Why is coffee so expensive?

Some of our biggest coffee chains offering the likes of lattes, cappuccinos, expressos and americanos, have increased their prices of these popular drinks by 25% (or more) over the last couple of years, when the general rate of inflation across all goods from January 2019 to January 2022 has been 8.1%. So why this threefold increase in price for our morning caffeine?

“A myriad of cost pressures all coming at the same time”, is to blame, explains Paul Rooke, Executive Director of the British Coffee Association.

The measures introduced by governments because of the pandemic has put unprecedented strain on many businesses and at this point, they don’t have much choice but to pass the burden onto consumers or risk going out of business.

During the first lockdown of 2020, in the UK 95% of the coffee shops were shut, resulting in a drop in sales from £363 million to £51 million, from one month to the next. A total shocker.

At a time when the economy has suffered so badly due to demand shocks, it is unfortunate that arabica beans, used widely by high street chains such as Pret a Manger and Starbucks, have seen such a poor harvest in Brazil, that its price has risen by 80%. As Charles Sargeant, a commodity broker at Britannia Global Markets warns, “The higher prices are not going away and will translate into higher consumer prices”.

Coffee drinkers might concur that arabica gives the smoothest flavour; it is the most popular bean, amounting to 60% of production across the globe. But recent droughts in Brazil, followed by extremely rare frosts, have severely damaged the yield - and weather forecasts for 2022 are not looking promising for the crop either.

Colombia on the other hand, which is the second highest producer of arabica, has faced too much rainfall, which has damaged the coffee plantations. Then there is Ethiopia, widely believed to be the birthplace of coffee and currently the biggest producer in Africa, which has been affected by civil conflicts, that in turn have impacted the export of coffee beans.

Other than the crop itself, there are also problems with transporting the coffee from the growers, shortages of containers, higher fertilizer costs and lack of available labour – factors largely resulting from pandemic-related pressures.

“You’ve got a situation where many companies are already stripped to the bone in terms of financial flexibility”, continues Rooke. “There is just no ability to absorb these kinds of cost increases right now”.

Arabica’s downfall is good news for robusta, a coffee bean that is the second most popular in the world, with Vietnam being the biggest exporter. Vietnam too will be battling shipping issues, but at least it has a bumper crop and no problems around production.

If you drink one of the world’s 2 billion cups of coffee consumed daily, you might have noticed your drink costs more and/or tastes different (more robusta than arabica – or perhaps a combination of the two).

The big question you might be asking yourself next time you go in to grab a hot drink is if you will be ordering a flat white or an Earl Grey.

Suggested Links:

Why Are Coffee Prices Rising and Roasters Using Arabica not Robusta Beans? - Bloomberg

Soaring cost of coffee beans set to be filtered through to customers (telegraph.co.uk)

The real cost of your cup of coffee (telegraph.co.uk)

British Coffee Association