Rising coffee prices are forcing roasters to add cheaper beans to blends

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Global coffee prices have risen to record highs as poor weather disrupts harvests, raising costs for consumers and pushing roasters to add cheaper beans to their blends.

Prices for both robusta beans, used in instant coffee, and the higher-quality arabica variety have risen in recent months. Robusta futures in London, the global benchmark, hit a record high of $4,971 a tonne this week, while Arabica futures traded in New York rose to $2.49 a pound, near their highest level of the last decades.

“Prices may not have peaked,” said Steve Butler, co-founder of ChAI, a commodity price forecasting firm that uses artificial intelligence. He added that the rally has attracted speculators, who will likely continue to increase their bets that prices will continue to rise.

A recent crisis in Brazil, which accounts for about a third of the world’s coffee production – 70% of which is Arabica – has sparked fears of a supply shortage. Frosty weather in Brazil follows months of drought in Vietnam, the world’s top robusta producer, pushing global bean supplies into a fourth straight year of shortages.

Rising transport costs are also putting pressure on the market. Attacks by Houthi militants in the Red Sea in November forced ships traveling between Asia and Europe to take the longer route around the Cape of Good Hope instead of going through the Suez Canal.

Bakers are feeling the pinch. Anna Manz, chief financial officer at Nestlé, told investors in July that “input costs in both coffee and cocoa” would put pressure on the food giant’s profit margins over the next six months.

These costs are also passed on to consumers. In Italy, cafes can no longer enjoy the morning espresso for 1 euro. The average price in the country’s cities rose 15% from 2021 to €1.20 this year, according to consumer group Assoutenti.

Consumers may also notice a change in taste. When arabica prices were high from mid-2021 to early 2023, and robusta supplies were ample, roasters began adding more of the cheaper beans to their blends, said Charles Hart, senior commodity analyst at BMI, “which in turn saw stocks in Vietnam and Brazil reduced and thus set the stage for higher coffee prices in 2024.”

Now, faced with rising costs for both bean varieties, roasters are trying to protect their shrinking profit margins by sourcing Arabica from cheaper producers, particularly in Brazil, and adding more lower-cost bean varieties to their mixtures.

“Normally, the gap between New York (Arabica) and London (Robusta) is only tight when prices are low,” said Judy Ganes, a veteran coffee analyst. “Now with the high prices, roasters are incorporating more lower quality beans, especially from Brazil.”

Despite the mounting pressure on prices, the coffee market is not yet “a wild west like the cocoa market was earlier this year,” Butler said.

Prices of the main ingredient used to make chocolate soared, leading to extreme market swings as hedge funds and other speculators scrambled to exit losing bets. Although coffee has not seen similar volatility before, high prices will lead to a “battle” between traders who took short positions in late June or early July, when the market fell, and those who bet on prices will continue to grow, Butler added.