Will demand for coffee fall as the price rises?

by | Sep 26, 2022 | Economy, Featured | 0 comments

For the vast majority of Israelis, coffee drinking culture has become an inseparable part of their lives. In fact, it is so strong that coffee giant Starbucks has failed to break into the local market where Israeli Café Aroma and a myriad of small coffee shops have been dominating for years. However, the Israeli coffee affair may encounter its main test so far – the rise in the price of a beloved drink.

As coffee is one of the goods imported from abroad, its price depends on the world’s supply and demand trends. And recently, the world’s supply was getting smaller. This is to do with the fact that Brazil, the largest coffee producer in the world, has been struggling to cope with the rising demand as its inventories have been falling and are at the lowest level in 23 years due to the weather conditions. According to the National Coffee Council, the nation’s coffee stockpiles may drop to just seven million bags (with each bag weighing 60kg) in the next half a year, whereas under normal circumstances it would stand between nine and twelve million.

But it is not only Brazil whose coffee inventory has been falling. The South American country reflects the global shortage in this commodity. With inflation still being a problem across the globe, combining these factors together may potentially result in a price increase.

Credit: WorldAtlas

In the meantime, the projections for the next year do not look promising as weather conditions add further challenges to the largest coffee producers. As Brazil is battling a severe dry spell, the neighbouring Columbia is experiencing excessive rains. Unfavourable weather is also a cause for concern in Nicaragua, Honduras, and Guatemala. In Vietnam, the second largest producer of coffee in the world, where Robusta coffee makes up 97% of its entire output, the country’s stockpiles have also been declining.

In light of the shrinking supply and the uncertainty regarding coffee inventory surrounding Brazil, Arabica coffee futures in New York rose 11% compared to the last year, and the market consensus is pointing to further rises in the near term.

Firms worldwide, including Starbucks and JDE Peet’s (one of the biggest coffee roasting companies in Europe), have already passed on this price hike and other rising costs to consumers to deal with inflationary pressures.

As to the situation in Israel, where inflation is half what it is in the US and Europe, the growing concerns of falling coffee stockpiles have yet to be reflected in the local market. Should coffee lovers in Israel start planning household budget cuts for their beloved beverage? I believe we will see it in the near future. But buying extra coffee supplies and stocking up would not sound too crazy at this stage.


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