Get ready to spend more for your morning pick-me-up.
Coffee prices are on the march, and the costs of the milk, sugar and even paper cups also are climbing. But whereas other commodities such as copper or oil have been pushed up by demand from developing countries, coffee is a different case. Demand has only edged up, and much of the recent surge is due to speculators hopping into the commodity.
Oren’s Daily Roast, a boutique coffee store in New York City, has charged $2.95 for a medium latte for the past two years. Now, owner Oren Bloostein is considering a price increase of perhaps 3 percent for a cup of coffee and up to 10 percent for the coffee beans it sells.
“It is very disconcerting,” Bloostein said. But after an 11 percent increase in ingredients since the beginning of this year, Bloostein said, “I need to raise my prices so that I can remain in business.”
The price pressures on a cup of joe began building last year. The price of the coffee itself rose 7.7 percent last year, while milk climbed 24 percent.
Now, spurred by tight supplies of coffee beans and investors looking for the next commodity run-up, prices are boiling over.
Coffee is considered price inelastic, meaning changes have little effect on overall consumption. Even if the coffee price doubles, drinkers still must have their cup in the morning; on the other hand, if prices drop, coffee drinkers don’t typically start downing two espressos instead of one.
Coffee isn’t the only hot food item these days.
The whole sector of soft commodities — products that are grown instead of mined — has been heating up recently, with cocoa and sugar up 35 percent and 32 percent, respectively, since the beginning of the year.
Unlike the big increases in demand for commodities such as copper or oil, coffee consumption will rise 1.6 percent this year to 125 million bags, according to the International Coffee Organization in London. One bag equals 132 pounds.
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Hit where it hurts
Faced with higher costs in acquiring coffee beans, major U.S roasters Procter & Gamble and Kraft Foods last month increased prices on ground and instant brands, including Maxwell House and Folgers. It was the second price increase in four months. An 11-to 13-ounce container of Maxwell now costs $3.74, compared with $3.59 last fall.
Starbucks boosted prices of its lattes, cappuccinos and other coffee drinks in September by an average of 1.9 percent. The chain hasn’t lifted prices since then, partially because 94 percent of its coffee supplies come through fixed-price contracts.
Still, it mentioned commodity-price risk “generated by … green coffee and dairy products” as the “primary market risk” in its latest earnings report.
