Analysis: Retail coffee prices will rise as the freeze and transport costs take hold

LONDON, Aug.6 (Reuters) – The most devastating frost in decades in Brazil’s main coffee producer and record freight costs caused by COVID-19 causing massive traffic jams in shipments are expected to push retail prices to multi-year summits in the coming weeks.

A rise in coffee prices will further increase the cost of a shopping basket following increases in other items such as bread, vegetable oils and sugar. The United Nations Food Agency’s World Food Price Index for July showed a 31% year-on-year increase at a time when many consumers are struggling financially due to the pandemic.

The worst cold snap in Brazil since 1994 has pushed the price of green coffee beans to the highest level in nearly seven years and is expected to trickle down to consumers when they buy roasted beans or ground coffee in supermarkets. Read more

The price of arabica coffee on the ICE Futures US exchange has doubled in the past 12 months as crops in Brazil are already wilting after the worst drought in 91 years.

The extent of the damage is still being assessed, but in areas where coffee trees have not survived, it can take up to seven years for production to fully recover.

Disruptions to shipments, caused in part by an increase in demand for consumer goods and an insufficient number of ships as people have stayed at home due to the global coronavirus pandemic, has also resulted in a sharp increase in the cost of transportation. beans to the main consuming countries of North America and Europe. .

Traders believe that while consumers will soon have to pay more to buy coffee in supermarkets, the cost of a latte or Americano in high street coffee chains may not keep pace in the short term.

“Roast and ground coffee (coffee in supermarkets) contains only coffee and a little packaging. Your coffee at Starbucks might not go up (that much) because you are paying more for the shop, wifi, experience. “, he added.

Data released by the U.S. Bureau of Labor Statistics shows average ground coffee prices peaked at $ 4.75 per pound in April, up 8.1% from the previous year and the highest level since July 2015, as drought wreaked havoc on Brazil’s crops.

The rise in prices for arabica coffee on the US exchange ICE Futures has accelerated rapidly, however, after the recent freeze and retail prices seem certain to rise as a result.

In Brazil, the world’s second-largest consumer country after the United States, prices for roasted and ground coffee rose 3.4% in June, according to the IBGE statistics office.

They are expected to increase further. After the frosts in July, the Brazilian coffee industry group Abic asked roasters to analyze their costs and adjust prices accordingly, in order to preserve the sustainability of their activities.

Abic estimates that green coffee prices for roasters in Brazil rose about 80% from December to the end of July.

“Some companies, including market leaders, have already announced price increases,” Abic said in a letter to Associate Roasters seen by Reuters.

JDE Peet’s, whose brands include Douwe Egberts, Kenco and Peet’s, noted that there has been a sharp increase in ingredients, freight and other costs over the past 12 months.

“Historically, large fluctuations in green coffee prices have been reflected in the market (retail price) and we expect this precedent to continue,” the company said.

TRANSPORT COSTS

Rising transport costs, linked to a shortage of shipping containers, could play a major role in raising prices. Coffee is normally shipped in containers, unlike products such as beans which are shipped in bulk carriers.

Many coffee companies are more likely to bear an increase in the cost of beans, at least in the short term, than an increase in shipping costs because they often price their purchases several months in advance.

“We have coverage here in place for a good percentage of our coffee needs for the rest of this year and even for part of next year, so I’m not worried about that in the short term,” said Nestlé chief executive Mark Schneider on a recent conference call, adding that this was not the case with shipping costs.

Carlos Santana, chief coffee trader for Eisa Interagricola, a unit of ECOM Trading, said it was very difficult to ship coffee, especially to the Americas.

“It’s almost uneconomical to use that route right now. The ports in the US are full, the shipping companies don’t want to carry more cargo there, so they charge more. The prices are more. three times higher than before the pandemic, ”he said.

Thiago Cazarini, a coffee broker in the Brazilian state of Minas Gerais, said that even paying the much higher prices to secure a container, exporters have problems trying to load them onto ships.

He said the problem is widespread, affecting all players.

“Brazil is such a logistical mess right now. I have coffees that were due to arrive two months ago and I haven’t got them yet,” said an American coffee importer.

Julian Thomas, managing director of Maersk Brazil (MAERSKb.CO), which is part of the world’s largest container shipping company, said that “current bottlenecks related to measures to contain the pandemic and high demand also have an impact on supply chains inside and outside Brazil ”.

“We are still serving our customers and can meet their growing demand,” he told Reuters.

German container shipper Hapag Lloyd (HLAG.DE) added that there were delays in shipping goods, “but not just coffee”.

Brazil accounts for around 30% of global exports and its peak shipping season has already started.

Additional reporting by Maytaal Angel in London and Ana Mano in Sao Paulo; Editing by Veronica Brown and David Evans

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