UNDERSTANDING WHY COFFEE IS GETTING EXPENSIVE. By Phillip Di Bella

UNDERSTANDING WHY COFFEE IS GETTING EXPENSIVE. By Phillip Di Bella

The green coffee market is highly susceptible to disruptions caused by global factors such as war, geopolitics, and economic instability. Here’s how these factors can impact the market:

1. Supply Chain Disruptions

War and Geopolitical Tensions:

Coffee is often produced in developing regions of the world, many of which have unstable political environments (e.g., Latin America, Africa, and Southeast Asia). Wars or political instability in these regions can lead to transportation disruptions, labor shortages, and even the destruction of coffee crops.

Trade Barriers:

Sanctions, trade tariffs, and export restrictions caused by geopolitical tensions can increase the cost of exporting coffee or make it impossible for producers to reach their traditional markets. This reduces the supply of green coffee beans in the global market, pushing prices higher.

2. Rising Costs and Inflation

Energy Prices: The cost of energy, especially due to geopolitical tensions in oil-producing regions, impacts every part of the coffee supply chain, from farming to transportation and roasting. Fuel price increases drive up logistics costs, affecting both the pricing and availability of green coffee beans.

Fertilizer and Agricultural Inputs:

Economic sanctions or disruptions in countries that produce key agricultural inputs, such as fertilizers (many of which come from Russia and Belarus), can increase production costs for coffee growers, reducing crop yields and forcing farmers to raise prices.

Currency Volatility:

Coffee is usually traded in U.S. dollars, and currency devaluations in coffee-growing countries (often due to economic instability) can reduce growers’ profitability. However, it can also make their coffee cheaper on the international market, which affects pricing dynamics and market competition.

3. Climate-Related Disruptions

Political Inaction on Climate Change:

Geopolitical conflicts often delay international cooperation on addressing climate change. As coffee is highly climate-sensitive, any delays in addressing environmental concerns exacerbate issues like droughts or excessive rainfall, directly affecting coffee crop yields and quality. Coffee-producing regions like Brazil and Colombia are particularly vulnerable to climate shifts.

Destruction of Infrastructure and Farms:

In areas directly affected by war or conflict, the infrastructure necessary for coffee production—such as irrigation systems, roads, or processing plants—can be damaged. Coffee plantations might be abandoned, and laborers displaced, leading to lower yields and loss of income for producers.

4. Global Economic Downturn

Decreased Demand:

In times of economic recession, consumer spending on non-essential items, like specialty coffee, often declines. A reduction in demand from major coffee-consuming countries (like the U.S., Europe, and Japan) could result in lower green coffee prices, negatively impacting growers.

Financial Instability:

Economic crises in both producing and consuming countries affect the ability of businesses to secure financing for coffee imports and exports. This can strain the supply chain, leading to delays in shipments and higher costs for buyers.

5. Labor Shortages

Migration and Conflict:

Wars and economic instability cause migration crises, displacing workers who might have traditionally worked in the coffee industry. As a result, labor shortages can occur in both production (picking coffee beans) and processing, especially during harvest seasons, further reducing supply.

6. Shifting Global Alliances

Trade Partnerships:

Geopolitical shifts could result in the formation of new trade partnerships or alliances. For example, coffee-exporting countries may seek alternative markets if they face sanctions or trade restrictions from key partners, potentially realigning global supply chains and reshaping the competitive landscape for coffee importers.

7. Logistics and Transportation

Shipping Delays and Costs:

War and geopolitical tensions can severely impact global shipping routes. Key maritime routes could be restricted or become unsafe, leading to increased shipping costs and delays. Additionally, disruptions in global fuel supplies can raise the cost of freight, further increasing green coffee prices.

8. Wage Pressure and Social Unrest

Rising Costs for Producers:

Inflation and economic stress could lead to higher wage demands from workers in coffee-producing countries, increasing the overall cost of green coffee production. At the same time, social unrest driven by economic inequality or poor working conditions may disrupt production if strikes or protests occur.

9. Investor Confidence and Speculation

Commodity Speculation:

Green coffee is often traded as a commodity. In times of geopolitical and economic uncertainty, investors may engage in speculative buying, driving up prices even further. Alternatively, reduced confidence in market stability may lead to a sell-off of coffee futures, impacting market prices unpredictably.

Conclusion

War, geopolitics, and economic instability can severely disrupt the green coffee market by affecting supply chains, increasing costs, reducing demand, and causing uncertainty. The overall result tends to be increased volatility in coffee prices, making it difficult for producers, traders, and consumers to predict and manage costs. As these factors continue to evolve, businesses in the coffee industry must be prepared to navigate a complex and unpredictable market landscape.