Tuesday, November 30, 2010
Coffee Prices Explode & Global Coffee Gratitude
At the end of the Thanksgiving holiday, I am reminded of how grateful I am for coffee. Not only for its rich, soothing, energizing effects---but also because of its health benefits, including a reduced risk of diabetes, stroke, Parkinson’s disease, and depression. I am also grateful that increasingly the medical evidence is documenting these benefits with amazing contributions from European and American universities!
I am also grateful that most of the coffee-drinkers I know can still afford to drink coffee and enjoy its benefits. That is not insignificant, especially when you consider that coffee prices are at an all-time high for the past 13 years. In fact, coffee futures have increased 44%. According to pundits, a constellation of factors are contributing to coffee's sky-high prices, including bad weather in South America and low stockpiles in the United States. But, there's something else: Increasing demand from coffee drinkers in emerging economies. The largest increase in demand is coming from the burgeoning middle classes in China, India, and Brazil, which will soon become the largest consumer of coffee outpacing the United States. Increased wealth and ambition is indeed leading to a desire for the taste of coffee and the myriad social and physical benefits that accompany its consumption.
The net effect of all of these factors has been increased prices, especially among value-brand coffees, such as Maxwell House and Folgers--a 10% increase so far. There has also been an increase in the cost of brews served at independent coffee houses and Starbucks is considering increasing its prices, though they have been fairly restrained about doing so. Note, however, that we are still drinking coffee at a healthy clip. If you grab your coffee from a local kiosk in any city, it is likely that the kiosk owner is trying not to increase the cost of your coffee.
Plus, when you're talking about increases of 10 or 15 cents per cup, you're still well within the confines of an extremely inelastic demand curve. People who regularly consume coffee are just not going to step away from the coffee-counter over a 15-cent increase. However, experts suggest that people may very well start drinking lower-priced, lower-quality coffees.
I have discovered a new value brand! IKEA's Braggkaffe Mellanrost direct from Sweden, available at IKEA or online. At a cost of $5.99 for 0.25 kg, this UTZ-certified organic coffee, which is 100% Arabica and boasts a slightly sour, yet rich, taste is a really good buy. In fact, Sweden has the unique distinction of being the number-one coffee-consuming nation in the world. Per capita consumption is 10 kilos per person. That's a lot of coffee for 8 million people. I bet they're grateful for coffee. I certainly am. Drink up and be healthy!