Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The price of coffee is set to rise from its current record high as climate change, shipping disruptions and new EU regulations drive up costs for roasters, Italian coffee giant Lavazza has warned.
London robusta futures, the global benchmark, reached a high of $4,844 per tonne on Tuesday, having soared about 70 per cent over the past year due to poor harvests in the world’s main growing countries in south-east Asia.
However, Giuseppe Lavazza, chair of Lavazza Group, which owns Lavazza coffee, said the price of coffee on UK supermarket shelves, which is already up by around 15 per cent this year, could rise close to another 10 per cent from here by next year.
“Coffee prices are not going to go down, [they’re] going to stay very high,” he said at an event on the sidelines of the Wimbledon tennis tournament. “The coffee supply chain is dramatically under pressure.”
Coffee roasters such as Lavazza have been forced to put up prices and reduce profit margins as the cost of the raw material has surged, said Lavazza, who is the fourth generation to head the Turin-based coffee group.
He said the industry was accustomed to dealing with fluctuating prices of higher-end arabica beans — arabica futures in New York are at their highest level since September 2022. But he added that the recent spike in cheaper robusta was unprecedented and causing more problems for the industry.
“Climate change has affected the production in the most important robusta countries around the world, mainly Vietnam and Indonesia, reducing quite a lot the quantity available of these kinds of varieties.”
Weather forecasts suggest the next Vietnamese harvest will fail to replenish waning supplies of robusta coffee beans, which are used in espresso and for instant coffee.
While in the past roasters have had to pay higher prices for robusta for a few months or even a year, “in this case we’re really paying a lot of money for the coffee for many, many, many months”, said Lavazza.
As supplies have dwindled and prices have risen, hedge funds and other speculators have also piled into the market, which he blamed for driving up futures prices further, he said. “Speculation is one of the big factors.”
Rising futures prices have meant that the company has incurred an extra $800mn in costs — equal to 2.5 times its ebitda — since 2022, he said.
Higher shipping costs have also contributed, he added. Since October last year, vessels have been forced to take the longer route around the bottom of Africa in order to avoid attacks by Houthi rebels in the Red Sea. This is difficult for a coffee company that sources beans from countries in Asia and east Africa, Lavazza said.
The Italian coffee maker’s net income was €68mn in 2023, down from €95mn in 2022, while ebitda fell from €309mn to €263mn in the same period, he said.
Lavazza added that new EU regulations barring imports of coffee and six other commodities that have been grown in deforested areas from being sold in the bloc will push prices even higher.
The new rules come into force at the start of the next year and will also require food companies operating in the bloc to precisely geolocate the plots of land on which their commodities are produced.
“In the coffee business, only 20 per cent of the farmers are ready to meet the regulation,” said Lavazza.
He warned that European coffee roasters would be forced to source almost all their beans from Brazil, which he said was the only country prepared for the implementation of the regulations.
Recent European elections, which have pushed the make-up of the EU parliament in Brussels to the right, create the possibility of amending the legislation, according to Lavazza. Otherwise, about 8mn coffee farmers “will be cut off from the chance of selling coffee to you”.
Read the full article here
