Coffee has every chance of following in the footsteps of the cocoa inflation crisis. A few months ago we witnessed a huge increase in the price of cocoa for different reasons, but the voices pointed directly to the effects of El Niño, both at the production level and at the plant disease level. After a few months of truce, it is now coffee that follows the pattern of the increase in cocoa prices.

The real problem is that we cannot blame the climate entirely, and the crisis in the Red Sea is also responsible for the increase in coffee prices that will not subside in the short term.

The situation in EuropeAt the beginning of this year, the European Union statistics portal published a graph in which we can see that coffee inflation has decreased from its maximum level in October 2022 (with a peak of +17.4%) to 1%, approaching its lowest point of 0.8% in July 2021. It did not seem like bad news, but the problem was that when focusing on each of the countries within the Union, significant differences emerged.

Fifteen of the European Union countries will have higher inflation rates in March 2024 than in March 2023, with countries such as Croatia, Romania or Bulgaria above 6%. Another 12 countries saw lower inflation rates, with Finland and Lithuania at -15.5% and 15.4% respectively, overshadowing the data for the rest of the 27 countries. Beyond the charts, the market situation looks different.

The downside of LavazzaAs we can read in The Guardian, the chairman of the company of the same name, Giuseppe Lavazza, had stated in 2023 that prices would start to fall this year. And yes, that was the case as we saw at the beginning of 2024, but now he admits that he was wrong. Last Monday, July 8, prices per tonne of coffee reached $4,300, meaning that the price of a one-kilo bag in the UK will increase by 15% in a year.

“We have never seen such a big price increase as we are experiencing now,” said Lavazza, adding that the work is not over, and the current situation could cause prices to increase by 20% to 25% in the coming period. 2025. “We are facing very, very strong headwinds and I see no reason why coffee prices should fall,” said Lavazza. The truth is that this climate analogy seems to be true.

El Niño and bad harvests. El Niño is a climate phenomenon related to the warming of the Pacific Ocean, associated with heavy rains in Brazil and droughts in India. But it has an impact elsewhere too, and Vietnam, the world’s largest producer of the Robusta variety, is suffering the consequences. The drought hitting the Asian country is expected to cause a 10% drop in coffee production, as it hits the country during the coffee cherry’s development phase.

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

Chinese. Robusta is in high demand as it is generally cheaper. Therefore, coffee used in blends and instant coffee and demand continues to increase worldwide. However, if there is one thing that could inflate the price, it is China entering this market as a consumer rather than a producer.

As Bloomberg pointed out a few months ago, China was developing a new taste for coffee. Consumption, which remained almost constant until 2008, began to increase by 2012, peaking at five million bags of 60 kilos each in the 2022-2023 season. It’s a streak that hasn’t stopped growing, and while it wasn’t among the top coffee-consuming countries 20 years ago, it now ranks seventh.

The best coffee producers of 2020

Red Sea. But it’s not all about consumption and production, but also regulation and supply routes. There’s something about the latter that affects not only the coffee trade but also everything that has to be transported from east to west. The trade is mostly done by sea and is carried out by container ships. These ships have optimized routes and in case something happens, they have to use longer alternative routes.

That’s exactly what’s happening around the world, but Robusta coffee from Vietnam and Indonesia is going through the Suez Canal, where ships are refusing to go through. Why? The Houthi rebels’ attacks on ships are forcing those ships to take a longer route through South Africa, which costs more money due to increased salaries and higher fuel costs. And then that shows up in the stock and the price of the commodity.

European regulationOn the regulatory side, there are new EU regulations to combat imports of products from deforested areas. This affects all products that contribute to deforestation, such as coffee, cocoa, soy, palm oil, charcoal, wood and rubber, the EU being responsible for 10% of global deforestation due to their imports.

Brazilian and Arabica coffee weather the storm. This perfect storm seems to be affecting Robusta production the most, but it could also push Arabica down. Those who use Robusta in their blends may choose to go for Arabica if they can’t get their hands on the raw material or if the price isn’t competitive, but the price will increase anyway. But Brazil may be an oasis in all this chaos because, yes, El Niño is also affecting it, but Bloomberg points out that they have a surplus of a Robusta variety known as ‘conilon’ that is ready to be exported.

Let’s see what happens and although Lavazza is focused on the figures for the UK market, it is still the tenth largest coffee market in the world. Moreover, China has not had the final say because it is not yet known whether it will be a fashion or an everyday drink. In this case, China’s hunger for coffee beans could darken the future of the market even more.

Images | Visual Capitalist, Adrián Cerón

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