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| August 2011 | Commodity news and trends | |
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Resistance has been low to recent increases in coffee prices, even though they moved above the spikes reached in 2008.
The long lag between coffee price increases and increases in coffee supply (roughly 5-10 years), suggests that prices will plateau over the next 1-2 years, without a large reversal. Movement from traditional small-scale shade methods of coffee bean cultivation towards the more organized large-scale full-sun methods, notably in Brazil, the world's largest coffee producer, have lowered the costs of green coffee bean production. The larger scale producers have played tough in pricing their product. The movement to Fair Trade practices, i.e., the idea that consumers should be willing to pay more for the raw bean part of their cup-of-coffee price, in order to better the lot of producers, has played into the hands of large producers and aggressive pricing practices. American and European consumers accepted the latest round of retail coffee prices, buying the argument that producers are simply passing along the costs of increased coffee bean prices. The expectation is for resistance to future coffee price increases. The historically wide price differential between higher and lower quality coffee grades (i.e., arabica versus robusta) suggests there is a top-side to future price increases. The longer time required to increase arabica production compared to that for robusta will slow the narrowing of the priced differences. The world economic recovery will increase demand for higher grade coffee, as coffee has become, at the top end, very much a world luxury good. |
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