Why coffee prices change, Part 2 of 2
Last blog, we talked about the factors that impact the price of coffee. So far, we've looked at . This time, we're going to be discussing how climate, certifications, currency fluctuations, and local economics and politics come into the mix.
This article is part 2 of a full article dealing with the factors that impact coffee price. To read Part 1, click here.
In the last article, we looked at Futures, currency fluctuations, rising demand, and transport costs. In this piece, we're rounding off with the effects that climate, certifications, and local economics and politics can have.
Coffee trees need very specific climactic conditions to get the greatest quantity and the best-quality yield. For example, rain needs to fall at just the right time and in the right amount - not too early or too late, and not too little or too much.
A localised weather incident can have serious and wide-reaching consequences. In 2014, a drought in Brazil heavily reduced the nation’s production, which for any country would usually result in a rise in coffee prices. Because Brazil is the largest coffee-producing country in the world, however, it had an especially significant impact on the global market - the price of coffee futures doubled.
It’s no surprise, therefore, that the growing threat of climate change to coffee production is a much-discussed problem in our industry. As weather patterns become more unpredictable and volatile, yield and quality become more inconsistent. This isn’t helped by the additional problem of diseases and pests that thrive under these conditions created by increasing moisture or temperature.
More difficult growing conditions and less coffee means higher prices.
Certified coffee generally costs more than non-certified coffee.
This is because to achieve the positive change certification organisations are fighting for, they have to set their standards high enough to make a difference, and they have to be well-enforced and monitored so that consumers trust them to uphold those standards. This is time consuming and expensive.
Rainforest Alliance requires growers to use environmentally-sustainable practices. This increases production costs and means the farmer must charge more to make it worth doing.
Organic Certification similarly makes cultivation more expensive, and can result in lower yields besides.
Fairtrade, in comparison, puts the onus on the buyer to pay at least the globally-agreed minimum premium to their suppliers.
Local economics and politics
A number of the world’s coffee-growing countries have suffered or continue to suffer from unstable political and economic conditions. Examples of the serious impact of issues such as volatile regimes and fragile infrastructure can be found in each of the major producing areas. A very recent, ongoing example of this is Yemen, where the industry has been decimated by violence.
These incidents can disrupt exports, damage infrastructure & farms, lower yields, increase costs and risks, reduce demand, and have ongoing negative repercussions for many years to come.
With so many factors acting upon coffee prices at once, it can be difficult to identify at any time which may be causing the cost of coffee rise or fall, or whether it is a combination of several variables.
Our advice for keeping track? It never hurts to try keeping a finger on the pulse, but it’s not a small task either. Any time you’re chatting to our sales team, it’s always worth asking their thoughts. We’re happy to help.