Poor weather disrupts global coffee supplies
Coffee is the latest commodity to fall victim to poor climate conditions, with the price of the power bean shooting up since the start of the year after heavy rainfall in Brazil and drought in Vietnam affected production.
The International Coffee Organisation (ICO) reported that the composite indicator price — the key reference price for the industry — reached a 13-year high in April, up 16.4% from March. In other words, the price averaged 216.89 US cents a pound in April, compared with 182.18 US cents/lb in March.
The unfavourable weather conditions in South America are driving the price increases, said Wandile Sihlobo, the chief economist at the Agricultural Business Chamber of South Africa.
“It is not as sharp as what we saw in olive oil or what we saw in cocoa, but the increase in general is there because of the unfavourable weather conditions and the slight decline in harvests in some of the countries within South America,” he said.
The heavy rainfall in Brazil, the world’s largest coffee producer, is driving the price increases and will likely affect the country’s 2024/25 supply, according to the ICO.
Vietnam, which has the second largest output, is also facing supply difficulties on the back of poor harvests in coffee years 2022-23 and 2023-24. The country’s agriculture department projected that production of the commodity could drop by 20% this year, the lowest in four years, because of drought.
Arabica or Robusta are the two most popular coffee beans, and their prices have also risen notably. Robusta hit a 45-year high in April — the highest level since July 1979 — when it averaged 195.90 US cents/lb. Arabica stocks increased by 1.7% since March 2024, the ICO said.
In March, the World Bank forecast that Arabica prices will soften in 2024 and will stabilise in 2025, but Robusta prices are likely to remain high this year before they subside in 2025.
The demand for Robusta beans has affected Nestle’s production, said Carl Khoury, the business executive officer for coffee and beverages at the company’s East & Southern Africa region.
“The international increase in green coffee commodity prices, stemming from rising demand especially on Robusta beans, supply issues in Vietnam and Brazil and soaring shipping costs, has indeed affected Nestlé’s production,” Khoury said.
The food and beverage company has plans to prevent any supply disruptions or shortages in the future and it has increased coffee prices, he said.
“In response to these market dynamics, Nestlé has implemented price increases across the category. However, we are also actively pursuing optimisation and cost-saving initiatives across our value chains to mitigate the impact of these price hikes on consumers.”
Ciro, South Africa’s largest manufacturer of pure coffee, had not responded to the M&G’s request for comment by the time of publication.