An In-Depth Look at Current – and Future - Coffee Pricing

November 20, 2011

Zak Stone has written a rather long but enlightening article on the coffee situation, stating that supply and demand mixed with climate change will add up to increased prices. Depending on who or what you read, a coffee doomsday may be looming over the horizon. If climate change is indeed a long-range fact, coffee supplies will tighten and prices will rise even more than they have in the past decade. There is no disputing that there have been different weather patterns occurring in the tropics especially, where coffee is grown. Droughts are occurring where there should be rain, and it’s raining in formerly drier months.





Stone writes that prices are “being driven up by a complex combination of weather events, pest and fungus outbreaks, speculation on commodities exchanges, an unstable labor market in the developing world, and an unprecedented thirst for good coffee among a growing global middle class. The problem, in simple economic terms, is that supply has gone down and demand has gone up.” Each of the factors mentioned merits a discussion in itself. As weather changes, the pest population moves into new areas. Rain out of season brings fungus. The human-caused factors range from labor instabilities to growing love of and appreciation for fine coffees.





Some blame the commodities market and futures speculation for price increases. We’re no longer happy with a $1.50 bottomless cup of drip machine coffee. We seek more interesting coffees from smaller microlots, smaller roasters, all with personalized touches and what’s called terroir, a new term to many of us. When coffee prices were low, farmers gave up and started growing more lucrative crops. Since the 90s, the demand for good coffee and the needs of farmers fueled price increases. Now more third world governments are subsidizing farms and planting new coffee plants and generally encouraging coffee growers. The higher the prices paid the farmer, the greater the incentive, and the greater the production. Scientists are working on hybrid coffees that will be better able to withstand the heat of prolonged warmer weather.





The question is: will this be enough and can it be accomplished fast enough? Stone focuses on the response of coffee shops to the forecasted shortages. Answers vary, to include: increasing coffee prices or increasing the baked good prices instead; using or mixing in lower quality coffees; and making up for higher prices by improving the whole coffee experience. Within this domain, discussion covers a wide area, mentioning coffee makers, barista philosophy, Starbucks’ new approaches and many other ideas too numerous to mention. At about 6-1/2 pages, there are many topics covered – it’s worth the read. Stone doesn’t really state his conclusions on the matter. Since we don’t know the future, conclusions are hard to draw.





But science shows that the movement to shade-grown coffee farms is good, because the more trees there are, the cooler and more stable the climate. The coffee thrives and the pests are discouraged. Farmers are adapting to cooler temperatures up the mountainsides and moving their crops. More coffee trees are being planted which will need a few years before producing. Hybrid plants MAY be developed that increase supply. The worst case scenario might mean we have to be satisfied with more Robusta, more blends, even to the extent of adding chicory as was done in the past and still occurs in some areas. We’ll likely be paying more for the best coffees. The optimistic outlook: we’ll always have coffee, even though we may have to adapt to changing tastes. So brew on, optimistically.



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