On Monday 8 November 2021 we will be raising the prices of our espresso coffees. This year, the price of green coffee on world markets has risen by several tens of per cent. Unfortunately, we can no longer ignore this.
The biggest contributor to these changes is the weather situation in Brazil. First the country was hit by a drought, and in July frosts unprecedented since 1994 destroyed many coffee plantations. Growers lost at least ten per cent of this year's crop. It is difficult to estimate the losses in subsequent years - many trees have been destroyed; new trees planted in their place will only bear fruit in three years.
In addition, the coffee industry - and not only the coffee industry - is struggling with soaring container shipping prices. COVID has severely disrupted shipping operations. Containers on ships have become the subject of speculation. On some routes, freight has become as much as 20 times more expensive.
Unfortunately, we are not helped by rising prices in the country. This is mainly about energy - electricity and gas, which we need to roast our coffee. But also packaging, cartons, printing labels, you know how it is.
There is unfortunately no good punchline here. Coffee rises are hard to enjoy. We write more about the individual reasons for the price increases below.
We hope you will stay with us.
At the end of June and in July, temperatures dropped below zero several times in the south-east of Brazil. The frosts damaged a wide variety of crops, including coffee plantations in particular.
The most severe frost occurred in the morning hours of 20 July 2021. Farmers were expecting low temperatures, surprisingly with a sudden drop of several degrees already in the morning. The lowest temperature in the Minas Gerais region was -1.2 C.
Frost occurred in all the main producing regions of Brazil: Minas Gerais, Cerrado, Mogiana, Paraná.
It was the first such severe frost since 1994. Previously, the so-called "black frost" in 1975 caused the global price of coffee to rise by 100% in a year. Its name comes from the appearance of coffee plantations - under the influence of frost, the trees turn black. This time, the plantations have also been scarred by the cold. Aerial photos show whole black patches where arabica is grown.
The first estimates were that the harvest would be lower by around 2.5-5.5 million bags of coffee as a result of the frost. Today we know that it is almost certainly closer to the truth higher number. And this means that Brazil will harvest and export 10% less coffee than predicted at the beginning of the year.
The year started badly anyway, with a drought in Brazil in the first half of the year, which also had a negative impact on yields. Combined with the frosts in July, we are facing a situation that Brazil has not experienced since 1975.
To make matters worse, it is not only this year's crop that has been damaged. Coffee likes moderate temperatures. For arabica, the optimum average daily temperature is between 15 and 25 degrees. Frost damages not only the flowers and fruit - which translates into the upcoming harvest. Temperatures below zero kill some of the trees. In frost-affected areas, it is estimated that up to 25% of Arabica trees have been irretrievably damaged. Growers are forced to uproot them and plant new trees. These will only bear fruit after three years. Throughout this time, the plantations will produce less coffee.
Arabica prices were already rising when news of the drought first appeared at the beginning of the year. They jumped sharply upwards after 20 July. Part of this change is the result of expected lower production. Part of it, unfortunately, is speculation - the coffee market is susceptible to speculation like other commodity markets around the world. No one at this point can say how long the high price of coffee will last. The destruction of plantations suggests that this is not a temporary effect.
The price increases are not only affecting coffee from Brazil. The country accounts for almost 40% of world production. A 10% lower harvest in Brazil equates to a 4% lower world harvest. And this means that demand for coffee from all producing countries is rising sharply. This relationship is all the stronger because much of the world's coffee trade goes through the New York Stock Exchange, which uses an averaged indicator, the so-called C price, in its pricing. In short, the coffee market is a fully global market, and Brazil is the biggest player-producer in it. Brazil's problems are everyone's problems.
Until now, maritime transport worked in the following simplified manner - containers from China, carrying products to countries in the global North, from which they were then unloaded with other products to Asian countries and the cycle closed. Nobody carried empty containers, transport space is too expensive for that.
During the pandemic in Europe and the US, the demand for Chinese-made goods increased significantly. The societies of the global North locked in their homes during the lockdowns started to buy electronics, furniture, sports equipment, etc. in much larger quantities. Everything that imports into Europe and the US is coming in containers from China. On the one hand, the demand for containers in China has increased significantly. On the other hand, containers did not return quickly enough from Europe and the USA, as the river of products flowing the other way remained at pre-pandemic levels.
At the same time, large numbers of containers began to flow from China in directions that had not previously traded with them on such a large scale. Medical products, such as masks, for example, became needed everywhere. This caused containers to be further dispersed in places from which they had no chance of returning to China too quickly (with goods).
COVID finally caused port shutdowns around the world. On the one hand, important Chinese or Vietnamese ports were closed under sanitary restrictions. On the other hand, European or American ports are unable to handle the ever-increasing number of containers on an ongoing basis, with ships waiting many days to be unloaded. It is estimated that several per cent of all the world's containers are "stuck in traffic jams" for unloading. In the US, President Biden recently announced that the Port of Los Angeles would work 24 hours a day to deal with the problem.
The factors compounding maritime transport problems could be multiplied. The blockage of the Suez Canal has left 330,000 containers stranded at sea for a fortnight. A shortage of truck drivers in Europe and the US means that containers are backlogged at destination ports rather than circulating through the system. And so on and so forth.
Suffice it to say that shipping prices on some routes have increased over the last two years by up to 20 times, and prices are not stopping. Containers are, like coffee, subject to speculation. The big players are able to pay any amount, small importers (if only of coffee) stand at a loss.
For coffee, of course, this means an increase in price. But it also means disrupting the supply cycle. Coffee is an agricultural crop. Its harvest in individual countries falls at precise times. Before the pandemic, it was known exactly when the Kenyan, Colombian or Indian harvest of a given year would land in Europe, the USA or Poland. In the last two years, this has become less and less predictable. The main part of the coffee harvest from Ethiopia will usually arrive in Europe in May. This year they started arriving in June, but this process has actually stretched into September. (Leaving everything else aside - this may affect the availability of your favourite coffees.)
There is also the other side of this coin. Due to the container crisis, farmers in Rwanda and Burundi had significantly impaired access to fertilisers and other materials necessary for coffee production during the pandemic. This, combined with the very unfavourable weather in these countries, resulted in a significant reduction in the size of this year's harvest. And hence an additional increase in prices.
We will not write here about inflation in Poland. A bit on the principle that "as it is, everyone can see". But also in Poland much more than about the frosts in Brazil or the container crisis. Instead, we would like to mention two more things.
Firstly - we would like to draw attention to the wider context. Green coffee prices have remained very low for many years to the benefit of consumers. On the other side, however, were farmers, for whom low prices meant low or no profitability of production. For years, voices have been heard in the industry that this is a great threat, as low prices are causing more and more (especially small-scale) producers to give up growing coffee. Few newcomers are opting for a career as a producer. The average age of a coffee grower in the world is over fifty. The children of parents who grow coffee prefer to seek their opportunities in other professions. As a result, in countries such as El Salvador, for example, demography is a greater threat to coffee growing than climate change.
Unfortunately, the current high raw material prices will not necessarily translate into an improvement in the condition of coffee farmers. The stock market players will certainly benefit. Some producers will sell their coffee at a higher price this year than the year before. More money will find its way into their pockets, and they will be able to use it to invest, improve quality and long-term profits.
Meanwhile, many farmers in Brazil may not be able to withstand the effects of crop damage. They are now bearing the cost of planting new trees, and their profits for the next three years will be correspondingly lower. In addition, many of them had contracts to supply a certain amount of coffee to large customers. Be it coffee corporations or large importers. Many growers do not have enough of their own coffee to fulfil these contracts. They are forced to buy the missing green coffee on the market to avoid incurring high contractual penalties. In addition, they buy it at the current price and sell it at the price of the contract concluded before the price spike - in other words, they sell at a loss.
Last but not least, the frosts in Brazil cannot be unambiguously linked to global warming. Meteorological phenomena of this kind are rare there, but not since today. However, climate change is of great concern to the coffee industry. Many people wonder whether the world's arabica production will last beyond the mythical year 2050. Even so, almost everyone agrees that the number of places in the world where coffee can be grown will shrink. The price of coffee will go up. Some see hope in robusta, others predict that it too will fail.
We have no idea what the world will look like in 30 years. We don't know if we will be drinking coffee in it. On a more short-term basis, it seems to us that, unfortunately, coffee price rises are still ahead of us, regardless of random meteorological events or further clogging of the global economy.
Wherever you look, threats are lurking for coffee. It will become more expensive, or perhaps there will be no coffee at all. It is difficult to look for good things in this situation and an optimistic paragraph to conclude this text. Nevertheless, it is worth remembering that we coffee drinkers in Europe (or even coffee roasters) are relatively the least affected. The price of coffee will increase, but this will not radically change our lives so far. It is the producers - small and large farmers in Brazil, Colombia, Ethiopia, Kenya, Indonesia, India, Vietnam (and all the other countries where coffee grows) - who are increasingly facing an existential crisis. In the coffee industry so far, we have wondered whether their way of life is sustainable in twenty years' time. Perhaps it would be reasonable to ask whether it is sustainable in the next few years. It seems to us that this is where the crux of the problem lies.
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