Coffee's grounds for concern

CONSUMERS look likely to have to pay more for their morning coffee following a jump in wholesale costs to a five-year high.

At its peak on the London Commodity Exchange last week the price of robusta coffee beans, the mainstay of British instant coffee, reached dollars 1,502 a tonne, a rise of 10 per cent since the start of the month and more than 25 per cent since the beginning of the year.

Nestle and other British retail suppliers insist that they have no plans to raise prices, but they are undoubtedly keeping a close watch on a worrying trend.

Industry analysts report that European coffee manufacturers generally would like to charge more but are holding off because of the competitive retail market and sluggish demand growth.

But another reason is that the rise in the wholesale price of green beans - fundamentally the result of tightening supply lines - has been fuelled by massive speculative buying, especially in New York.

This is making for very volatile trading, according to E D & F Man, the commodity house. As speculators took profits late last week the London market at one stage dropped by more than dollars 70.

But despite the market's gyrations most analysts seem convinced that over the longer term the only way for prices to go is up.