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The Rising Cost of Coffee

Another announcement came up regarding an increase in coffee prices.  The question now lingers: how is the rising cost of coffee affecting the restaurant industry and its consumers?

The Los Angeles Times reported last June 4, 2011 not-so-good news for restaurants and coffee lovers:  the price of coffee is once again rising, and has no plans to stop.  It seems that coffee roasters can’t hold it much longer, as they have been saddled by the rising costs of beans from their coffee growers for months now.  J.M. Smucker Co., one of America’s oldest manufacturers of fruit spreads and beverages, announced that they are once again increasing their coffee prices – this time by a staggering 11% hike.  This means consumers of Folgers and Dunkin’ Donuts are to bear the increase, as these establishments’ biggest coffee supplier is J.M. Smucker.  Starbucks fans are in for a surprise too – the world-famous cafe will soon announce in their table top displays that they are raising their bags of coffee beans by 17%.

Reasons for the rising cost of coffee.  Driving-on the increase is a fusion of world occurrences — bad weather, increased demand and intense speculation in the commodities market.  The unpredictability of the globe’s climate has affected the coffee production of the world’s top commercial coffee producers, like Brazil, Cameroon, Colombia, Costa Rica, Dominican Republic, El Salvador, Ethiopia and Guatemala.  Arabica coffee, which is the most distributed coffee in the world, is grown in places at higher elevation, where rain is supposed to be abundant.

Exports of coffee used to be centered on the developed countries like the United States, Germany, France, Japan, Italy, Canada and Netherlands (International Trade Center’s latest Statistics on Coffee Imports).  But with the recent upsurge of coffee’s popularity as an invigorating beverage, the developing countries have added to the demand for the commodity.   Such countries like Nigeria, Poland, Czech Republic, Algeria, Romania, China and Turkey wanted to have a piece of the already diminishing pie in the coffee market.  And because of the fluctuating demand and supply phenomenon, market speculations have become increasingly erratic as well, prompting the rising cost of coffee in the market today.

How consumers will cope.  The mounting question now is how the consumers will react to the situation.  NPD Group’s chief food industry analyst Harry Balzer predicts that consumers will not easily give up their addiction to caffeine.  Instead, they will probably just substitute strong coffee with cheaper brands.  Or they will cut down on some other stuff that they normally buy with coffee, like pastries and other baked goods.

Restaurants and coffee shops feel the pinch, though, as their profit margin is substantially affected.  Not that much, however.  Tim Castle, an industry specialist who has authored many manuscripts on coffee, says restaurants can afford the increase, considering that their table top displays reflect towering mark-ups on coffee – as high as 400%.  But as far as direct consumers go, they are oblivious to the rising cost of coffee—till now, their buying habits remain steady.  To date, consumption of favorite coffee brands has not drastically dropped yet.

Why people love coffee.   Other than the fact that it’s perfect with food, and it’s a well-loved after-meal treat, coffee soothes the nerves. It makes us sober, and it’s very effective in keeping us awake. Well, I guess what we’ve been trying to explore here is if restaurants need to panic because of the increase.  I shall daresay, no, there’s no need to panic.  People do love coffee, and yes, they’re very much willing to take on the burden of the increase.