25 April 2024
In recent weeks, the global coffee market has witnessed a significant surge in prices, prompting concerns over the impact this will have on stakeholders along the supply chain as well as the operability of the coffee industry as a whole.
From the bustling streets of Melbourne to the trading floors of London and New York, the price of coffee has experienced unprecedented volatility, from US $1.80/lb in February to a high of $2.45/lb on the 15 April, an increase of 65 cents per pound, then going back down to $2.25/lb, a decrease of 20 cents per pound, in just a week.
Several factors have converged to drive these price hikes. Adverse weather conditions in major coffee-producing countries, particularly in Southeast Asia and Brazil, have led to fears of shortages, exacerbating the already delicate balance of supply and demand.
Prolonged heatwaves in Vietnam, a key producer of robusta beans, have damaged crops, while Brazil, the world’s largest producer of arabica beans, has faced challenges from heavy rainfall impacting its harvests.
These climatic disruptions, compounded by geopolitical tensions disrupting shipping routes, and the speculative nature of futures contracts across investment portfolios, have created a perfect storm of uncertainty in the coffee market.
It is crucial to recognise that while higher coffee prices may seem beneficial for coffee farmers, the reality is often very different. In fact, the sudden surges and drops in coffee prices can cause significant strain and hardship for farmer organisations.
If prices soar, after a contract price has been fixed, the cooperative may still need to purchase coffee at prices competitive with what local buyers and middlemen are offering, and that could be far beyond what the contract will compensate for.
But if the cooperative is unable to bring in sufficient coffee from its members, due to the intense local competition that invariably accompanies high price moments, it risks significant fines and reputational damage that comes with contract defaults.
In light of these challenges, Fairtrade plays a crucial role in providing a degree of certainty and stability for coffee producers. By supporting small producer organisations through training on quality, productivity, and resource management, farmers can negotiate better terms of trade, reach more markets, and also build resilience against market volatility.
However, the complexities of the global coffee market underscore the need for continued collaboration and innovation to ensure a sustainable future for all stakeholders involved.
As we navigate these uncertain times, it is imperative for industry players, policymakers, and consumers to recognise the interconnectedness of the coffee supply chain and work towards solutions that prioritise the well-being of coffee farmers and the long-term sustainability of the industry.
Only through collective action and a commitment to building fair and transparent relationships across the supply chain that lead to positive results can we address the negative impacts caused by increasing coffee prices and build a more resilient and inclusive coffee sector.