A massive shipping logjam caused by the most devastating frost in decades in Brazil and record freight costs wrought by COVID-19 in top coffee producer Brazil is expected to push retail prices to multi-year highs in the coming weeks. have hope.
A rise in coffee prices will further increase the cost of the shopping cart for other items such as bread, vegetable oil and sugar. The United Nations Food Agency’s index of world food prices for July saw a 31% year-on-year rise at a time when many consumers are struggling financially because of the pandemic.
The worst cold snap since 1994 in Brazil sent the price of green coffee beans to the highest level in nearly seven years and is expected to pass on to consumers when they buy roasted beans or ground coffee at supermarkets.The price of Arabica coffee on the ICE Futures US exchange has more than doubled in the past 12 months and crops in Brazil have already dried up after the worst drought in 91 years.
The extent of the damage is still being assessed, but it could take up to seven years for production to fully recover in areas where there are no coffee trees left.
Shipping disruptions, partly due to increased demand for consumer goods and not enough ships as people stayed home due to the global coronavirus pandemic, have led to a sharp increase in the cost of transporting beans to major consumer countries in North America and Europe. is of. .
With merchants believing that consumers will soon have to pay more to buy coffee from supermarkets, the price of a latte or Americano at high street coffee chains may not follow suit in the short term.
“The roast and ground (coffee at the supermarket) only has coffee and a little packaging. Your coffee at Starbucks can’t go up (as much) because you pay more for the shop, the wifi, the experience,” he said.
Data released by the US Bureau of Labor Statistics showed ground coffee prices rose to $4.75 a pound in April, up 8.1% from a year earlier and the highest level since July 2015, as a drought-hit Brazil. had an early effect on crops.
Arabica coffee prices on the ICE Futures US exchange rose sharply, however, after the recent frost and retail prices are sure to increase in response.
In Brazil, the world’s number two consuming country after the United States, prices of roasted and ground coffee rose 3.4% in June, according to the statistics office IBGE.
They are sure to grow further. Following the July frosts, Brazilian coffee industry group Ebique asked roasters to analyze their costs and adjust prices accordingly to maintain the stability of their businesses.
Ebic estimates that green coffee prices for roasters in Brazil have increased by about 80% from the end of December to July.
“Some companies, including market leaders, have already announced price increases,” Ebic said in a letter to affiliated roasters seen by Businesshala.
JDE Peet’s, whose brands include Douwe Egberts, Kenko and Peet’s, said there has been a sharp increase in material, freight and other costs over the past 12 months.
“Historically, significant fluctuations in green coffee prices have been reflected in the market (retail prices) and we expect this precedent to continue,” the company said.
An increase in transportation costs, coupled with a shortage of shipping containers, can play a major role in driving up prices. Coffee is typically shipped in containers, as opposed to items such as cereals, which are transported in bulk carriers.
Many coffee companies find it easier to cope with an increase in the cost of beans, at least in the short term, than to increase shipping costs because they often price their purchases several months in advance.
Mark Schneider, chief executive officer of Nestle, recently said, “We’ve been hedging here for a good percentage of our coffee needs for the rest of this year and even part of next year, So I’m not worried about it.” Conference call, adding it was not in terms of transportation costs.
Carlos Santana, coffee head trader at Aisa Intergricola, a unit of ECOM Trading, said it was very challenging to ship coffee specifically to the US.
“It’s not nearly as economical to use this route right now. Ports are full in the US, shipping companies don’t want to move as much cargo there, so they charge more. Prices are three times higher than they were before the pandemic,” They said.
Thiago Cazarini, a coffee broker in the Brazilian state of Minas Gerais, said despite paying very high prices to secure a container, exporters are having problems trying to load them into ships.
He said the problem is widespread, affecting all players.
One US coffee importer said, “Brazil is logically such a mess at the moment. I have coffee that arrived two months ago and haven’t received it yet.”
Julian Thomas, managing director of Maersk Brazil (MAERSKb.CO), part of the world’s largest container shipping line, said: “The current bottlenecks of pandemic containment measures and a strong demand are also affecting supply chains in and outside Brazil. Is.”
“We are still serving our customers and can meet their growing demand,” he told Businesshala.
German container shipper Hapag Lloyd (HLAG.DE) said there were delays for shipping goods, “but not just coffee”.
Brazil accounts for an estimated 30% of global exports and its peak shipment season has already begun.
Additional reporting by Maytal Angel in London and Ana Mano in So Paulo; Editing by Veronica Brown and David Evans