Prices for July futures on the London Commodity Exchange reached a seven-year high at dollars 2,480 (pounds 1,675) a ton earlier this week compared with dollars 1,150 in February. They slipped back at the end of the week as speculators bailed out of the market.
Although the cost of coffee beans makes up only about 20 per cent of the price of a jar of instant coffee, manufacturers are warning that further commodity price hikes will be passed on to consumers.
A spokesman for Nestle, which has 58 per cent of the pounds 509m UK instant coffee market through Nescafe and other brands, said the situation was being closely monitored, but an autumn price rise looked possible. It takes four to five months for raw bean prices to filter through to retail prices.
Nestle increased prices by 12.5 per cent in January to take account of a sharp rise in bean prices the previous summer. The increase was the first for four years. The previous move, in January 1990, was downwards to take account of falling coffee-bean prices.
A 100 gram jar of Nescafe has barely changed in price in 10 years, the company said. It cost pounds 1.39 in January 1985 and was raised in January this year to pounds 1.56.
Consumers have enjoyed years of stable prices because of oversupply. In 1989, coffee prices plunged to a 20-year low following the disintegration of the support pact of the International Coffee Organisation, an association of producers and consumers. Producers reacted by dumping their surpluses. Farmers in some central American and African producing countries then found they could no longer afford to tend their crops and supply dwindled.
The recent rise in coffee prices was triggered after the Association of Coffee Producing Countries held back stocks last October under the export retention scheme. Bad weather then hit several key producers and finally the speculators moved in on the commodity futures markets in London and the US.
Nestle points out that whatever the gyrations on the commodity markets, there is no cause for panic. A repeat of the bare supermarket shelves and stockpiling of 1975, after a severe frost in Brazil caused a dramatic rise in the price of coffee in the shops, is not expected. Since then supplies have become much more diversified with the emergence of Colombia, Indonesia and African countries as important suppliers.
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