Why Coffee Prices Are Skyrocketing – And What It Means For Your Cup

A looming change to coffee giant Pret a Manger’s popular loyalty programme was met with mixed feelings and anger from some subscribers last month.

Previously, subscribers could order up to five free Pret coffees per day and get 20 percent off food for £30 a month. From September, for a monthly fee of £10, they can get five half-priced coffees a day.

While some may still find the new offering generous, rising coffee bean prices since the start of the year could force Pret and its competitors to raise coffee bean prices in-store.

Prices for robusta and arabica beans, which together account for about 99 percent of global coffee production, have risen dramatically.

According to online trading platform CMC Markets, London Robusta futures peaked at $4,846.70 per tonne in July, up as much as 81.7 percent from a low of $2,652.60 12 months ago.

Over the same period, futures on lower-caffeine arabica beans rose 42 percent to $2.32 a pound, up from $2.57 a month ago.

By comparison, a record high of $3.02 was reached in March 1977 (inflation-adjusted: $31.73), when global production failed to meet demand after a particularly bad harvest in Brazil.

Coffee sellers, including pubs, cafes and supermarkets, have therefore had to increase their prices to protect their profit margins.

The prices will not have gone unnoticed by consumers in the UK, where the British Coffee Association estimates that Approximately 98 million cups of coffee are consumed every day.

Why have coffee bean prices risen so much and is there a chance that they will fall in the near future?

Why have coffee prices risen so much recently?

After rising sharply in 2021, only to fall again the following year, coffee prices have been steadily rising since November 2023, as climate change impacts production in several major coffee-producing countries.

Brazil, the world’s largest coffee producer and exporter, is facing drier weather and above-average temperatures in regions such as Minas Gerais.

Exporters group Cecafe warned that this season’s robusta harvest could be 10 percent lower than forecast, while arabica yields could be 5 percent lower.

Meanwhile, extreme heat and the worst drought in nearly a decade have dented robusta yields in Vietnam’s Central Highlands, home to most of the country’s coffee plantations.

Vietnam’s Ministry of Agriculture and Rural Development now expects the total coffee harvest to fall by about a fifth between October 2023 and September 2024 compared to last year.

Vietnam may only supply 24 million bags of robusta coffee next year, the lowest in 13 years, due to “irreparable damage” to the country’s coffee blossoms, according to coffee trader Volcafe.

Coffee cultivation is vulnerable to extreme weather conditions, particularly extremely hot and rainy conditions, which make it easier for pests and diseases to spread.

Coffee is most abundant when temperatures are not too hot or too cold, and conditions are not too wet or too dry. Some scientists call coffee the “Goldilocks plant.”

Farmers could move their farming activities from tropical areas to more northerly regions, but this brings economic and ecological problems.

From the end of 2024, new European Union rules will come into effect banning the import of coffee grown on recently deforested land.

Coffee roasters operating across the EU must provide geolocation data showing the precise origin of their coffee beans, or face fines of up to 4 percent of their EU turnover.

These proposed laws have been heavily criticized by Giuseppe Lavazza, chairman of the eponymous Italian coffee products manufacturer.

He told the Telegraph that the move make coffee more expensive throughout Europebecause too many farmers in developing countries cannot cope with the extra bureaucracy and will go bankrupt.

“Many farmers don’t know the boundaries of their farm; they don’t have the ability to enter geo-satellite coordinates into the system,” Lavazza said, adding that some “simply pick coffee, fantastic coffee, the best in the world, from wild forests.”

The EU claims that the value of coffee from wild forests is minimal and that free technology for mapping coordinates is easily available.

Carlos Mera, head of the agricultural commodities market at Rabobank, said the rules had created “a lot of uncertainty” and many traders had “purchased and imported early”.

“That’s why we see higher prices in the coming months, but they drop just before or after the implementation,” he adds. However, he believes that harvest problems in Brazil and Vietnam are the main reason for the high prices.

Another factor behind current coffee prices is the significant reduction in the number of ships passing through the Suez Canal due to the threat of attacks by the Houthis, a militant group that controls much of Yemen.

Some of the world’s largest shipping groups, including Maersk, Hapag-Lloyd, CMA CGM and the Mediterranean Shipping Company, are diverting their cargo and sailing around the Cape of Good Hope in southern Africa.

Such voyages add at least ten extra days to the journey time of ships carrying robusta coffee from Vietnam or Indonesia to Europe, driving up costs.

According to the Drewry World Container Index, average global container rates have risen dramatically over the past year, from $1,537 per 40-foot container to $5,806.

Shipping goods from Shanghai to Rotterdam has become particularly expensive, with freight rates on this route rising 539 percent to $8,260.

If the Houthis’ attacks do not stop soon, cafe owners may have to pass on even more of the extra costs to consumers.

How much further will coffee prices rise?

The World Bank predicted in April that Average Robusta coffee prices set to rise by a quarter to $3.50 per kilo this year, before falling back to $2.80 in 2025.

However, the report predicts that arabica prices will fall to $4.40 in 2024, followed by $4.35 the following year, helped by production in Brazil, Colombia and Ethiopia, increasing total supply by almost 7 million bags in the current season.

Rabobank expects Arabica prices, while still above $2 per pound, to decline towards December and early 2025.

According to Carlos Mera of Rabobank, there is one factor that does not significantly affect prices: demand. He points out that demand has increased by less than 1 percent in the past year, instead of the usual 2 to 2.5 percent.

He says: ‘As a result of the current high price cycle, weaker demand and a recovery in production can be expected.’

The popularity of coffee drinking is expected to continue to increase in the coming years due to demographic changes, with a rapidly growing middle class in countries such as China, India and some African countries.

The US Department of Agriculture estimates that global coffee production will increase by 7 million bags to 176.2 million in 2024/25, while consumption will total 170.6 million.

In the long term, however, coffee growers will be forced to respond to the threat of climate change.

If not, Pret’s future coffee subscriptions could be even less attractive.