Yahoo Finance

Inflation

As the climate crisis continues to pose problems for farmers, coffee has also become more expensive.

Green coffee prices grew 38.8% in 2024 on the year prior, according to FAO findings, and could increase again in 2025 if the sector sees further declines in production in major producing areas.

Increasing coffee prices puts a bitter note on the outlook for coffee at first glance, but price increases have happened before, says Acda.

“Everyone forgets about it, but there was a similar spike in 2012 where, if you zoom back… you see a peak in coffee prices, which is similar to the level as we have today. Then [it] moved down again,” he explains.

“What's important to understand [is] that a lot of the coffee price evolution, there's of course fundamentals behind but there's a lot of speculation as well.”

As the FAO notes in a recent coffee market report, “coffee is no exception” to global price fluctuations seen regularly in agricultural commodities.

Though not new, it isn’t clear when prices might come down, and consumers are likely to still see the effects of significant price hikes, according to Will Corby, director of coffee and social impact at UK producer Pact Coffee.

“Although every coffee company in the world will be forced to pay these historic high prices for coffee, the consumer may be yet to see the effects – because of some companies keeping large amounts of stock, they may be holding off on a price increase until later down the line,” he says.

“So, while it’s unlikely that the cost of green coffee will stay at this historic high, it’s almost certain that coffee will no longer be available to be bought cheap.”

For producers of higher quality beans though, this isn’t necessarily a bad thing, Corby adds, as the gap between “run-of-the-mill” beans and specialty-grade closes in, making it “increasingly tempting” for coffee drinkers “to trade up to something of a much higher quality”.

Other pressures

The ongoing climate crisis is a key factor affecting coffee production but it isn't the only issue at play.

As Corby at Pact notes, the coffee supply chain has faced "unprecedented disruptions" in recent years, with Covid-19 and geopolitical tensions hitting supply chains and driving up costs of a range of inputs. “That’s resulting in every step of coffee production becoming more expensive,” he says.

Acda agrees several “indirect pressures” are impacting production, including cost pressures, labour shortages, and geopolitical volatility.

However, he sees these “driven also by climate change” and “all secondary” after global warming and “more extreme weather events”.

While there have been elements within the past few years that were tough to plan for, such as the pandemic and geopolitical shocks like Russia’s invasion of Ukraine and the Israel-Gaza conflict, other elements affecting coffee production are happening closer to the source, like labour shortages.

Driven by low wages, migration changes and younger generations leaving coffee farming altogether, declining worker numbers could be a serious threat long-term.

As England at Löfbergs explains, “there's just no real incentive” for coffee crop pickers to work for low wages.

In South America, migration patterns are also changing, he adds, with workers less likely to travel to different parts of Central America for work.

“A lot of those pickers are also now migrating to the US, so there's sort of this mass migration which is happening in Central America to go into the US, because they just see that as a better opportunity than maybe picking coffee or doing other seasonal farm work through the year.”

A lot of young people don't want to go into coffee farming. They don't see a future in it
Jonny England, Löfbergs

Coffee farmers are also an aging generation, with younger people less keen on heading into a coffee farming career, further putting stress on worker numbers.

“That challenge within coffee because of these generally, quite historically low prices compared to the cost of production have meant that a lot of young, young people don't want to go into coffee farming. They don't see a future in it,” he says.

“There's a real skill and knowledge set that sits with those older farmers today, and if that isn't passed down to the next generation, that's a real concern as well.”

Diversified supply

Diversifying the supply chain could be a way coffee companies mitigate against some of these pressures.

Löfbergs buys beans from around 18 countries, including Peru, Columbia, Honduras, Nicaragua, Uganda and Kenya. However, England notes is a key region, with the flavour being understood well and liked by many of its consumers.

“I would say Brazil is one of our big, big producers and that's more driven by the fact that Scandinavians really enjoy having Brazil in their blends. That's a kind of quite common taste profile,” he says.

A single-origin souring strategy could seem appealing from a marketing point of view, according to Acda, acknowledging it helps producers stand out in the market.

“The benefit of that single source is also a very nice consumer story, because you think that you're closer to the farms, you can build a quality story around it. Whereas, if you make a blend of, I don't know, 100 or 25 different types of coffee, you really cannot tell that story so well”.

While consumers may want to pay a premium for single-origin though, it’s might not be the best for a long-term procurement strategy.

“Over time, that becomes much more difficult,” he says, “and you need to have a wider scope in terms of your R&D and your branding capabilities and sourcing capabilities, to have an attractive proposition.”

New varieties

Another solution being touted to develop more sustainable coffee production is increasing the use of climate-resistant coffee varieties.

Varieties that can withstand intense weather conditions are well-known in wine but less accepted and understood in coffee, explains England.

“Wine is a good example where there's been this a lot of focus on genetic development of different hybrids and varieties over many years and maybe coffee's playing catch-up a little bit that at this point,” he says.

Nestlé has also integrated “improved” coffee varieties into its global coffee sourcing chain for Nescafé since it set up the Nescafé Plan in 2010.

Part of the plan includes providing farmers access to “more productive and disease resistant” varieties, says the company’s global head of green coffee development, Marcelo Burity.

Over 200,000 coffee farmers are making use of these “improved varieties”, according to Nestlé, with more than 300 million plantlets having been distributed across 11 countries since 2010, including Vietnam, Brazil, Colombia, Mexico and Honduras.

Some of those have included the Arabica “Castillo” variety in Colombia and Robusta “Roubi1” in Mexico. Last year, the group also announced the development of a “novel high-yielding” variety of Arabica, called Star 4, sourced in Brazil.

In 2020, Pact Coffee partnered with Colombia’s National Coffee Research Centre (Cenicafé) to start sourcing more sustainable coffee varieties. The group launched “Cenicafé 1” as a “world exclusive” that same year and also works with a Parainema variety.

Cenicafé 1 is resistant to diseases like leaf rust, says Corby. It can also be grown in higher temperatures, produces more coffee beans per tree, and is ultimately, “a profitable, sustainable option for farmers as the world warms up”.

Given its comfort in lower altitudes, farmers also don’t have to deforest land elsewhere and can continue growing the beans where they already are, he says.

Despite the potential of such varieties, Corby says not all farmers are necessarily keen to make the switch, as due to lack of recognition, they “are hesitant about planting it on their farms out of concern for roasters not purchasing their harvest”.

Regenerative agriculture

Regenerative agriculture is another buzzword in discussions about the future of coffee production. The farming practice can include keeping soil undisturbed and covered, as well as boosting biodiversity on farmed land. There is, however, no widely accepted definition of 'regen ag'.

For Acda, adopting such practices can help coffee makers future-proof supply chains.

"The deeper you get into your supply chain, and the more committed you are to making farmers able to deal with all of this change through, for example, regenerative agriculture and a much more qualitative way of producing coffee, the more protected you will be and the more resilient you will be over time," he says.

Part of Nestlé’s Nescafé plan looks to help more farmers use regenerative agricultural practices like planting cover crops, as well as “promoting agroforestry and intercropping and support[ing] farm renovation”, says Burity.

The Nespresso maker is looking to have 100% of its coffee responsibly sourced by this year and to have 20% of coffee sourced from regenerative agricultural practices. In 2024, 93% of globally coffee supplies were responsibly sourced, while over 20% of total 2023 volumes came from coffee grown by farmers using regenerative agricultural practices.

Löfbergs is also starting regenerative, organic production projects with its farmers, offering “higher premiums for those coffees”, says England. He notes though that the projects are still “in a test and learn phase”.

While efforts have been made in the area, they’re still at a relatively nascent level, according to Acda. “Clearly, many large coffee companies have engaged on programs like that, [but] not at a full scale.”

Fair pay for good

Climate change remains a key concern for coffee farmers, alongside other long-term challenges like labour shortages, and if the sector intends to weather the storm, producers and consumers alike may need to prepare to pay more.

“I think the fastest way to encourage producers to adopt these new practices is through paying higher premiums for the coffee,” says England.

Fairtrade’s Acheampong agrees, stressing that while plenty “of people and a lot of businesses, and a lot of stakeholders are trying”, it’s “really important is that we turn the dial up a bit”.

That should include putting in place long-term supplier relationships and ensuring that a fair price is in place for farmers, he says. “Ultimately, if farmers are able to be paid, basically retain an income that enables them to cover the cost of production, but not only that, ensure they can maintain a decent livelihood."

That, in turn, Acheampong says, allows them to invest "adequately creating the infrastructure that [they need] to be resilient against climate shocks. But then it also enables them to really pass on coffee farming to future generations as well”.

If coffee is to keep maintain a sustainable supply, it seems we should face the fact that its cheap days need to be over.

"Is the climate crisis the only threat to coffee production?" was originally created and published by Just Drinks, a GlobalData owned brand.

 

The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.