Coming to a store near you: double-digit coffee price hikes

LONDON/NEW YORK: If your favourite coffee beans have vanished from the shelves, don’t worry -- they will return soon. The bad news is they will be up to 25 per cent more expensive.

Roasters such as Lavazza, Illy, Nestle and Douwe Egberts maker JDE Peet’s are currently in talks with retailers about passing on costs from a near doubling of arabica coffee prices over the past year, according to eight industry sources.

Raw arabica prices KCc2 have spiked due to four successive seasons of deficit as adverse weather makes it harder to grow enough of the delicate beans to meet consumer demand.As roasters press for price hikes, grocery stores and supermarkets push back, postponing signing new supply deals to the point where some have run out of coffee stock.

In one such example Dutch supermarket chain Albert Heijn, the country’s largest, ran out of coffee products like Douwe Egberts and Senseo.The products returned to the shelves on March 20, albeit at higher prices, a spokesperson for Albert Heijn said after the firm concluded talks with JDE Peet’s, one of the world’s top coffee roasters.

“JDE’s purchase prices have increased significantly. We will absorb part of this price increase to keep the products affordable,” the Albert Heijn spokesperson said.JDE Peet’s, which has warned of a profit decline this year due to surging coffee costs, said the stand-off with buyers in the Netherlands and Germany resulted in some of its products missing from the shelves. It added, however, that it has since concluded 90 per cent of its price negotiations globally. Global prices for arabica KCc2, typically used in roast and ground blends, have gained more than 20 per cent this year after soaring 70 per cent last year as Brazil -- producer of nearly half the world’s arabica -- suffered one of its worst droughts on record.

On average, the raw beans account for about 40 per cent of the wholesale cost of a bag of roast and ground coffee.That means that if last year’s raw bean price jump was passed through in full this year, it would equate to a 28 per cent price rise to the consumer, said Reg Watson, director of equity research at Dutch Bank ING.Watson believes prices will rise 15-25 per cent and that in some markets consumers may feel the hike in one shot.

RATIONING

Even steeper rises are taking place in countries whose currencies have weakened significantly against the dollar. These include Brazil, the world’s second largest consumer of the beverage as well as the top grower.

According to documents sent to clients and seen by Reuters, 3 Coracoes, a large Brazilian roaster, raised roast and ground prices by 14.3 per cent on March 1, having previously hiked them by 11 per cent in January and 10 per cent in December.

3 Coracoes did not respond to requests for comment.

Brazilian coffee roasters association ABIC said price rises in the country are steep because in local currency terms, raw bean prices rose 170 per cent in Brazil last year.

In response, Brazilian shop shelf prices have surged 40 per cent, with more increases coming as early as this month, said ABIC.“People are already rationing, changing their habits. If before they used to make a big thermos at home for the family, sometimes throwing what was left down the sink, now they cut the waste,” ABIC President Pavel Cardoso told Reuters.