Factors Influencing the Coffee Beans Price in the Industry
The global demand for coffee continues to increase, as more and more people are getting invested in coffee consumption these days. Some cannot even go through the rest of the day without having their caffeine fix. This makes coffee a staple product in the daily lives of many. It does not matter for some people to spend a hefty amount for just a cup everyday. Because there are a lot of coffee options to choose from, all blended and crafted in several ways, people are given the opportunity to try most of them. Thus, manufacturers of coffee are taking advantage of this aspect, and the coffee beans price has increased by around 20%.
Production Changes
Production changes, in any way you see it, can provide an impact on the coffee beans price directly. But then, the impact will happen suddenly, on when and where you least expected them to occur. The way coffee trades is actually two markets in one. There is what you call the C market, being referred to as the global exchange where coffee is bought and sold, or traded every day. Like any other materials that are known to be common in the trading industry, coffee is also considered a commodity, thus, the back and forth flow of selling and buying is what informs the fluctuating price of coffee. The other aspect of coffee is the origin by origin differentials or “basis.” For some commodities, the basis is simple. However, for coffee, there are many origins and qualities each with their own differential to be traded.
However, the production change is not enough to be the only element that greatly affects the prices of the coffee beans being sold today. Over the years, the complexities and variables influence the price and significantly grow at an exponential rate. It includes the supply changes, weather, currency fluctuations, and many others. Actually, these things are those that you cannot even imagine being factors that have the capability to move prices and impact the bottom line. It then all boils down to mass perception or social mood.
Emerging Market Demand
As mentioned above, the demand for coffee all over the world these days is gradually increasing at a steady pace. It now becomes one of the most favored beverages of many, becoming the source of energy of adults, and even of students as well. Drinking coffee continues to be an essential part of everyday life, and it has been considered to have evolved into a social drink. This is because people actually tend to gather at local coffee shops, or at certain locations offering a great and unique taste of coffee. Thus, this is a reason why coffee demand grows continuously higher. And when the demand is high, prices tend to become higher as well.
The consumption has doubled in certain countries, thus making coffee as one of the necessities of most people. Even countries that are not net exporters of coffee, but are known to be tea drinkers, have partially switched towards more coffee consumption. And while this is the case, the coffee market is still continuously growing over time, as more people are starting to discover various flavors to try.
Concentrated Production
The two main types of coffee beans that were grown commercially are Arabica and Robusta beans. Arabica accounts for around 70% of the world’s coffee. Robusta beans, on the other hand, are considered to be far cheaper and easier to grow. The largest producer of coffee comes from Brazil. It accounts for about one-third of the entire production and about half of the world’s Arabica output. Followed by Vietnam, which accounts for just under 19% of the global output, and around half of the robusta production. This concentrated output means that supply disruptions in one or both of these countries can have a significant impact on the price of coffee.
Substitution to Cheaper Beans
Robusta beans have been mentioned to be cheaper and easier to grow than Arabica. However, it still has a bitter taste compared to the more expensive one. This means that since it is low in price, it has the possibility to taste like a low quality one. Arabica, though it is quite pricey than the other, it tends to be of higher quality. But then, whenever the price spread between the two types becomes very large, then the coffee manufacturing companies may have to choose the cheaper option to their blend. The coffee beans price tends to go extremely high when computed on a larger scale. Especially if compared to the less expensive one. Thus, the incentive to substitute cheaper beans is greatest when consumer demand is at its weakest.
Weather
The coffee supply varies on the weather. Thus, it can be a major factor that influences the coffee beans price as well. It is a tropical commodity which makes it more susceptible to tropical weather events like El Niño. This weather can have a big impact, be it a positive or a negative one, on the supply. For months like June to August, the warm weather brought by El Niño has the ability to help the Arabica coffee harvest because the crop solidifies. However, in December to February, it may impose a negative impact on the next Arabica crop. The weather tends to become drier in this time.
Moreover, climate change is increasing the number of unpredictable and even long droughts. This affects the farmers who are trying to grow crops, particularly the coffee beans, in different parts of the world. Fluctuating temperatures has the ability to increase the overall number of diseases for coffee plants. This is while potentially eradicating the important pollinators.
Key Takeaway
The main factor on what influences the coffee beans price over the world is the supply and demand of the beans. The more people consume coffee, the higher the demand for the coffee beans. And when the coffee is of high demand, the supply tends to become limited in the long run. This can restrict the manufacturing production and restrain the overall supply over the world.
