Bad news awaits coffee lovers around the world

2024-07-15 2024-07-15T12:53:35Z

ArabiaWeather - Italian coffee giant Lavazza has warned that the price of coffee is expected to rise more than its current record level due to climate change , shipping disruptions, and new European Union regulations that increase roasters’ costs.

Robusta futures in London, considered the global benchmark, reached $4,844 per ton last Tuesday, after rising about 70 percent over the past year due to poor harvests in major coffee-producing countries in Southeast Asia.

The price of coffee has risen

Giuseppe Lavazza, President of the Lavazza Group, said that the price of coffee on supermarket shelves in the United Kingdom, which has already risen by about 15 percent this year, may rise by an additional 10 percent by next year, and he stated at an event on the sidelines of the Wimbledon Tennis Championships that “coffee prices It will not go down, it will remain very high

The coffee supply chain is under severe pressure.” Lavazza, who belongs to the fourth generation to head the Turin-based coffee group, added that coffee roasting companies such as Lavazza have been forced to raise prices and reduce profit margins due to the high cost of raw materials.

He noted that the industry was used to dealing with volatile prices for high-quality Arabica beans, with New York Arabica futures reaching their highest levels since September 2022. But he added that the recent rise in prices for cheaper robusta was unprecedented and causing more problems for the industry.

He added:

“Climate change has affected the production of the most important robusta producing countries in the world, especially Vietnam and Indonesia, which has led to a significant reduction in the available quantity of these varieties.”

Weather forecasts indicate that the upcoming Vietnamese harvest will not be enough to replenish dwindling supplies of Robusta coffee beans, which are used to make espresso and instant coffee.

Challenges for coffee roasters and high prices

Giuseppe Lavazza, President of the Lavazza Group, explained that coffee roasters used to pay higher prices to obtain Robusta coffee for limited periods, but the current situation forced them to pay large sums for several months at a time. He pointed out that the decrease in supply and the rise in prices led to hedge funds and speculators flocking to the market, which increased the rise in futures prices. He stressed that "speculation is one of the main factors."

Lavazza added that the rise in futures contract prices cost the company additional costs worth $800 million, equivalent to 2.5 times its earnings before interest, taxes, depreciation and amortization since 2022. He explained that the rise in shipping costs also contributed to the increase in prices, as ships had been forced since last October to take the route Longer around the bottom of Africa to avoid Houthi attacks in the Red Sea, making it more difficult to import grains from Asia and East Africa.

Lavazza noted that the company's net income reached 68 million euros in 2023, down from 95 million euros in 2022, while earnings before interest, taxes, depreciation and amortization fell from 309 million euros to 263 million euros in the same period.

He added that the new rules imposed by the European Union, which ban the import of coffee and other goods grown in deforested areas, will push prices higher when they come into effect at the beginning of next year. These rules will require food companies to determine the precise geographical location of the lands where they are produced. Its goods are in it.

Lavazza stressed that "only 20 percent of farmers in the coffee sector are prepared to meet the regulations," warning that European producers will have to obtain their beans from Brazil, which is considered the only country prepared to implement the rules. He added that the recent European elections, which pushed the European Parliament to the right, create the possibility of amending the legislation, otherwise some 8 million coffee farmers “will be deprived of the opportunity to sell coffee to the European Union.”