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Global Economy

Why coffee is now more expensive

Coffee remains the favorite drink of the Germans. In 2020, per capita consumption in Germany was 168 liters of coffee – and the trend is rising. "According to our calculations, total coffee consumption in Germany increased slightly again in 2021 compared to the previous year," says Holger Preibisch, Managing Director of the German Coffee Association, to tagesschau.de.

But enjoying coffee is gradually becoming an expensive pleasure. Market leader Tchibo will raise its prices for the second time in nine months. From February 21, consumers will have to shell out EUR 0.50 to EUR 1.30 more for a pound of coffee, depending on the type and country of origin, as Tchibo announced at the beginning of the week. For example, the "Feine Milde" variety should cost 6.99 euros per pound. That's 1.30 euros more than now. Compared to the summer of last year, the surcharge is even 2.00 euros.

Is coffee from Jacobs, Dallmayr and Nestlé becoming more expensive now?

The Tchibo coffee price inflation thus leaves the general increase in consumer prices far behind. At the same time, the price increases of the Hamburgers are a strong signal for a general increase in coffee prices in Germany. After all, Tchibo is the market leader in this country.

However, while the Hamburg roaster can set its own sales prices, the prices in the supermarkets and discounters for other coffee brands are always the result of negotiations between retail giants such as Rewe and Aldi on the one hand and roasters such as Jacobs and Dallmayr on the other.

Arabica price hits 10-year high

When roasters and supermarkets raise their coffee prices, they ultimately pass the increased purchase prices on world markets to consumers. On the commodity exchanges, the price for the Arabica and Robusta varieties had recently climbed rapidly. Last year, the price of robusta rose by 71 percent, while the price of arabica skyrocketed by 76 percent.

At the beginning of December, a pound of Arabica cost a good 250 US cents – the highest it has been in more than ten years. For comparison: At the beginning of 2021, Arabica was still trading at around 120 US cents. Also in the new year, the Arabica price remains close to its ten-year high.

Is Brazil's coffee harvest disappointing again?

Looking for the reasons for this rapid increase in price, one quickly ends up in Brazil. The most recent harvest in Brazil, the most important coffee producer and export country, was massively disappointing. At 47.7 million bags (60 kg each), it was almost 25 percent below the record harvest of 63.1 million bags in 2020. Unfavorable weather conditions, particularly drought, in key Arabica-growing regions reduced yields.

This year's harvest, which begins in April, is likely to remain well below the record level reached two years ago. Industry experts expect a supply deficit. "The Brazilian forecasting authority Conab estimated this year's coffee harvest in January at almost 56 million bags, which would be around 7 million bags below the record harvest of 2020," explains Carsten Fritsch, commodity expert at Commerzbank.

First drought, then frost and now La Niña

Brazil had recently experienced the worst drought in 90 years. This was followed by the strongest frost in decades; The result was the clearing of coffee trees. The weather phenomenon La Niña could now lead to further problems in the coming harvest.

"The southern states have been suffering from extreme heat and drought since mid-December," emphasizes raw materials expert Fritsch. In other regions, on the other hand, there has been excessive rainfall, which could also lead to crop losses, as growing fruits have fallen off due to the heavy rain.

Slightly lower coffee prices ahead

Nevertheless, better times could come for coffee fans in the course of the year. Commerzbank expects the Arabica price to hit a new high in the short term, but could drop again by the end of the year – to 200 US cents.

But that would still be a comparatively high price level. Before surpassing this round mark last autumn, coffee was last this expensive in 2014.

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