Brazil's drought has resulted in an increase in the price of coffee

PUBLISHED : Friday, 18 April, 2014, 8:34am
UPDATED : Friday, 18 April, 2014, 8:34am

With the price of wholesale coffee set to surge as much as 20 per cent in the next few months, it's customers at cha chaan teng and speciality roasters who can expect to bear the brunt of any increases. Prices at cha chaan teng may rise by HK$5 to HK$20 a cup, but Hong Kong hipsters drinking speciality brews can also expect to pay more.

"The ones that are worried the most in the industry are speciality micro-roasters because they will definitely have to pass the rise on to their customers," says Eric Daniel, coffee consultant at L'Ami Cafe Hong Kong, which distributes coffee labels under gourmet French brand Cafés Richard, and trains coffee baristas.

The reason for the price rise is the worst drought in Brazil for decades - the country is the world's largest producer. By May, coffee futures could reach their highest prices since 2011.

While raw materials may vary at cha chaan teng - with many opting for instant coffee or low-priced robusta beans, it is the more expensive Arabica bean that is most in focus. As global demand is looking to outstrip demand in light of the Brazilian drought, this has pushed up the prices of beans from other countries.

The International Coffee Organisation (comprising producers, exporters and importers) has warned that Brazil's coffee crop could be affected for years to come.

"It will be interesting to see how weather in Brazil, the largest world producer, might influence global coffee prices so much," says Daniel. "Funnily enough, last year was the opposite - it was fine weather, but the consumer did not see the price of his favourite brew plunging," Daniel adds, "nor did anybody talk about it.

"At my level, as a distributor, I will not feel the hike that much, nor will my customers. The bigger roasters working with bigger brokers who work with coffee futures contracts may not be badly affected."

The average coffee consumer does not notice much change through the peaks and troughs. Some very large companies, such as Starbucks, contract premium coffee supplies from growers not connected to commodities markets, and most companies selling coffee directly to consumers use futures contracts to stabilise the price fluctuations.

Pat Lee, coffee and tea buyer for City'super, says: "We don't have this information on prices going up." The retail chain's non-instant coffee range contains some 20 per cent of beans from Brazil - but additional blends also contain beans from there.

The cheapest price for a small bag of coffee (220 to 250 grams) ranges from HK$100 to HK$120. "We sell close to 100 types both of coffee beans and ground coffee from all around the world," Lee says.

Jennifer Liu, founder of the Coffee Academics, a retail cafe, roaster and workshop operator of 12 years, says: "I have heard of the expected rise in prices. Although the international coffee market has always been based on futures trading, and wholesalers usually buy coffee beans for the long term in order to stabilise prices, prices of green beans are expected to rise continuously - which will result in an increase of about 5 per cent in the short term.

"It won't affect us too much as we have an agreement with the supplier to ensure the price and the quantity will remain unchanged."

Brazil Cerrada coffee beans account for 20 per cent to 30 per cent of its bean collection, yet the Coffee Academics is not looking for replacement sources at the moment, says Liu.

Liu adds: "I believe Brazil will not face a coffee shortage after the drought. It has enough coffee stock to supply demand this year, even though the drought will result in a lower-than-expected harvest. If the drought persists, however, the cost of green beans will definitely go up, which may lead to us looking for a substitute in the long run."

Industry insiders estimate prices will rise 20 per cent to 25 per cent, but the real challenge will be in securing the best quality Arabica beans from Brazil and elsewhere as supply becomes short, most noticeably from next year.