Coffee bean prices have soared this year, rising about 70%. This rapid increase has brewed up panicked headlines, but coffee drinkers—a jittery bunch at the best of times—shouldn’t worry too much.
Why coffee prices surged
Droughts hurt yields in Brazil and Colombia, which sell the U.S. about $4 billion of coffee beans each year. Vietnam, which exports more than $300 million of coffee (mostly Robusta for instant coffee) to the U.S., had dry conditions during planting season and then too much rain during the harvest.
This continues a longer term trend; bad weather has hurt production in Brazil over the last several years, though not as badly as in 2024. As a result, coffee prices are up more than 160% since the end of 2019. That’s a massive five-year increase. For context, overall inflation—which has been historically bad!—is just 22% over that span.
Why the price you pay for coffee hasn’t surged
Consumer coffee prices are up just 23% over the past five years, according to the Bureau of Labor Statistics (roasted coffee prices are up 24%, instant coffee prices are up 19%). This compares favorably to that 160% increase in coffee bean prices.
What explains the gap between coffee bean prices and consumer coffee prices? A few things.
First, the beans are just a fraction of the cost of coffee, whether you’re buying beans at the store or a cup from a cafe. Labor, transportation, marketing, and all the other costs associated with running a business account for the majority of consumer coffee prices, and those have risen at a much slower rate over the past few years.
Second, many roasters and cafes use futures contracts to hedge against price fluctuations. This diminishes, or at least delays, the effect of higher prices.
Third, there are substitutes for coffee (soda, tea, energy drinks, etc.), so sellers have to absorb some of the cost of rising bean prices. This isn’t the case with all commodities. If oil prices rise, for instance, you still have to put gas into your car (even if you might adjust your behavior to drive a little less).
What’s next for coffee prices?
The price you pay for coffee will probably rise a little faster than inflation over the next couple quarters, but nowhere near the 70% increase in coffee beans prices seen through the first eleven months of 2024. That said, coffee prices (and food prices in general) are volatile, and I expect they’ll come back down in the not-so-distant future.
What’s next for this newsletter?
This week is loaded with important data releases, including construction spending, the November jobs report, and more. We’ll cover all that and more in Week in Review, our every Friday post that gives you everything you need to know about the economy in a breezy, five minute read.
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