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Life used to be so simple. And cheap.
Remember the good old days when you could pop into your local café for an espresso for just €1? Italians do. In Rome or Milan or Naples, the morning ritual would see workers hurry into their neighborhood bar and gulp down a €1 shot before setting off to their job, caffeinated to the hilt but barely poorer.
And that was still the average price for a coffee as recently as the Covid pandemic. But lately the cherished habit has got more expensive. An espresso now goes for about €1.20 in Italy, much to the chagrin of the coffee-loving country’s caffeine addicts.
It’s not just Italy. The price of coffee has gone up everywhere, data from Europe’s statistics agency shows. We probably don’t need to tell you that.
There are all sorts of reasons. Firstly, just normal inflation, which has made pretty much everything harder to afford ― from electricity to beer to calling out a plumber or hiring a sex worker ― as countries spent their way out of the pandemic and were then confronted with war in Ukraine pushing up energy costs and global supply chain problems.
But there’s also been a perfect storm of other factors that have hit coffee where it hurts:
Attacks by underwater drones
Yemen’s Houthi rebels have been wreaking havoc in the Red Sea, targeting cargo ships.
Increasingly, shipping has been rerouted around the Cape of Good Hope in South Africa. That means longer transport times and higher costs. Maritime transport company Maersk has said it expects disruptions to continue into the third quarter of the year.
That’s weighed on the price of coffee from Vietnam — the world’s major producer of the Robusta variety of coffee. (Worldwide consumption: 40 percent of all coffee; origin: central and western sub-Saharan Africa; taste: on the bitter side, full-bodied, earthy.)
“The Houthis have displayed their capabilities to be innovative by use of not just the drones they were using before, but underwater drones,” said Oran van Dort, a commodity analyst for Rabobank, a Dutch financial services company. “They’ve shown more and more that they can do actual damage.”
Blame the Brussels bureaucrats
If rebels in Yemen contribute to rising prices with volleys of missiles, policymakers in Brussels are playing their part in driving up costs with the stroke of a pen.
EU rules to fight deforestation enter into force at the end of the year. Under the regulation on deforestation-free products, coffee-makers must certify that their production hasn’t contributed to loss of vegetation.
The data-gathering process is extensive ― and costly. Businesses also aren’t sure how exactly the rules will be enforced, which creates uncertainty and could drive up prices further.
Old-fashioned economics, new-style climate
Coffee on the international market is sold in dollars.
The recent strength of the U.S. currency against the euro has made it more expensive for buyers in Europe.
Then there’s climate change, which can effect all natural commodities.
In South America, droughts followed a bad frost in 2021, hitting the coffee crop in Brazil. In Vietnam, the wet season came late, reducing output there too. It’s a rule of economics that when a product becomes scarcer, the price rockets.
And the long-term climate trends don’t bode well for supply.
“Coffee, like all crops, faces growing challenges from climate change,” said Christopher B. Barrett, an economist and professor of agriculture at Cornell University in New York.
Arabica (Worldwide consumption: 60 percent; origin: Ethiopia; taste: often more delicate and floral) grows best in a narrow temperature band. Persistent heat damages the crop and lowers productivity. Climate change means optimal areas for growing are shrinking, Barrett said.
A more expensive high street
For businesses dealing in coffee, any price hikes have to be carefully considered, balancing increased costs with the need to keep drinkers coming back.
“We are not just going to increase our prices because we were not sure the customers are going to stay with us,” said Kiliane Huyghebaert, the owner of chic café Jackie in Brussels.
The former lawyer-turned-business-owner set up the specialty coffee store in the heart of Brussels’s St. Gilles neighborhood ― a couple of miles from the EU quarter ― three years ago.
It’s not just the price of the ground beans that is cutting into margins. Labor costs have also been going up because when the cost of living rises, salaries often follow. That’s not an insignificant cost, given that it takes months before a barista is trained up to make the store’s specialty brews.
And we’ve only been talking about the raw ingredient so far. Let’s not forget that for cappuccinos, cortados, macchiatos and all the rest there’s another crucial ingredient, which is also making things more costly.
“The price of fresh milk has doubled, which is insane,” said Huyghebaert.
Ripened, stripped, dried, roasted, ground
The birthplace of coffee is not far from Yemen and its rebels with underwater drones ― just across the Red Sea in Ethiopia.
The coffee bush likes tropical climates and elevation, and grows in a belt around the equator.
It is the cherries of the plant, which turns bright red when ripe, that are used to make the hot drink. They’re gathered, stripped, dried, roasted and finally ground and ready to use.
Sounds like hard work, doesn’t it? Well, it is. The uneven and elevated terrain the plant grows in makes mechanization difficult. Unlike most common agricultural crops, coffee has a long growing cycle, taking three to four years to mature.
That means farmers aren’t able to quickly switch crops, or plant more coffee, to respond to changes in demand.
Brazil is the world’s biggest coffee producer, followed by Vietnam and Colombia. The coffee is often harvested by small farm owners, or hired hands.
The farmers will bring in their beans to middle men who have most of the bargaining power. They sell those on to larger businesses, and so the coffee moves through the supply chain until it reaches the consumer-facing companies that European consumers are most familiar with.
Historically, it’s been an area ripe for exploitation, said Miguel Gamboa of the Rainforest Alliance.
He is based in Guatemala and has been working in coffee certification for over 20 years, helping to make sure coffee supply chain abide by environmental and social standards.
Nowadays, producers are more aware of what is going on in their supply chain: “This has been like the switch when we started to say, ‘Okay, do you know where your coffee is coming from? Do you know what is happening?’”
In theory farmers benefit from rising prices. But it’s not always that simple, said Monika Firl, a senior coffee advisor at Fairtrade International.
Many farmers rely on loans to finance investments that go into growing the year’s crop, repaying them once it’s sold. That puts them one wrong investment away from bankruptcy.
“These kind of dramatic jumps up and down over such a short period of time are bad for business for everybody, but the farmers are the ones who are the most vulnerable,” said Firl.
The outlook
The good news is that, in the medium term at least, prices are expected to moderate, said Rabobank’s Oran van Dort. Farmers are being incentivized to bring more supply onto the market.
And coffee production is forecast to be in surplus next year, which should help alleviate the supply constraints.
So don’t worry, you might be able to continue your coffee habit for a while yet. And if not, you’ll be pleased to know the price of tea has come down.
