What Impact is COVID-19 Having on Coffee Prices?
June 24, 2020

What Impact is COVID-19 Having on Coffee Prices?

Prices for green coffee beans have been very low around the world for the last three years. This phenomenon has been known as the ‘coffee price crisis' and it's put considerable strain on coffee farmers in producing countries. Now, the impact on coffee prices from the national lockdowns, supply chain disruptions, currency fluctuations and recessions, all caused by COVID-19, is very hard to anticipate.

Most coffee roasters buy several months supply of coffee in advance, at pre-agreed and fixed prices. So, for the short term, immediate fluctuations in coffee bean prices are unlikely to have much impact on the price consumers pay for their bag of coffee beans. In the case of Spiller & Tait, we have secured a supply at a fixed price which is likely to last until the end of October. 

However, like everyone else, we are struggling to anticipate what impact COVID-19 will have on green bean prices. On the one hand, demand has fallen as the likes of Starbucks and other coffee chains have been closed. On the other hand, supply has been restricted as a result of supply chains failing. It’s these fluctuations in demand and supply that make it hard to predict what the impact on green bean prices will be.

Coffee traders and roasters tend to rely on the International Coffee Organization’s (ICO) monthly trade report to help them anticipate trade price fluctuations. This June the ICO has predicted that average prices for Arabica beans will drop by over 5% from current levels to $0.99850 per pound in September.  This actually sits well below the cost of production for most coffee farmers. 

The ICO has attributed this temporary price decrease to a seasonal surge in supply of beans from Brazil, which is experiencing a much larger than usual output in 2020.  The combined effect of the increased supply and the uncertain expectations on demand, in part due to COVID-19, mean prices of coffee, traded as a commodity, have been falling.  

However, looking further forward at the impact of coronavirus on the global coffee market, the ICO estimates that global consumption of coffee will increase by about 0.5% next year, while supply chains will, on the whole, struggle to keep up. This growth in overall demand is expected despite the dramatic drop in out-of-home coffee consumption all around the world, as social distancing has taken effect. The in-home market has taken over and, with more people working from home, or on furlough, coffee appears to be playing an ever more important role as an essential staple within the home.

The short-term fluctuations in coffee prices are rarely passed on to end consumers. Most roasters ‘hedge’ the fluctuations by buying their supply at a fixed price for several months ahead. But, the long term prognosis for prices is for an increase. Coffee prices have been at an unsustainable low for many years and farmers are suffering. We expect COVID-19 to help right this wrong. The combined effect of increasing global in-home demand and the ongoing impact of social distancing on fragile supply chains will, we believe, cause a much-needed increase in coffee prices over the medium term.  

These increases will be a good outcome for coffee farmers and, although it may not feel like it, a good outcome for coffee drinkers as well. Higher prices will enable the farmers to stay in business, producing the wide varieties of coffee that consumers value. More families will earn money from the origin countries, and the economy of these countries will benefit too. As for our retail coffee prices, we always do our best to keep it as fair as possible but one thing we will never comprise on is quality. We have very some popular blends such as the Signature Blend, so popular that we know our customers would rather round the pennies up than receive an inferior product.