Finance Consumer Coffee prices surge as Brazilian growers struggle. Here’s what it means for Australia

Coffee prices surge as Brazilian growers struggle. Here’s what it means for Australia

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Horror conditions for coffee producers in Brazil have pushed up the price of Arabica beans, so will consumers in Australia end up paying more for their cup of Joe?

Although it will hurt some parts of the industry, our love for a strong brew should see most daily drinkers protected from the upheaval.

At least for now – experts have warned we could see the effects of Brazil’s shocking run of bad luck drift into our lattes in 12 months’ time.

Not the triple shot you want

Brazil is the world’s largest producer of coffee, but the industry has been dealt blow after blow over the past year.

The impacts of the COVID-19 pandemic – including sick workers and a dramatic rise in freight costs, coupled with the worst drought in nearly a century and the most severe frosts since 1994 – have hit the nation’s coffee industry hard.

Brazil supplies about 40 per cent of the world’s coffee, mostly Arabica beans which are considered superior in taste to the more earthy Robusta variety.

Last month, an unusually harsh cold snap triggered frosts that wiped out more than 10 per cent of Brazil’s coffee crops.

This led to green coffee beans soaring to their highest price on the New York stock exchange in seven years.

“It was the coldest winter in recent memory for all those regions that are coffee producers. This was a problem because without water, and with the frost, the plants are really affected,” explained Flávio Romero Macau, an expert in supply chain management and global logistics at Edith Cowan University.

The intense frost killed off most of the young coffee plants under two years old, and those under four years age will need to be pruned “so extensively that they will produce less coffee for the following years”, Dr Macau said.

COVID is also “ravaging Brazil in many ways” and has played havoc with coffee producers’ “archaic” transportation logistics system that relies heavily on workers rather than automation, Dr Macau said.

“These people were affected by COVID. They got sick. They were not able to transport coffee as they used to,” he said.

The pandemic has also caused the price of global shipping to skyrocket, “not only for coffee, but for all sorts of products”, Dr Macau said.

“So you’ve got all these things together. It’s an inviting storm to raise the prices of future coffee markets”.

What it means for coffee drinkers in Australia

Despite the surging cost of Arabica beans on stockmarkets around the globe, coffee drinkers in Australia are likely insulated from price rises, at least in the short to medium term.

Australia imports most of its coffee from overseas, including about 15 per cent from Brazil, with the raw beans then roasted locally.

“Coffee roasters generally chase beans from various suppliers before roasting and formulating their own blends locally. Trends in the global coffee supply chain do have a major impact on roasters and distributors,” IBISWorld senior industry analyst Suzy Oo said.

“But the burden of price surges will likely fall on distributors and coffee retailers rather than Australian consumers.”

Australia’s strong coffee culture means consumers are spoiled for choice and can “easily switch” to another cafe or brand, meaning “operators are forced to maintain competitive prices”, Ms Oo said.

The pandemic has also changed Australian coffee drinkers’ consumption habits, with more of us making our own coffee at home.

Extended lockdowns and restrictions are “fuelling consumers to shift to at-home options that create a stronger demand for instant coffee and coffee machines,” Ms Oo said.

With many coffee brands jostling for space on supermarket shelves “it’s unlikely they’ll lift their prices in the short run”, Ms Oo said.

Big chains such as Starbucks also lock in the price they pay for coffee beans and transportation more than a year in advance, and are still benefiting from pre-pandemic prices, Dr Macau explained.

“At those times the prices were at the minimum, both logistics and for the price of the product of the coffee itself,” he said.

“So what they are paying today is the market from one-and-a-half years ago that was very favourable to them in terms of costs.”

So, while the price of a cup of coffee in Australia won’t rise immediately, in “one year from now, the cost for your Starbucks coffee will be substantially different”, Dr Macau said.

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