The price of coffee is due to many factors
After peaking in 2011, there was strong downward pressure on the price of coffee in 2012. This was influenced by improved harvest prospects and expansion in coffee production. The two biggest producer countries, Brazil and Vietnam, yielded large harvests.
There have been rapid fluctuations in the coffee price in the short term, which has brought uncertainty to the market. Last year the price of coffee varied on the commodity exchange from 143 to 237 cents (USD) a pound (roughly 454 grams). The price sensitivity was boosted, in addition to variations in harvests, by global economic conditions, rising demand in developing and coffee-producing countries, and investors’ interest in coffee. The downward price trend has been forecast to continue in the first half of 2013, although in the long term the price of coffee is expected to rally.
The price of coffee is set on the coffee exchanges of New York and London. For Paulig, the New York exchange is more important, as roughly 98 per cent of Paulig’s purchases are arabica coffee, which is quoted in New York. A bonus is paid for good quality in addition to the market price. Paulig buys large quantities of top-grade coffees and the situation demands careful financial risk management.
Weather conditions and climate change have increased uncertainty over harvests. Unexpected changes in the weather have put most pressure on the top-quality raw materials that Paulig buys, for which the balance of demand and supply is already delicate.
Price affects the attractiveness of cultivation
Worldwide, coffee consumption is rising by roughly three per cent a year. The increase in consumption is fastest in developing countries such as China and India. Growing demand is causing big changes in the coffee market. It can be expected that demand for green coffee will grow faster than production. For production to meet the rising consumption, the cultivation of coffee must be increased or a better yield will have to be obtained from existing plantations.
A downturn in the price of green coffee can have a dramatic impact on growers’ everyday lives. The price paid for green coffee has a direct effect on growers’ income and their ability to support their families. With living standards rising in the countries of origin, labour-intensive coffee cultivation will only be an attractive livelihood if the price for coffee is reasonable. The remuneration paid for the product affects the growers’ willingness to cultivate coffee rather than, for example, other crops.
"If the price of green coffee on the exchange falls too low, coffee cultivation will no longer be an attractive livelihood in the countries of origin afflicted by climate change."
- Katariina Aho, Purchasing Director