Rising coffee prices could hit European cafes | Business | Economic and financial news from a German perspective | DW

Over the past few months, coffee prices have risen across Europe. Although many cafes in Berlin have not raised their prices so far, they have not ruled out doing so. The majority of cafes in the German capital have seen their margins shrink in recent times.

Adverse weather events and increased demand, coupled with geopolitical developments and logistical issues related to the pandemic, have resulted in higher wholesale prices over the past two years. Soaring energy prices and a 100% increase in shipping costs over the past 12 months have added inflationary pressures.

“Coffee was trading at $0.85 per pound in May 2019, the lowest level since 2004. By the end of the year, the price had fallen to $1.25,” said Jordan Montgomery, director marketing at Fjord Coffee Roasters Berlin, in DW. “Severe frosts in Brazil, the world’s largest producer, occurred in July 2021. Two difficult nights pushed the price to $2.50. It reached $2.60 in July 2022, before falling back to $2.16 in August.”

Futures prices and the sale of Arabica coffee beans are dictated by the Intercontinental Exchange (ICE) in New York. The price determined by ICE, known as the ‘C Price, determines the average world prices for Arabica coffee.

European coffee roasters and cafes

Since coffee is denominated in dollars, a weak euro and yen could hurt consumption in Europe and Japan, a London-based trader who spoke on condition of anonymity told DW.

Companies located in Germany also complain of additional taxes, staff shortages and increased insurance costs.

“These factors have forced us to pass on some of our costs to our customers and accept lower margins for certain products. The average increase over the past 12 months has been around 6%,” Montgomery said.

He added that roasters have managed to cope with higher prices so far, especially during the pandemic, by passing the cost on to consumers ordering online. This is not the case with cafes. They remain the most affected, in particular due to the increase in staff costs and the rise in rents. In October, the minimum wage in Germany will reach €12 ($11.90) per hour.

Experts say coffee should be much more expensive to be traded fairly

A fair deal?

Some experts suggest that a cup of coffee in a café in Europe should cost €5-6, especially in Germany, where a 17th-century tax on roasted beans remains in place. “Out of a kilogram of roasted beans sold on the German market, €2.19 goes to the state,” Montgomery said. Only Belgium, Denmark, Greece, Lithuania and Norway levy a similar tax on the continent.

Nicole Battefeld, the reigning German coffee champion and World Coffee Championship contender in September, said coffee should also be more expensive in supermarkets – at least €20 per kilogram (2.2 pounds). “In Germany, often the price of a kilo does not exceed €8. We simply deprive the farmers of investment money. This is another form of colonialism. We have never fully realized the amount of work necessary.”

Battefeld said fair trade coffee, with contracts that offer $1.36 a pound (€1.37 per 0.45 kilogram) to farmers, is only a partial solution.

“Fair trade helps to maintain living conditions but often misses the opportunity to reinvest and modernize farms,” she said. “It helps farmers when their crop is not of the best quality, but not when it is of high quality because farmers are stuck with the contract and cannot get higher prices.”

Battefeld said fair trade prices have risen a meager 10 cents over the past 20 years.

Farmers and gatherers

High wholesale energy prices have different impacts on farmers, depending on their contract and the variety they produce, Portugal-based coffee researcher and author Karl Wienhold told DW.

“For the majority of smallholders in most producing countries, the link between futures prices and income is strong, but not uniformly,” Wienhold said.

He said labor costs had risen for farmers, especially in Latin America, due to a labor shortage. Labor costs in parts of Colombia, the world’s third largest coffee producer, have nearly doubled.

“I’ve even heard of small farm owners in Colombia working as pickers instead of tending their own fields,” Wienhold said.

Nevertheless, large farms will be the most affected by rising fuel prices, as they are generally highly mechanized.

Experts said many farmers signed futures contracts with multinationals before the pandemic, meaning they can’t take advantage of higher prices now. Futures contracts are non-standard derivative contracts defining future selling prices.

Farmers also face other increases in production costs. Natural gas is used to make nitrogen fertilizers. Russia is the leading fertilizer exporting country.

“The worst fears of Russia’s export shutdown have yet to materialize. Trade data shows minimal disruption to the flow of exports from Russia to Brazil,” the London-based trader said.

Worker in a coffee plantation in Brazil

Arabica coffee is a specialty that has better quality and a higher price than regular coffee

Climate change

Coffee is only grown outdoors, often non-irrigated. The two main strains of coffee, Arabica and Robusta, have different prices reflecting different growing conditions.

Arabica, widely regarded as the highest quality coffee, can only grow under specific conditions, which are increasingly threatened by extreme weather events.

“In most of Colombia, where there are two blooms and two harvests a year, thanks to two rainy seasons, unusual periods of rain and sunshine have been changing blooming schedules for the past few years,” Wienhold said, “sometimes delaying production for months, causing financial stress for producers and workers and threatening the ability to meet contracts.”

Lower production also translates into higher prices for lower quality coffee, discouraging producers from investing in higher quality crops as the price difference narrows.

Experts agree that climate change will increase price volatility and ultimately exacerbate the traditional boom and bust cycle, which has been going on for years due to the long periods needed to adjust production patterns to changes in demand and prices. price.

Edited by: Hardy Graupner

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