A perfect storm is hitting the coffee industry. And it will show in another price hike.

• Economy, climate and ship attacks send coffee bean prices skyrocketing

• Giuseppe Lavazza, president of the Lavazza group, says prices have never risen as much as they have now.

Coffee has every chance of following in the footsteps of the cocoa inflation crisis. A few months ago, we witnessed a huge increase in cocoa prices for various reasons, but voices pointed directly to the effects of El Niño, both at the production level and at the plant disease level. Now, it is coffee, after several months of truce, that is following the example of cocoa prices rising.

The main problem is that we can’t blame all the blame on the climate, and the Red Sea crisis is also largely to blame for the rise in coffee prices, which will not subside in the short term.

Situation in Europe. Earlier this year, the EU statistics portal published a chart where we could see coffee inflation falling from its peak in October 2022 (with a peak of +17.4%) to around 1%, approaching its nadir of 0.8% in July 2021. This would not seem like bad news, but the problem is that significant differences were found when focusing on each of the Union countries.

In 15 European Union countries, the inflation rate was higher in March 2024 than in March 2023, with countries such as Croatia, Romania and Bulgaria exceeding 6%. In another 12 countries, inflation rates fell: in Finland and Lithuania -15.5% and 15.4%, respectively, which eclipsed the data for the other 27 countries. Beyond the charts, the situation on the market looks different.

Lavazza’s Negative. As we can read in The Guardian, Giuseppe Lavazza, the president of the company of the same name, said in 2023 that prices would start falling this year. And yes, as we saw at the beginning of 2024, that was the case, but now he admits that he was wrong. Last Monday, July 8, prices reached $ 4,300 per ton of coffee, and in the UK this means that the price of a kilogram bag will increase by 15% in a year.

“We’ve never seen such a big price increase as we are now,” says Lavazza, and according to the businessman, this is not the end: the current situation could lead to a price increase of 20-25% within a year. 2025. “We are facing a very, very strong headwind, and I don’t see any reason why coffee prices will fall,” Lavazza said. And the truth is, this climate analogy seems accurate.

El Niño and crop failuresEl Niño is a climate phenomenon associated with the warming of the Pacific Ocean, which is associated with heavy rains in Brazil and droughts in India. However, it has an impact in other areas, and Vietnam, the world’s largest producer of robusta, is suffering from the effects. The drought that has hit the Asian country is expected to cause a 10% drop in coffee production, as it hit the country at the stage of coffee berry formation.

This will be the smallest harvest in four years, and some instant coffee companies like Volcafe claim it will be the smallest harvest in 13 years, precisely because of the lack of rain.

China. Robusta is in high demand because it is usually cheaper. For this reason, it is used to make blends and instant coffee, and demand for it continues to grow worldwide. However, if there is one thing that can drive up the price, it is China entering this market not as a producer, but as a consumer.

As Bloomberg noted a few months ago, China has a new taste for coffee. After consumption that remained virtually unchanged until 2008, it began to grow until 2012 and peaked at five million bags (each weighing 60 kilograms) in the 2022-2023 season. This line does not stop growing, and if 20 years ago it was not among the first coffee-consuming countries, now it is seventh.

Red sea. But it’s not all about consumption and production, it’s also about regulation and the supply routes themselves. In terms of the latter, we have something that affects not only the coffee trade, but everything that needs to be transported from east to west. The trade remains largely maritime and is carried out by container ships. These ships have optimized routes, and if something happens, they will have to take longer alternative routes.

This is what is happening in different parts of the world, but robusta coffee from Vietnam and Indonesia is moving through the Suez Canal, which is being diverted by ships that refuse to go through. The reason? Houthi rebel attacks on ships, forcing those ships to go through southern Africa, a longer route that costs more money because of higher wages and higher fuel costs. And then that affects availability and price.

European regulation. In terms of regulation, we have new European Union rules that will crack down on imports of products from deforested areas. This affects products such as coffee, cocoa, soy, palm oil, charcoal, timber and rubber, all products that contribute to deforestation, with the EU responsible for 10% of global deforestation due to their imports.

Brazil and Arabica Coffee Survive a Storm. This “perfect storm” seems to be affecting Robusta production the most, but it could also be killing Arabica. If those using Robusta for their blends can’t get access to the raw material, or if the price is uncompetitive, they may choose Arabica, but either way, the price will go up. Brazil, however, may be an oasis in all this chaos because, yes, El Nino is affecting it, but Bloomberg notes that they have a surplus of a Robusta variety known as “conilon” that is available for export.

We’ll see what happens, and while Lavazza is focusing on the UK market figures, it’s still the world’s tenth-largest coffee market. Moreover, China has yet to have its last word, as it remains to be seen whether it will become a fad or an everyday drink. In that case, China’s thirst for coffee beans could further cloud the market’s prospects.

Images | Visual Capitalist, Adrian Seron

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