Why Is the International Price of Coffee at Record Highs?

The international price of coffee is reaching record highs on the London and New York markets due to a combination of adverse weather factors, logistical problems, and rising global demand.

Key factors driving the price increase

Adverse weather conditions

Brazil and Vietnam, the main coffee producers, have faced severe droughts that have affected production. This has led to a significant reduction in coffee output, with Brazil estimating a decline of approximately 4 million bags this year. Vietnam, for its part, has also seen a slight drop in production due to unfavorable weather. These reductions in global supply have greatly affected the availability of coffee on the market, directly impacting the international price, which remains at record levels.

Rising demand

Global demand for coffee remains high, especially for arabica coffee, which has intensified the pressure on prices.

1. Inelastic demand: Despite price increases, consumers consider coffee an essential product, which keeps consumption levels high.
2. Robusta shortage: The reduced supply of robusta coffee, used mainly for instant coffee, has also contributed to the price increase.
3. Growth in China and the United States: In recent years, China has seen a dramatic increase in coffee consumption, up 52% over the past five years. This growth is due to several factors, such as the shift in consumer preferences toward coffee, which has traditionally been less popular than tea, and the expansion of coffee shops and coffee culture in the country. The United States, for its part, has also seen a significant increase in coffee consumption, reaching levels not seen in 20 years.

These changes reflect a global trend toward higher coffee consumption, driven by product diversification and the growing popularity of specialty coffee.

Logistical problems

1. Complications on trade routes: Disruptions on key routes, such as the Suez Canal, have affected global coffee transport.
2. Higher transportation costs: High logistics costs have added pressure to already high coffee prices.

A strong dollar

The strengthening of the US dollar has affected international coffee prices, making the cost higher for buyers in other currencies.

Impact on the market and consumers

In December 2024, the price of coffee hit a record of $3.47 per pound, an increase of 70% over the previous year. This increase is already showing up in consumer prices, which could affect consumption, although demand is expected to remain inelastic over the long term.

1. Sustained consumption: Regular consumers will keep buying coffee, although there could be a slight decrease among younger people.
2. Impact on retailers: Retail coffee prices have risen considerably, passing the cost impact on to end consumers.

Conclusion

The combination of adverse weather factors, logistical problems, and continued rising demand is pushing the price of coffee to historic levels on the international market. This phenomenon underscores the need for sustainable solutions that address both the effects of climate change and market dynamics, thereby ensuring greater stability for a key industry in the global economy.