Frost in Brazil fires coffee prices: Sharp increase on markets may be passed to consumers later in year

COFFEE prices on the shelves are set to rise again later this year after a sharp frost in Brazil caused a 40 per cent rise in world coffee prices in London yesterday.

The highest coffee prices in more than eight years followed reports from Rio de Janeiro that the frost was the worst in more than a decade and that a third of next year's crop might have been lost.

Nestle, which has 55 per cent of the British instant coffee market, said price increases in the market usually took four to five months to show up on the shelves because producers bought beans in advance. If bean prices remained high the company would raise shelf prices.

The company's last price increase was in January, when the recommended retail price went from pounds 1.39 to pounds 1.56 for 100 grams. The rise in prices may accelerate falling consumption in the key US market, a spokesman for the Dutch supplier Douwe Egberts said.

However, coffee prices are highly volatile, and Nestle made clear it did not set prices by day- to-day fluctuations in the markets. There were also satellite reports suggesting the damage in Brazil might have been exaggerated.

In Rio de Janeiro, the damage was nevertheless said to be extensive. 'This was the worst frost since 1981,' said Francisco Orique, a partner in the Flavor Coffee trading firm.

About 5 per cent of this year's crop might have been lost, he added.

'They're just beginning to evaluate the damage,' said an official of the National Coffee Council, representing growers. Weather reports also suggest there could be further frosts. Brazil is the world's biggest coffee producer, and crop losses will tighten world supplies, already low after poor crops elsewhere.

The price for September delivery of robusta coffee on the London market jumped to dollars 3,150 a tonne, the highest since November 1986.

It was unclear how traders holding short positions - after selling coffee they do not own - will handle calls from exchanges to increase their cash margins to cover the rise in prices.