On the up

Over the coming months you can expect the cost of your daily cup of coffee to increase. You might have experienced this increase already, and you might also be aware of price increases across other goods we buy on a day to day basis. We’ve recently increased the price of our coffee so we expect all our customers to add a few pence to the price of the coffee they sell. To bring some transparency to the table I thought it would be interesting to look at what influences the price of coffee.

The first thing to understand is that coffee prices fluctuate all the time. We often hear that coffee is the second largest commodity traded on the Stock Exchange. The two main factors which can influence the price of coffee are climate and supply, both of which are linked. If frost decimates the harvest in a country such as Brazil, for example, the demand for the remaining coffee is going to increase and therefore the price will go up. Similarly if there is a surplus of coffee in the world, price is likely to decrease. Trading on the stock exchange therefore sets a daily price for coffee.

The following chart shows the trend in coffee prices over the past 10 years. We’re currently in a period of increasing prices and we’re likely to remain around this price for the rest of this year.

historical@2x.png

In general the speciality coffee market, which is where Carvetii firmly sits, is less influenced by the coffee market, as quality is often an overriding factor in the price paid for a particular coffee. The market prices above relate to exchange grade coffee which is the third grade of coffee, with speciality being the first.

And this leads us nicely on to the second factor which affects the price paid for a cup of coffee: quality. There have been instances in the past where the quality of coffee on a farm has increased and the price demanded for this coffee has risen to reflect this improvement. Similarly, a farm which gains a significant recognition, such as a Cup of Excellence Award, is likely to want to charge more for their coffee. This can only be good for the farmer and an aspect of the sector which we particularly like. However, there comes a point where the price of the green beans becomes too high and we can no longer buy them. It’s not that we don’t want to buy at the higher prices, it’s just that we don’t yet have a big enough local market willing to pay these higher prices.

The other main factor we have to take into account is that coffee is traded in US dollars and since the results of the European referendum were declared last June, the value of the pound has dropped against the dollar. On the day before the vote a pound was worth $1.4693 while in January 2017 it was $1.2148, a drop of just over 25 cents. Therefore the same bag of coffee purchased prior to the vote would cost more than if purchased recently. If the cost of the raw product increases, then the cost of the finished product must increase. Simple economics.

If we put all this together, particularly the influence of the drop in the value of the pound, we see a sharp rise in the cost of green coffee beans in the UK. We are now paying 15% more for coffee of the same quality compared to June last year. We’ve also seen increases in the price of many of the other items we buy such as coffee bags and cardboard boxes. Over the past five years we’ve not increased the price of our coffee and during this period we have seen an increase in costs. As such, like many other roasters, we have recently increased the wholesale price of our coffee, and this is likely to be reflected in the price you pay for a cup of coffee. The alternative, which is to buy cheaper green beans, would lower the quality of our coffee and risk the reputation we have built over the past five years.

The establishments who serve our coffee work hard to maintain the high standards we expect of them. At this time of year many are refreshing their skills through our barista training programme and many more local baristas are now perfecting their latte art techniques. All of this takes time and effort, and is an added cost. However, this commitment is aimed at creating a positive experience for you, the customer. It is little wonder that 4 out of the 5 finalists for Best Cafe at this year’s Cumbria Life Food & Drink Awards serve our coffee.

If you’ve experienced a price increase recently please don’t be too hard on the coffee shop concerned, even more so if they’re a small independent. Many think the coffee industry is lucrative and continues to boom. In truth, many coffee shops are doomed to fail in their first two years, and many more will find trading difficult. Competition can be fierce at times and there is always someone willing to undercut everybody else to make shortsighted, and short term gains. I believe the survivors will be those who use high quality products and maintain high standards. In order to do so they will need to charge a higher price for their efforts.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s