You may soon be paying more for premium coffee, as well as for the lowly stuff that sells under a store brand name. The scarcity of premium beans available to the market right now is starting to drive up prices at the wholesale level, and that means that wherever you get your cup ‘o joe, it’s gonna cost a bit more.
According to industry reports, 52 percent of Americans drink coffee daily. A hike in the price of the brewed coffee served up in shops like Starbucks will be widely felt, but probably will not cause America’s coffee consumption to drop dramatically. That does not mean that consumers and businesses won’t react, however.
Coffee purchases—even of the gourmet beverages—do not make up a large percentage of most American’s budgets. Consumers are much less sensitive to rising prices on products that represent a small fraction of their total spending than they are to prices of large budget items like housing. Even so, they may well decide to switch to less expensive coffee shop purchases, or forego the fancier, more expensive concoctions as part of their prepared coffee consumption. Looking at cheaper brands in the supermarket is also an option for home use.
As for business use and purchases, free coffee may be an item for which it is easy to cut costs, or quality, in order to reduce spending. Don’t be too surprised if there are fewer offers of free refills at restaurants, and less complimentary coffee service offered in businesses’ waiting areas and the like.
Blame at least part of this situation on the Indonesian tsunami. The worldwide coffee market is beginning to feel the effects of the December 26, 2004 flooding and destruction in Indonesia and Sri Lanka. Because both are leading world producers of coffee and tea, the Sumatra coffee beans, in particular, have become harder to obtain. In some coffee shops, higher prices are already reflecting increased scarcity.
Interestingly, not much of the coffee crop was damaged directly in the coastal flooding. Coffee is grown farther inland, in the mountains. But the coffee crop has to be harvested on time, and then transported to viable shipping sites. And that’s the hitch.
After the tsunami hit, coffee crop workers abandoned the mountains to search for missing family and friends. In addition, damage to roads and infrastructure have reduced growers’ ability to bring harvested beans to shipping points. Without sufficient workers and transportation, there will be fewer of the prized Sumatra beans available to the market.
Sumatra coffee beans aren’t the only ones in shorter supply this year. Events unrelated to the Indonesian tsunami have reduced the harvest of Brazilian-grown Arabica beans. In fact, futures for Arabica beans are up about 30 percent over last year’s level.
Even if consumers turn to some of the cheaper brands as a substitute for the pricier varieties of coffee, they are probably going to pay more for the product. A bigger demand for the non-premium brands will drive their market prices up a bit, too, if consumers with more flexible tastes scour the shelves in search of a less expensive brew.
Whatever you choose, if you are one of the millions of folks who rely on a shot (or several) of caffeine to start your day, you probably won’t change your habits very much in the face of higher prices. You may be able to justify your stubborn adherence to the java bean, however. A new study indicates the possibility of significant health benefits associated with a bug-eyed level of coffee consumption. For the Mr. Coffee crowd, it’s almost too good to be true.