Beans Shortage + COVID + Sea-Freight Crisis = 2022 Price Increase

TL;DR: In June 2022, we’re increasing our prices to reflect the extraordinary inflation of green coffee costs caused by a global shortage in Arabica beans and a COVID-19-related sea-freight crisis. This adjustment allows us to keep operating sustainably while maintaining consistency and quality in our products and service.


We’ve all heard whispers about the high inflation in this first half of 2022. It has affected most energy services, new and used vehicles, general transportation and logistics, rental property, food and beverages, apparel, etc. and, quite noticeably, coffee. According to Mark Howard from Caravela—one of our key importing partners— “In January 2022 a YTD report came out highlighting one commodity in particular had increased by +90%—this was Arabica green coffee.” Yes, that’s pretty much double what we paid last year for green coffee.

The main factor driving this price up is a global coffee shortage due to adverse weather in Brazil and Colombia—the two largest producing countries—during the 2021-22 harvests. These events have pushed buyers, especially large multinationals, to look at other origins and higher quality lots (the ones we usually offer) to meet their production volume quota. Low supply + high demand = coffee prices go up.

The other significant factor is a soaring increase in sea-freight costs due to COVID-19-related logistic complexities: lockdowns and shortage of staff, containers and even pallets at most ports.

This catastrophic combination has resulted in one of the highest coffee inflations in years. The best way to understand how it got to this point is to look at the bigger picture through a timeline of key events:

March 2020:
COVID-19 starts impacting global logistics and markets
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The World Health Organization (WHO) declares the COVID-19 virus outbreak a Public Health Emergency of International Concern. Lockdowns and travel restrictions start affecting the global supply chain and logistics.
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December 2020-July 2021:
Shortages in Brazil’s Arabica harvest drive the coffee price up
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Drought, excessive pruning, and eventually frosts cause a brutal fall in Brazil’s coffee production—the smallest crop in 10 years. Moreover, the extent of the frost damage on trees is expected to have long-term effects on the yield, increasing the short-term uncertainty. As the world’s 1st coffee producer, this extreme shortage induces a global supply-demand imbalance and market volatility, and it’s considered the primary factor in the coffee price inflation we’re experiencing today.

Arabica Coffee Price Chart


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August 2021:
Sea-freight and logistics crisis drive the shipping fees up
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The first effects of COVID-19 on logistics are by now compounded. The sea-freight industry, the main one used for coffee transport, is suffering shortages of labour, containers and, sometimes, wooden pallets. Aside from delays and uncertainty, these circumstances end up in an outraging rise of shipping fees (sometimes up to 4 times the—until then—standard values).

Chart of shipping containers' price
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December 2021-January 2022:
A shortage in Colombia’s Arabica harvest drives the coffee price up (even more!)
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Heavy rains brought by La Niña, in addition to COVID-19 lockdowns, political protests and prolonged port closures, impact Colombia’s second harvest—the lowest output since 2014. As the 3rd global coffee producer, this shortage adds to the already shaky coffee market volatility and sends the prices even higher.
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Now, what does this all mean for us?

The cost of our green coffee prices has risen across the board, with our blenders (the lots used for Pacemaker and Sweet Tooth blends) coping the worst of this inflation: the value stands around 50%+—double the cost compared to lots bought just a few months ago, same grade and origin. This doesn’t even reflect the inflation of other goods and services needed in our daily operations: rent, gas, electricity, etc.

Plainly speaking, this cost rise is just impossible to absorb if we want to keep operating sustainably and maintain our quality and consistency standards untouched. We must increase our coffee prices; the alternative would be to buy a cheaper, lower-grade product but that’s definitely not part of our ethos and vision. This is why you’ll see a different price structure—in wholesale and retail—from June 2022 onwards.

And what does this mean for you, much valued Sample Coffee customer?

If you’re a wholesale partner this puts you in the same situation as us. We hope this letter helped you understand the roots of the circumstances leading to our price increase, and you hopefully support us in this move. We have some ready-to-print signs that you can share with your customers if you wish (links to the PDF documents are below).

If you’re an online or cafe customer, this means you’ll be paying a bit more for your beans/cups of coffee. We hope we’ve been successful in explaining the events that led to it, and that you keep supporting us in the future.

Announcing a price rise is never pleasant or easy, especially in a competitive industry where there’s a roaster in every neighbourhood and a cafe on every corner; there’s plausible fear of losing customers to a cheaper brand/venue. Sometimes, like now, it’s necessary and the only thing we can do is to talk transparently about the reasons behind it.

Paraphrasing Mark in Caravela’s own increase announcement letter:

“Instead of dwelling in doom and gloom there is now an excellent opportunity to educate and increase wholesale and retail pricing. For years roasted coffee pricing and the cost of the honest flat white within Australia has stalled (and we have all enjoyed low prices) which in many ways has devalued the hard efforts of our treasured meticulous specialized craft for way too long.

The moment is now to be confident and firm. To share knowledge, collaborate, educate, evolve, grow, and overcome any fears associated with asking for more. We live in a time where we can share our experiences in the peak of an ever-growing audience economy, and you will be heard!”

We thank you for your support in the past, present and future. Please reach out anytime with comments and specific questions—we’re here for you.



VENUE SIGNS

A6 Price Increase Notice. (PDF document)
A4 Price Increase Notice. (PDF document)


About the current circumstances:
2022 Price Increase Letter - Caravela Coffee
A perfect storm for container shipping - The Economist
Inflation - Statement on Monetary Policy – February 2022 RBA
Coffee bean prices have doubled in the past year and may double again – what’s going on? - The Conversation
Worldwide coffee bean shortages and rising fuel prices hit cafes hard, with price spikes here to stay - ABC News

General reflections on prices from other for & coffee industry leaders:
Think a $6 Croissant Is Overpriced? Think Again. - Nadine Ingram, Flour and Stone
Is There A Race To The Bottom Happening In Speciality Coffee? - Coffee With Maxwell
Why is a cup of coffee so expensive? - James Hoffman


 

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