Coffee Prices Could Keep Climbing

Reduced Supply

Coffee is a staple for roughly two-thirds of Americans who drink it daily. But coffee lovers may need to brace for a bump in java prices in the not-too-distant future.

Coffee bean production is a delicate process that depends on balanced weather conditions. As extreme weather events are becoming increasingly common across the globe, major coffee-producing countries are feeling the effects. In recent years, Colombia has experienced high rainfall, while Brazil has seen persistent droughts. Considering the U.S. imports most of its beans, lower production could mean higher prices for Americans’ morning pick-me-ups.

Rising Prices

The ICO Composite Indicator price, a key reference point for the price of coffee, hit a 13-year high in June, per a report by the International Coffee Organization. With bean prices on the rise, many coffee producers are passing the cost onto consumers by hiking up their prices.

According to a report by CNN, the Italian coffee maker Lavazza raised prices this year, citing poor coffee harvests, climate change, and supply chain disruptions. Similarly, J.M. Smucker (SJM), owner of Folgers, announced price hikes due to supply issues in Vietnam from a severe drought. Feeling the effects of rejected price hikes, Nescafé owner Nestlé (NSRGY) recently experienced a decrease in profit margin.

Weathering the Storm

Some coffee chains like Starbucks (SBUX) strategically weather short-term supply chain issues by buying beans in bulk and securing fixed-price contracts on beans that aren’t traded in the commodity market.

If global weather events continue to intensify, even giants like Starbucks may be forced to pay a higher price for beans. This could necessitate a pivot towards climate-resilient agricultural technologies or alternative coffee sources. However companies choose to address the coffee supply issues, Americans may need to shell out more for their cup of joe in the meantime.

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