When it comes to coffee, Thaleon Tremain has always tried to ignore what the market tells him.
As CEO and co-founder of Pachamama Coffee in California, United States, Tremain sells his specialty beans for more than the global price of the commodity might dictate. He wants his customers to think of coffee as a luxury product and pay for it accordingly, so that farmers who grow their grain in countries like Peru, Nicaragua and Ethiopia can cover their costs.
But in recent years repeated droughts and floods have strained global coffee supplies, often causing prices to soar, as climate change has done to other staples such as cocoa, olive oil and orange juice.
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At the same time, global demand for coffee has continued to rise, with little sign that consumers are slowing down. This December, prices broke an almost 50-year record.
Even though prices may fall, Tremain said volatility threatens the sustainability of businesses like his — and the livelihoods of the farmers who grow their grains.
“Over time, we will see much higher prices,” Tremain said in an interview with The New York Times. “Supply is not meeting demand.”
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Despite being one of the most consumed drinks in the world, coffee can only be grown in very specific conditions, requiring cloudy, humid and tropical climates, with rich, disease-free soil.
In addition to a small batch grown in Hawaii, the United States produces little coffee domestically. It is the world’s largest importer of grains. Scarcity of sources leaves global coffee prices susceptible to the effects of extreme weather.
According to the US Department of Agriculture, about 57% of global coffee production last year came from arabica beans, and Brazil is the largest exporter. But a severe drought this summer has devastated the harvest, which normally runs from May to September, and could also threaten next year’s crop.
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In Vietnam, a severe drought followed by heavy rains has damaged the world’s largest reserves of Robusta, which is the world’s second most popular variety and is commonly used in instant coffee blends.
Concerns about the harvest were reflected in a characteristically erratic moment in the often volatile coffee market. The wholesale price of grain has jumped more than 30% since the beginning of November. Arabica coffee futures prices — or what buyers pay for the beans to be delivered from producing countries to ports in the United States and Europe — rose to more than $3.30 per pound in mid-December, breaking a record high. 47 years old.
“History suggests that Coffee prices will only decrease as supply improves and stocks are replenished“, wrote David Oxley, chief climate and commodities economist at Capital Economics, in a note last month.
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Extreme weather events are becoming increasingly common, experts say, and are contributing to swings in coffee prices. In 2011, prices soared after droughts and heavy rains in several countries reduced coffee production.
Even as production fell, global demand increased, in part due to increased coffee consumption in China. A June report from the U.S. Department of Agriculture found that the China’s coffee consumption has increased by more than 60% in the last five years.
Other factors also played a role. In 2021, supply chain bottlenecks caused by the COVID-19 pandemic combined with political instability in South America to slow exports, causing prices to soar.
But even with inflation more moderate, many consumer companies are making plans to charge more, including the big ones that are better positioned to absorb price shocks. Nestlé, the world’s largest coffee maker, announced last month that it planned to raise coffee prices next year and reduce the size of its packaging. JM Smucker, whose brands include Folgers homemade coffee and Dunkin’ Donuts, announced price increases in October.
It could take up to two years for Brazil’s coffee crop to recover from droughtsaid Kevon Rhiney, an associate professor at Rutgers University who researches coffee production.
But he worries that coffee prices are stuck on their upward trajectory, like other valuable crops that have been affected by climate change. Coffee plants will become less productive as the Earth’s temperature continues to rise, and practices like deforestation will continue to threaten the sustainability of the industry.
“In some ways, this is a sign of things to come,” Rhiney said. “Areas suitable for making coffee will decrease over time.”
Price volatility concerns Scott Conary, president of Carrboro Coffee Roasters, an independent company in Carrboro, North Carolina. “From an industry sustainability perspective,” he said, “it’s not healthy.”
In the past, Conary said, he typically dealt with volatility by increasing prices gradually — less than a dollar at a time for a cup of coffee at the roaster’s flagship cafes and for a bag of beans. For the next few years, he said, he is most concerned about large increases in transportation and storage costs.
But Conary also said he received higher prices as long as they raised awareness about what went into growing coffee and encouraged customers to buy from smaller, more boutique producers like him.
“People need to understand how coffee is an agricultural product,” he said, adding that consumers “are not paying enough for coffee“.
Originally published no The New York Times.
