Record Brazilian drought causes coffee prices to spike to highest level in years

·5 min read
Record Brazilian drought causes coffee prices to spike to highest level in years
COVID-19 caused sales at coffee chains to decline by almost one-quarter. The average prices paid for various types of coffee drinks are shown. (Scott Galley/CBC - image credit)
COVID-19 caused sales at coffee chains to decline by almost one-quarter. The average prices paid for various types of coffee drinks are shown. (Scott Galley/CBC - image credit)

A once-in-a-century drought in Brazil has walloped the world's largest coffee crop, pushing up wholesale prices to their highest level in years.

The going rate for prized arabica beans was almost $1.70 US a pound at one point this week. That's almost 60 per cent higher than it was last summer.

Abnormally dry conditions late in the growing season in Brazil are the main culprit, as Brazil typically produces about one-third of the world's supply of coffee beans.

Rainfall in the agricultural region of Minas Gerais was the lowest on record in the summer months, which stretch from January to April in Brazil. That's normally when coffee plants soak up moisture ahead of the drier winter months, when they are harvested. But this year, the rains never came.

"It seems to have happened at a crucial time, when the crop needs to be absorbing moisture in order to flourish and blossom. And it just didn't happen in time, so the yields were severely impaired," said Kona Haque, head of research with London-based agricultural commodities trader EDF & Man.

It's hard to get a handle on just how small the crop will be, but experts in the field agree it's significant and enough to put world supply below demand for the first time in years.

Price of coffee has surged this year

Part of the problem is that 2021 was always more likely to be a weaker than normal year for coffee. That's because like many tree crops, coffee operates on a two-year cycle, where years of plenty tend to be followed by years where the plants produce less.

"They follow this pattern of what's known in the industry as biennial bearing," said Stuart McCook, an economics professor at the University of Guelph who follows the coffee industry closely.

Scott Galley/CBC
Scott Galley/CBC

2020 was a bumper crop for coffee, and because that bearing was so heavy, McCook said, this past season, "a lot of farmers pruned back the branches of their coffee trees so that the tree ... could develop new healthy tissue to bear future crops."

The bumper crop last year looked even bigger than it would normally be because of the pandemic, which uprooted the traditional supply-and-demand patterns for coffee.

"The world is slowly coming out of a lockdown and the pandemic, and that means consumption of coffee outside of the home is beginning to recover," said Haque. "Demand for outdoor coffee consumption was … expected to recover. And just as this demand starts to recover, you're seeing this shortage of supply."

Add it all up and it's a recipe for record prices, from farm to cup.

Losel Tethong, the founder and president of Propeller Coffee, an artisanal coffee roaster in Toronto, sources as much of his coffee as he can from independent farmers because he's a big believer in sustainability, so he's glad to see higher prices for them. But it's also a challenge for him to sell the finished product without passing those costs on.

"It's great to see that price go up; it's just trying to absorb that in less than a year, it's tough," he said.

WATCH | The pros and cons of higher coffee prices:

Like many retail-focused businesses, when the pandemic hit, Tethong said he lost about 80 per cent of his customer base. He has managed to slowly and steadily grow his e-commerce business, selling bags direct to consumers, but COVID-19 has increased the cost of just about everything, including supplies like filters and machines, and transportation costs.

"We haven't raised prices as a company in five years," he said. "We're continuing to do everything we can to keep our prices down, but this year, we implemented a small five-per-cent price rise on our retail price of coffee."

That five-per-cent hike for the good stuff is nothing compared to what's happening with the cheaper, mass-produced blends, said Sylvain Charlebois, a professor of food policy at Dalhousie University in Halifax. The price of coffee at the grocery store is up by 17 per cent since January.

"There's something going on," he said. "Whatever food product is out there, manufacturers [are] charging more to grocers and that will catch up with us eventually."

Impact of climate change

It's not just tropical crops like coffee that are impacted.

Canadian staples such as wheat, canola and barley are also seeing record prices right now because extreme heat in Western Canada has drastically impacted this year's crop yields.

Just as is the case with those crops, experts who spoke to CBC News say climate change is playing a role with coffee, too — which means drinkers should get used to jittery java prices.

WATCH | How climate changes impact coffee plants:

On top of the drought that hurt this year's harvest, Brazilian farmers were also hit by previously unheard of frost, which is bad news for next year's crop.

"This drought is not a normal occurrence, but at the same time, the frost that just happened last week is the second time in three years that it's happened," Haque noted.

"It's possible that we're going to have to live with more extreme weather conditions. And if that's the case then ... supply will vary, and when supply varies, inevitably prices are going to go up and down."

That means for coffee lovers, uncertainty will be the name of the game from now on.

As Tethong puts it, "we're kind of up against the clock with climate change and other pressures."

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