeeguide.com/2011/03/coffee-price-increases-in-2011-due-to-coffee-shortage/

http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/tata-coffee-surges-13-pc-stock-hits-record-high-on-bse/articleshow/7663630.cms

Graph Source:

https://news.fidelity.com/pf/ext/ent/images/20110218/14/201102181452CNN_____MONEYPIX_2011-02-18-markets-coffee_price-index_htm_0001.png

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