Coffee Price Shock on its Way

Coffee wholesale prices have rocketed in the last few months and this will affect prices in the shops before much longer. Why have prices more than doubled? There are two reasons: the superficial and the fundamental. As usual the media are focusing on the superficial cause which was a minor frost in Brasil last summer (winter in Brasil!).

In nature, coffee is a bush growing under big trees in tropical forests, so coffee monoculture as practiced in Brasil leaves the bushes vulnerable to frost.

But it was not the Brasil frost which pushed the price up so spectacularly, the underlying cause was the global market system. The speculators have more money that the coffee trade and they seized on the temporary shortage to jump in, buying up coffee futures they have no intention of actually taking ownership of.

Later there will be a price crash when they decide the market has peaked and liquidate their positions. In the meanwhile the coffee trade has to pay extra to fuel their profits, in effect a capitalist levy on the coffee trade.

At Coffee Plant we are somewhat protected by the Fairtrade system which tries to damp down the price swings. The good news is that coffee roasters put a big markup on the basic price of unroasted coffee, so we can absorb a lot of the increase until the inevitable crash.