Price Mechanism - World Coffee Prices Hit 10-Year High

A late year surge in demand allied to worsening supply problems have come together to drive coffee prices to a decade-long high.

It is classic supply and demand forces in action. Shipping bottlenecks affecting exports from Brazil and a new wave of covid hitting countries such as Vietnam are leading to supply shortages and a resultant decline in coffee bean stocks on the international coffee exchanges.

Brazilian coffee production has also been hit by drought and frost causing a fall in coffee bean yields. Ethiopian coffee production has been hit by their ongoing internal conflict.

Some coffee producers are holding back stocks in the expectation of being able to sell them later at a higher price. Speculative demand for coffee is high and coffee-bean buyers such as the major roasting companies are buying up stocks where they can adding to demand pressures.

The surge in coffee prices is explained in this Financial Times article. When reading it, have a think about how you might draw a developed supply and demand diagram to help illustrate shifts in supply and demand that are impacting on price.

Analysts expect high prices to stretch in 2023. And whilst Brazil, Vietnam and Ethiopia are experiencing output challenges, other coffee-growing countries such as Uganda and Tanzania are poised to benefit from the global price hike. Such is the nature of the price mechanism!