Coffee futures (KC=F) have surged over 30% since the beginning of the year, approaching record-high levels. This spike is beginning to impact consumer spending.
The Consumer Price Index report released on Wednesday indicated that the cost of roasted coffee has increased by 2.5% in January compared to the previous year. In contrast, instant coffee experienced a significant rise of 7.1%.
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A global coffee trading company shared with Yahoo Finance that while they have not yet increased prices, they must consider doing so in the near future.
“Coffee is experiencing a perfect price storm,” stated Andrea Illy, chairman of illy caffè, in an interview on Wednesday.
Illy highlighted climate challenges faced by leading coffee producers like Vietnam and Brazil, where adverse weather has affected crop yields. Brazil recorded its hottest year in 2024, along with a surge in forest fires, impacting its arabica coffee production and driving prices higher. The US is the second-largest coffee importer, following the European Union, with primary sources being Brazil, Colombia, and Vietnam.
“There is no alternative,” Illy remarked regarding potential price hikes. He further noted, “We are uncertain how long this surge in coffee prices will endure.”
Other companies are also contemplating price increases. “Looking ahead to 2025, we anticipate that coffee inflation will persist. We plan to implement price adjustments early in the year to offset this,” said Sudhanshu Priyadarshi, CFO of Keurig Dr Pepper (KDP), during the recent earnings call in October.
Not every commercial coffee purchaser is feeling a significant impact, as major retailers typically buy large quantities in advance, securing prices through futures contracts.
“Thanks to our overall strategy and hedging practices, the year-over-year impact on coffee prices was minimal in Q1,” stated Starbucks (SBUX) CFO Rachel Ruggeri during the company’s recent earnings conference call.
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A key factor in the significant rise of instant coffee prices reported in the CPI is its already low price point, allowing companies to hike prices with minimal shock to consumers.
“In general, instant coffee is considerably cheaper, enabling retailers to increase prices while still remaining in the ‘much cheaper’ category,” explained Shonali Paul, founder of Paul John Caffeine, a Florida-based coffee roaster.
Instant coffee is made from robusta beans, which are considered inferior to the arabica beans typically used in coffee served by restaurants. Last year, drought conditions in Vietnam adversely affected robusta production, leading to a staggering 60% price increase over the past year.
