Issue 21 - June, 2024 - CAMA

Coffee Corner: Navigating the Coffee Price Surge: Insights for Canadian Operators

The coffee industry is undergoing significant turbulence, impacting prices globally and, consequently, in Canada. For businesses in the Canadian vending, micro market, and office coffee services sectors, understanding these dynamics is crucial for navigating the current landscape and anticipating future trends.

 

Climate Change and Weather Extremes

Climate change is one of the primary drivers of increasing coffee prices. Coffee plants are highly sensitive to changes in temperature and precipitation. Major coffee-producing regions like Brazil and Vietnam are experiencing severe weather events—droughts, heatwaves, and unexpected frosts—that are significantly reducing coffee yields. In Brazil, heavy rainfall has damaged crops, while Vietnam's prolonged heatwave has severely affected robusta beans, essential for instant coffee and espresso blends.

 

Supply Chain Disruptions

The COVID-19 pandemic exposed vulnerabilities in global supply chains, which continue to affect coffee distribution. Lockdowns, transportation delays, and labor shortages disrupted the flow of coffee beans from farms to consumers. Even as the world recovers, these disruptions persist, contributing to higher coffee prices. Additionally, geopolitical tensions and logistical challenges, such as attacks on ships in the Red Sea, have forced vessels to take longer routes, further exacerbating supply chain issues.

Additionally, the upcoming new EU regulations on coffee grown on deforested land, effective December 2024, will change the ordering habits of European suppliers and have a knock-on effect globally.

 

Rising Production Costs

The cost of producing coffee is rising due to increasing labor costs and the higher prices of fertilizers, pesticides, and other inputs. Workers in coffee-producing countries are demanding higher wages and better working conditions, which adds to the overall cost of coffee production. These increased production costs are inevitably passed on to consumers, contributing to the rising prices of coffee.

 

Market Dynamics and Speculation

The interplay of supply and demand significantly influences coffee prices. As developing countries grow wealthier, their consumption of coffee increases. Additionally, the popularity of specialty coffees in developed nations further fuels demand. When demand outpaces supply, prices naturally rise. Speculative trading in coffee markets also contributes to price volatility, as traders' perceptions of future supply and demand can drive prices higher.

 

Local Impact in Canada

In Canada, coffee prices have surged due to these global factors. From June 2021 to June 2022, the price of ground or whole-bean coffee in stores increased by over 20%, with an additional 9.2% rise between August 2022 and August 2023. This has been reflected in higher prices at coffee shops, where the average price of a latte has exceeded $5. The cost increase is not only due to global supply chain issues but also local factors such as higher wages, rent, and other operational costs.

 

Strategies for Coffee Service Providers

For vending, micromarket, and office coffee service providers, these rising costs present a challenge. Here are some strategies to mitigate the impact:

• Diversify Suppliers: Establish relationships with multiple suppliers to ensure a steady supply of coffee and reduce dependency on any single source.
• Bulk Purchasing: Buying coffee in bulk can help lock in prices and reduce costs. Additionally, this strategy can protect against future price increases.
• Sustainable Sourcing: Partner with suppliers who practice sustainable farming. This not only ensures a long-term supply of coffee but also appeals to environmentally conscious consumers.
• Cost Management: Optimize operational efficiencies to manage costs better. This includes reducing waste, streamlining processes, and using energy-efficient equipment.
• Customer Education: Educate customers about the factors driving up coffee prices. Transparency can help build trust and justify price adjustments.
• Explore Alternatives: Introduce a variety of coffee options, including blends that use more affordable beans without compromising quality.

 

Conclusion

The coffee market is experiencing unprecedented volatility due to climate change, rising production costs, supply chain disruptions, and increased demand. For Canadian vending, micromarket, and office coffee service providers, understanding these dynamics is crucial. By implementing strategic measures, these businesses can navigate the challenging landscape, maintain profitability, and continue to meet the needs of coffee-loving Canadians.