Coffee shortages stoke steep price rises
Sunday 09 March 1997
There could be a shortage, especially in the top-quality Arabica beans that are used to produce cappuccino.
"Where is the coffee going to come from?" asked Carl Walker, a coffee importer in Texas. "There doesn't appear to be that much left in Latin America."
Last year coffee roasters decided to run with smaller inventories and use stored coffee to cut their costs. As a result, stockpiles in the US, where Arabica beans are traded, are down 38 per cent from a year ago. Then Columbia, the second biggest producer, was hit with heavy rains and a strike. Guatemala's bean harvest has been small and now there is concern about the size of the crop in Brazil.
Coffee prices started to soar towards the end of January, reaching their highest level for two and a half years on Wednesday on the added threat of a dockers' strike in Brazil. Coffee traded in New York reached $2.197 (pounds 1.37) a pound last week, up from $1.15 at the beginning of January.
This has spilled over into London where robusta beans, used largely in instant coffee, are bought and sold. Prices have been pushed as high as $1,785 a ton on the London International Financial Futures and Options Exchange, even though supplies of robusta are plentiful. Some retailers have already been forced to raise their prices.
Mario Cerutti, director of purchasing at the Italian coffee producer Lavazza, said "some small steps" had been taken to match retail prices with the recent rise in traded coffee.
"The exchange rate with the dollar has also caused complications," he said. "Our initial estimates resulted in small increases which are already showing not to be sufficient."
Some drinkers might think they have already seen a substantial inflation problem in the cappuccino bars. A 1lb bag of coffee beans in the Costa Coffee chain costs pounds 5, but a cappuccino there is 95p.
"We try and shield customers as much as we can," said Scott Svenson, co-founder of the Seattle Coffee Company. "However, if there was a sustained, long-term rise then we would have to consider our position."
The blends Seattle uses are either sold by specialist brokers at a fixed premium, or they are sold by estates at fixed prices, Mr Svenson said. If the price rises in the commodities market, then the company will have to pay a higher premium. Estates may raise their prices if they see market rates rise, he added Copyright: IOS & Bloomberg
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