Business World

Thursday 18 September 2014

Coffee prices to rise as arabica bean shortage bites

Marcy Nicholson

Published 01/08/2014 | 00:00

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THE coffee industry provides many of us with some our most relaxing moments during the day but there is nothing relaxing about global coffee prices.

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US coffee traders have warned they face months-long delays in getting shipments as suppliers from Central America to Asia push to revise contracts - the latest sign that the meteoric rally in high quality arabica bean futures earlier in the year has disrupted trading.

At least one supplier is demanding that customers fork out more cash for beans that were contracted before arabica prices nearly doubled in the first few months of the year as a long drought scorched the coffee belt in Brazil.

In March, some local traders in Colombia ripped up contracts as prices took off, but this is the first time since the rally that US traders have said suppliers have ditched efforts to negotiate more flexible terms and are using tougher tactics.

One importer told Reuters a supplier is holding his coffee ransom unless he pays more than what was originally agreed.

"They say: 'Give me more money and I'll deliver'," he said.

He is owed three lots (112,500 lbs) of arabica coffee, now worth $183,375 (€137,000) based on futures prices, roughly $50,000 more than before the rally that started in late January.

For now, he said he will not bow to the demands.

Another importer, who also did not want to be named, said he has encountered similar problems.

"It is hard getting the coffee we are owed," he said, adding that he has agreed to more flexible delivery times and switched origins when possible.

Disruption

Such disruption highlights the impact of the volatile price moves and of concerns about availability, rekindling memories of rallies in 1997 and 2011, when traders said suppliers also sought prices higher than previously agreed on.

The disputes come as supplies of high-quality beans from Central America have slowed to a trickle after a leaf disease called 'roya' wiped out swathes of crops.

Large US roasters with operations in Ireland, such as Starbucks and Maxwell House-maker Kraft Foods, have responded to the price rally by raising retail prices for the first time since 2011.

Some exporters may be waiting for a resurgence in prices even as the worst fears about crop damage in Brazil have subsided, sending the market down 25pc. The roya outbreak has already forced some suppliers to postpone deliveries by as much as a year.

Traders have looked to Peru to replace lost supplies but shipments from the early harvest there have slowed after roya affected low-altitude plantations more than expected. Growers have bought more beans from Colombia, the world's biggest producer of high-quality washed arabica, and drastically less from Central America and Mexico this year.

Irish Independent

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