- The Washington Times
Tuesday, June 24, 2014

After coffee drinkers were jolted awake by last week’s news of a spike in the cost of their morning cup, they can relax knowing the high prices probably won’t last.

“They’ll be temporary, which means six months or less,” said Dan Cox, president of the industry research firm Coffee Analysts.

Coffee sellers, most notably Starbucks, and specialty roasters have pushed up prices for bagged coffee and some drinks as the cost of Arabica beans from Brazil have shot up.

The J.M. Smucker Co. earlier this month increased the cost of its Folgers and Dunkin’ Donuts brands of packaged coffee sold in grocery stores by 9 percent, while Kraft raised prices on Maxwell House and Yuban coffees by 10 percent. The price hike did not affect the cost of single-serving K-Cups or most drinks served in Starbucks or Dunkin’ Donuts stores.

The price jump is the result of several factors including lack of rain in Brazil, too much rain in Central America, rising fuel costs and the beginning of the slower drinking season, said Mr. Cox.

Some analysts say Starbucks was right to raise prices, in part to protect its brand image in the marketplace.

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“Starbucks is still registering impressive growth, even after raising prices last year,” according to analysis by the investor service Motley Fool. “And rather than erode margins and compress profitability by absorbing increasing costs, it’s making the right decision by passing on price increases to its customers.”

Starbucks officials say medium and large-sized brewed coffee will increase by about 10 cents to 15 cents in most of U.S. coffeehouses, while small and large-sized lattes and mochas will rise by 15 cents to 20 cents. Food and iced-coffee frappuccino prices won’t change.

In the grocery store aisle, the suggested price for a 12-ounce bag of Starbucks branded coffee will rise to $9.99 from $8.99.

A major drought hit Brazil earlier in the year just when coffee trees needed rain the most to help in the maturation of their fruit. April rain showers saved the trees from a total loss, suggesting that damage is not as bad as anticipated.

“The combined Arabica and Robusta harvest is forecast at 49.5 million bags, down 4.2 million from last year,” according to a report by the USDA Foreign Agricultural Service.

The report, which forecasts the world’s coffee market through 2015, noted that the U.S. is the world’s second biggest importer of coffee beans in the world, primarily from Brazil but also from Vietnam and Colombia. As demand for coffee continues to increase, the amount needed to be imported is expected to increase to a record 25 million bags.

The shortage in Brazil is being somewhat lessened by using “past-crop” coffee — excess coffee left over from the previous year’s harvest. Coffee production from Colombia and Central America could also help make up for the loss, as plantings there are estimated to increase as crops recover from the Roya fungus.

The Roya fungus, also known as coffee tree rust, occurs when there is too much precipitation, allowing fungus on the leaves to inhibit photosynthesis and reduce production of the coffee beans. After the fungus affected approximately 40 percent of planted areas in Colombia for the past seven years, a new tree renovation program has brought the rate down to just 10 percent.

Coffee tree rust also caused a production decline in Central America and Mexico for the past two years, but now the region is expected to produce 16 million bags of Arabica coffee beans, with approximately 40 percent of exports intended for the United States. Honduras is expected to yield 5 million bags, Guatemala is forecast to rebound to 3.6 million bags, and El Salvador is forecast to produce 675,000 bags as more growers implement control measures.

“Bean exports are forecast to gain 750,000 bags to 13.0 million as a result of more exportable supplies,” according to the USDA report.

According to the International Coffee Organization’s Monthly Coffee Market Report, despite the most recent rise in supply prices, coffee beans still are in fact below the peak high price of $1.76 a pound that was reached in May.

Mr. Cox said drinkers should not be too concerned about the recent surge in the price tag of their caffeine fix, explaining that companies prefer to “go up fast and come down slow” by raising prices very high once, then slowly lowering them.

“Right now there seems to be a pretty good equilibrium between supply and demand,” he said.

• Nicole Krug can be reached at nkrug@washingtontimes.com.

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