Coffee lovers should expect to pay more for their morning cup this summer. Due to a number of factors, including drought and a crop-destroying fungus, getting your daily dose of caffeine may be about to get a little more expensive, if it hasn’t already.
The impact on prices, both at major chains and in small, locally owned businesses, will depend on where their beans are grown.
As reported by the Associated Press, a drought in Brazil — the world’s largest coffee producer — could shrink this year’s crop by 20 percent, which would mean fewer beans to go around.
At the same time, a fungus, called coffee rust, is destroying beans throughout Latin America. This includes Arabica beans — the ones used to make specialty coffees.
«We are concerned, because we know coffee rust is already causing massive amounts of devastation,» Raj Shah, head of the U.S. Agency for International Development, told AP.
If current conditions persist in Latin America, coffee production could decrease anywhere from 15 to 40 percent in the coming years.
Many of the larger companies have multiple suppliers throughout the region, which allows them to source enough beans to avoid the effects of the drought and coffee rust. Yet prices are still going up.
The drought has driven Arabica-coffee futures up about 60 percent this year. Futures rose above $2 a pound for the first time in two years, with a peak of $2.19 in April.
«We’re seeing more signs that the days of low inflation are behind us,» said Jennifer Lee, senior economist at investment firm BMO Capital Markets. Lee said the drought was to blame for higher coffee prices.
As of this spring, some smaller outfits were already seeing higher prices for their coffee, Ric Rhinehart of the Specialty Coffee Association of America told the AP.
In March, Starbucks CEO Howard Schultz’s told the AP his company would not raise prices, even if the cost of beans kept climbing. Starbucks locked in order prices for the next year months ago using futures contracts, so this year’s prices would not be affected, he said. (A future is a trade agreement to sell a commodity at a price agreed upon today, even if that commodity won’t be delivered until a later point.)
Zack Huston, a representative from Starbucks, said several factors contribute to the rising cost to consumers, including competitive dynamics and cost structure.
«Our cost structure, of course, includes the cost of coffee, but also other costs like rent, labor, distribution, fuel, dairy, energy, etc.,» Huston wrote in an email. «We price our products on a long-term, market-by-market and product-by-product basis.»
Prices increased for some beverages in Starbucks coffee shops nationwide on June 26. Cost adjustments are not a new thing for Starbucks, however. The company also raised beverage prices last June.
Source: reading.wickedlocal.com/article/20140727/NEWS/140729156
