High prices unlikely to dull global thirst for coffee

By Guy Montague-Jones

- Last updated on GMT

Related tags: Coffee

Coffee prices may have reached record highs but they are unlikely to derail the hot drink from its high growth path, according to the head of beverage research at Euromonitor.

The price of coffee on the commodity markets has reached highs not seen since 1972 and chances are that they could stick.

With supply struggling to catch up with high demand, the chief of global beverage research at Euromonitor, Richard Haffner, told this publication: “It looks like the price could stay up for 2 years.”

But Haffner said the price situation is only really likely to make a difference “around the margins”.

New more price sensitive markets in Asia and Africa, which big coffee houses like Starbucks are trying to conquer, could see a slowdown but elsewhere the analyst does not expect any fireworks.

“Prices are unlikely to make as much as a difference as you’d think. Look at the recession - coffee was hurt a bit but not that much, consumption held up pretty well.”

Global coffee sales forecast

Indeed new research from Euromonitor predicts higher growth over the five years from 2010 than the five preceding years. In constant value terms, coffee is tipped to grow globally by 19 per cent to 2015 whereas in the five years running up to 2010 the category grew 14 per cent.

Explaining why, Haffner pointed in the direction of premiumisation.

In the US, Starbucks has played a key role in the movement towards premium. Haffner said: “Starbucks introduced a premium taste that wasn’t there before – it did a really good job of bringing that into the market.”

And in Western Europe coffee pods have done particularly well – contributing to global value growth.

Another major driver has been newer traditional tea markets like Russia, Eastern Europe and China. Here instant coffees have proved successful - offering convenience without the low quality image that has come to affect their position in developed markets.

Related topics: Tea and Coffee, Markets

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1 comment

Not a Supply and Demand Issue

Posted by Don Pablo,

Though there was some tightness in supply last year, the historical 135% increase in the market price of coffee and extreme volatility over the last 11 months is due to investor speculation.

The creation of a commodities index by Goldman Sachs, deregulation, a weak dollar, and a global financial crisis all contributed to the recent commodities bubble.

This precipitous increase in commodities prices and extreme market volatility makes it very difficult for the people who actually deal in the physical commodity to run their businesses, and there's no transparency to expose this type of manipulation. The farmers are not even benefitting proportionally from the higher prices, because of the increase in the price of fertilizer and other inputs.

It's hurting small businesses like ours, and a number of smaller quality-focused coffee roasters that I am aware of have had to close their doors over the last year. I'm hearing similar stories from companies who use cotton, metals, and other commodities in their process.

Journalists should shine their light on the true cause of this, and its devastating effects, rather than regurgitating what they hear about supply and demand from investor groups.

Not only do businesses suffer, but when a small group of people can control the world's food supply through hedge funds and indexes, this threatens the sovereignty of nations.

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