Coffee prices have topped $3 a pound for the first time in more than 34 years. What is causing our caffeine fix to cost more? There are two primary factors brewing here: 1. Bad weather and 2. Demand is growing amongst the middle-classes in many countries.
Poor harvests due to inclement weather of high-grade Arabica beans have significantly contributed to the surge in coffee prices. Colombia, the second-largest producer, was expected to have a supply of 10m bags in 2011-- but because of heavy rain, traders have scaled down their forecast to about 8.5m. Crops in places like Mexico have been affected by low temperatures, and market analysts are especially concerned about Brazil, the world's biggest coffee producer, for producing less than expected medium quality beans.
Compounding a reduction in supply is an increase in demand. The middle classes in countries like China, Brazil, Indonesia and India are adopting the coffee culture and developing a taste for Cappuccino's in particular. Jeffrey Young, managing director of Allegra Strategies, a leading consulting firm, told Newsfeed that in countries like India, “growth is going to be staggering in the next 15 years.”
Will this affect buying pre-made coffee at Starbucks or your favorite coffee house? So far the cost increases have not trickled down to retailers yet, and each coffee shop sets their individual prices, so there won't be an across the board increase. But be on the lookout and let us know if your favorite coffee brand is charging you more!