Why Raw Coffee Prices Remain High & How Global Conflicts Impact Your Morning Cup

 

Well, that didn't last long.

Just when we thought all the bad news holding the price of raw coffee up at record-high levels was behind us, along comes another new conflict, disrupted shipping lanes, oil shortages, and fuel cost hikes.

Ever since the start of the pandemic in early 2020, the global coffee supply chain has been in chaos—and at times, full-blown crisis. Barely has there been a period of genuine stability where all parts of the industry have been able to "catch up."

Instead, we seem to lurch from one negative narrative to the next, leaving no space to measure or optimize the constant adjustments required to run a coffee roasting business. If it's not a shortage of shipping containers, coffee leaf rust epidemics, or adverse weather like excessive rains, drought, or frost lowering harvest yields, you can almost bet that next month something new will hit the headlines to keep the price of raw coffee high.

The Meteoric Rise of Raw Coffee Prices

For those of you who have not followed the market since the pandemic, here are some wild headline stats: raw coffee has doubled in the last 2 years, and tripled in the last 5 years.

Apparently, all this trading chaos is caused by a perceived shortage of coffee. We all know the basic economic rule: when supply falls short of demand, prices rise.

I say "apparently" because, for some of us working in the Australian coffee industry, we don't buy that story. Sure, the frost in Brazil kicked off the extreme pressure on prices, and large producers like Vietnam, India, and Colombia hiccuped with their volumes. But let me just point out one thing:

At no point has any coffee roasting brand in any part of the world ever put up their hand to say, "Heck, we just ran out of raw coffee."

Let that sink in for a moment. Nobody ran out of coffee. No brand shut up shop, switched off their equipment, or delisted their business because they actually ran out of beans.

So, How Are Raw Coffee Prices Actually Set?

Raw coffee prices are often an "artificial" construct. They are based on future price speculation, the strange use of "replacement costs," and origin differentials—essentially, the games played in each coffee-growing country about whether they are (or will be) in a state of shortfall or surplus.

Combine this with the whim of those who currently hold the raw coffee inventory (farmers and exporters) wanting to sell at current prices or hold on for a higher profit, and you have a complex system that has favored sellers for a long time.

The uncomfortable truth is that Australian coffee brands are relatively tiny with zero global influence. We basically get offers to either "take it or leave it." While some industries have a low cost of goods compared to their selling price, roasted coffee is different. The price of raw beans has a massive impact on the final retail price, making market movements incredibly sensitive.

How the Middle East Conflict Impacts Coffee Shipping

It's too early to see the full picture, but we have already seen upward pressure on global raw coffee prices over the last week due to recent Middle East conflicts.

Putting the base price aside, there is another major supply challenge: shipping lanes are disrupted around African coffee-growing nations.

For Ethiopian coffee in particular—an origin always in high demand—shipping has always been challenging. But now, there is a hefty price premium applied to new crop Ethiopian coffees due to how the Ethiopian Coffee Exchange (ECX) sets market pricing.

This means two things for the industry:

1. Higher Base Prices: Ethiopian coffees now command a massive price premium, significantly higher than the rest of the global coffee market.

2. Quality and Delay Risks: Added to this base price is the extra cost of shipping via longer routes. These delays take extra weeks and increase the risk of coffee quality degradation due to heat exposure inside shipping containers.

For other African origins like Kenya, Uganda, Rwanda, and Burundi, we can expect added shipping costs to increase base pricing or reduce availability, depending on what cargo ships prioritize. Watch for a bit of arbitrage on African coffees in the next few months!

What This Means for myCuppa Customers

Transparency is important to us. Because replacement costs are already many dollars higher than last year's 50-year record highs, we will be increasing the price of Ethiopian coffees at myCuppa. We also need to temporarily throttle the flow of our Ethiopian beans. As other sellers inevitably run short, coffee lovers seeking this specific origin may jump across to our store, which would result in rapid, unsustainable declines in our inventory.

We appreciate your continued support and understanding as we navigate these complex global challenges together.