- Coffee prices are surging after frost destroyed portions of the crop in Brazil, the world's largest producer of the popular commodity, according to Fortune. As a result, Arabica coffee prices recently increased more than 30% in one week and could soon reach $3 per pound. This would be the highest price for coffee since 2011.
- The cold weather will not affect the 2021 harvest, which is already under way, The Wall Street Journal noted, but the 2022 crop could be roughly one-quarter below normal. The cold weather comes after a drought battered production of the 2021 crop.
- Sixty-two percent of American adults drink coffee every day, according to a 2020 survey from the National Coffee Association. A coffee shortage could impact major producers of the beverage, including Nestlé, J. M. Smucker and even Coca-Cola.
The weather is the latest headache for producers of the widely consumed crop. In recent years, coffee also has been hit by locust invasions in East Africa, a shortage of shipping containers, anti-government protests that slowed exports and pandemic-induced labor shortages in Colombia — all of which have put upward pressure on prices.
With the coffee supply chain already under pressure and consumer demand remaining high, the recent severe weather that damaged Brazil’s crop could spell more trouble for coffee prices and food manufacturers that source large amounts of beans used to make the beverage.
As inflation fears ripple throughout the food industry, a number of CPGs are announcing price hikes to offset the increased costs in their supply chain. Many coffee-dependent companies are among those in the mix.
Nestlé, which owns Nescafe, Nespresso, a majority stake in Blue Bottle, Chameleon Cold-Brew and Coffee Mate creamer, told analysts in April that it’s “raising prices where appropriate” and attempting to hedge where it can. During its earnings released Thursday, Nestlé said the largest contributor to its organic growth during the first half of its fiscal year was coffee.
Other CPG companies have made a big play for coffee-focused beverages in recent years including Coca-Cola, which bought Costa Coffee for $5.1 billion in 2018, and J.M. Smucker, the owner of Folgers and Cafe Bustelo. Both companies have announced price increases, though they didn't single out coffee specifically.
Consumers will likely have mixed reactions to any potential increase in coffee prices. Given how dependent some people are for the beverage, they may be willing to keep adding it to their carts. U.S. coffee consumption was up 5% since 2015, according to the 2020 NCA survey.
More cost-conscious consumers may be motivated to turn to other caffeinated drinks, such as tea or functional beverages entering the market to get their buzz. Private label brands that already had a cost advantage over premium offerings may see a boost as consumers swap out their preferred brands for more economical options.
The use of coffee in colas and the addition of new spins on old classics such as cold brew are driving increased consumption and motivating more CPG companies to get deeper into the coffee game. Coca-Cola in January launched its coffee and soda hybrid drink on U.S. shelves. With demand for coffee unlikely to slow, the recent challenges impacting the crop could spur development for more weather-resistant beans or coffee that can be grown in new regions of the world.