Coffee Prices Soaring, Set to Hit Consumers Amidst Production Challenges
Coffee futures (KC=F) have skyrocketed over 30% year-to-date, hovering near all-time highs. This surge is beginning to impact consumer wallets. The Consumer Price Index report released Wednesday revealed a 2.5% increase in roasted coffee prices in January compared to the previous year. Instant coffee, meanwhile, experienced a significant 7.1% jump.
Factors driving the rise include climate issues affecting top coffee producers and exporters, such as Vietnam and Brazil. Brazil, which imports the second-highest amount of coffee annually after the European Union, suffered its hottest year on record in 2024, leading to forest fires and higher prices for arabica coffee.
Industry experts anticipate continued price increases. Andrea Illy, chairman of illycaffè, indicated that while the company has not yet raised prices, it may be forced to in the near term. Keurig Dr Pepper (KDP) CFO Sudhanshu Priyadarshi also expects coffee inflation to persist in 2025.
However, some large retailers have been able to mitigate the impact through advance purchasing and futures contracts. Starbucks (SBUX) CFO Rachel Ruggeri reported a minimal coffee price impact in Q1 due to hedging strategies.
Instant coffee's price increase is attributed to its lower price point, making it more feasible for companies to increase prices without alarming consumers. Shonali Paul of Paul John Caffeine cites the use of robusta beans, a lower-quality variant, in instant coffee as a factor.
Other contributing factors include rising shipping and labor costs. Heather Perry, CEO of Klatch Coffee, emphasizes the impact on instant coffee's already-thin margins.