With the price of raw coffee beans up by 40% in the last three months, merchants and consumers alike are speculating about the long-term impact on their daily cup of Joe. Yet even with prices climbing experts say that, per cup, any price differential will be negligible.
“To put it into perspective, over the last 100 years, coffee has basically stood flat at $1 per pound,” said Ric Rhinehart, executive director for the Specialty Coffee Association of America. “As a matter of fact, if you look at the world coffee price from 1898 to 1998, the price actually declined a little.”
The rise in price is attributable mainly to an increase in demand and bad weather that affected many crops worldwide, and is simply the market “leveling off,” Rhinehart said, even though the perception of a 40% increase in price is a negative one at first glance. The shift in price will likely be a permanent one that means coffee will hover closer to the $2 per pound mark than the $1 per pound mark indefinitely.
“Generally, coffee production costs have been rising because of poor bean harvests in some major coffee producing areas of the world, as well as the increase of demand, as we are consuming more coffee,” said Teri Gault, CEO and founder The Grocery Game, which tracks pricing of food products worldwide.
Yet the rise in price may be a good thing for producers, according to Rhinehart, who said the market is making a fundamental shift to get back where it should be. Coffee is an expensive crop to cultivate and many farmers aren’t paid enough to make coffee a profitable commodity. And while the increase in price may not trickle directly downstream to the farmers, it does mean farmers will have a “better shot at making a living growing coffee,” said Rhinehart.
But consumers can already see evidence that retailers are passing along a price increase. JM Smucker Co. (NYSE:SJM), which owns Folgers and Dunkin’ Donuts brands, announced an increase in prices of roughly 9% in August. And yesterday, Starbucks Corp. (NASDAQ:SBUX) said it was unveiling "targeted" increases in some markets for some products, citing the jump in prices.
But even if per-cup prices at coffee houses are increased, consumers won’t notice much of an impact when brewing at home, according to Rhinehart. Although Gault said the regular price of coffee in supermarkets has already begun to rise by 1%-10% in a few areas of the country, consumers can still go to the store and buy a decent pound of coffee for $10, or around 20 cents per cup. The current price increase will bring the price per cup to about 22 cents -- not enough to make a difference, Rhinehart said.
“There is no part of me that believes people will forego their cup of coffee because they can’t stomach a 2-cent increase,” Rhinehart said. “Conversely, no one wakes up and says, 'I have to take advantage of the dirt cheap price of coffee beans today and have seven cups instead of one!'
When the last 20 years of consumer behavior are taken into consideration, the willingness of a consumer to pay for a cup of coffee is pretty apparent, Rhinehart said. More importantly, he said retailers like Starbucks would likely spend more updating their POS systems to charge $1.87 for a cup of coffee instead of $1.85 than they would just absorbing the cost.
So what’s on the horizon for coffee drinkers and sellers?
The U.S. still reigns supreme as the largest consumer of coffee in the world -- using 22 million bags of coffee a year out of the 130 million consumed worldwide, according to the Specialty Coffee Association of America. Additionally, “land use pressures” will continue to squeeze countries that are large producers of coffee, like Columbia and Costa Rica.
“The sad truth is that in many countries where coffee is grown, farmers are much better off growing condominiums than coffee,” said Rhinehart, who said that labor pressures and water pattern changes in South America would continue to play a role in the price of beans.
At home, it seems we’re brewing more coffee in-house than ever before. According to Galt, supermarkets sold more coffee and tea this year than any other point in history. And while people may be cutting back on coffee house spending in the wake of the recession, it could be indicative of a more permanent shift in the consumer’s desire to brew their own.