In recent weeks you may have noticed talk of increasing prices in the coffee industry. Perhaps you’ve seen statements such as “robusta is at record highs”, or the price of your morning takeaway cappuccino has suddenly gone up.

Following on from our recent blog Does Knowing Your Coffee’s Origin Really Matter?, in this article we’ll take a look at some of the issues facing the wider coffee industry. What happens in the global commodity market affects us all, both today and in the future.

What has happened in the last year?

The coffee industry as a whole has changed drastically over the last 12 months.

Farmers have faced multiple hurdles impacting production, including climate change, droughts in Vietnam and Brazil, leaf rust, El Niño, loss of pollinators, soaring prices of fertilisers, and an ageing population.

Additionally, there have been other trade issues such as the Red Sea crisis and re-routing of shipments, and high interest rates changing the landscape of coffee financing. There is even reduced demand for coffees of certain qualities and types, such as higher priced speciality coffees with unusual flavours as trends pass and budgets tighten. Components of some blends (especially for big-name brands) may change over time as the price of robusta and arabica beans fluctuates.

We also have EUDR (European Union Deforestation Regulation), a new regulation on deforestation-free products coming into effect - currently at the end of the year. We believe this is exactly what the industry needs, but it comes with implementation costs and challenges for all. These supply and demand dynamics have resulted in both rising prices and instability across the coffee industry.

The global C-Market and Coffee Futures

The International Coffee Exchange (ICE), otherwise known as the C-Market, is the global exchange in which the world’s arabica coffee is bought and sold. It provides a global benchmark for the price of coffee, which is determined by traders at the New York Stock Exchange (traded in USD per lb of coffee).

In the eyes of the ICE, arabica coffee is defined as a commodity, because quality is somewhat standardised. Clear rules for trading are established (more about how speciality-grade coffee fits into this below), so it behaves similarly to any other financial market or stock exchange.

The price of any coffee, no matter the quality, is either directly or indirectly related to the global C-Market price - as the market rises and falls, so does the price of coffee.

That’s good for farmers, right?

Not necessarily.

Otherwise known as coffee futures, complex financial contracts allow traders to speculate on the future price of coffee. The price of futures contracts are impacted by supply and demand. When demand increases or supply diminishes, prices tend to rise. Conversely, if demand goes down or supply increases, prices usually fall. It’s a world where financial institutions effectively control the market, betting on price fluctuations for future gains.

This system is a very long way away from a farmer selling a sack of coffee cherries to a mill.

How does the C-Market affect the price or quality of my coffee?

The global C-Price of arabica coffee has nearly doubled over the last 12 months. Nobody knows for sure what will happen in the future, but it doesn't look like this trend will change anytime soon.

As the two biggest coffee producing nations globally, droughts in Brazil and Vietnam have reduced production which is set to cause a crop shortfall next harvest. In particular for arabica beans, this will lead to increased prices for 2025 and perhaps even 2026 - assuming demand stays the same or increases.

As the price of the raw material increases, so does the cost of a cup of coffee. This is particularly true for buyers who trade through intermediaries, as fees and premiums are added to cover the increased costs mentioned above. A likely alternative is also a drop in the quality of coffee, as budget constraints are felt across the industry.

Buy coffee from producers, not the bank

As the landscape for traders becomes increasingly challenging, and the price of spot coffee (landed coffee already traded through intermediaries) becomes more volatile, prices for consumers will have to increase.

The big problem with this is that banks are the main beneficiary. Invariably, they win when coffee futures are traded successfully. This has never been more true - legacy coffee traders are struggling to stay afloat amid rising costs and mounting debt. Adept at finding opportunity in a crisis, financial institutions are increasingly acquiring these companies - recent examples include Hartree, a global energies and commodities trading company acquiring Volcafe, a 170 year old coffee trader, and Stone X (a financial services franchise) acquiring Mercon speciality coffee.

And so, a familiar story plays out: Banks take control of a global market - a far cry from the artisanal product produced and enjoyed by so many.

Therefore, buying directly from producers has never been more important. We continue to buy the same coffee at the same quality, from the same producers, year-on-year. Our price is agreed above C-Market rates that is not only linked to quality, but also physical grading evaluations and extrinsic factors. These include both climate issues affecting crop availability, and socio-economic challenges such as political instability and local currency market variability. We are in control of the transaction between a producer and ourselves, resulting in a price that works for everyone, including our customers.

So, is a £5 cup of coffee around the corner? Personally, I think this is highly likely. Understanding how the coffee has been traded will be the pertinent question - by purchasing coffee from roasters who have truly direct purchasing agreements with producers, we can ensure that the benefits of rising coffee prices are passed back to the farmers doing the hard yards. With so many challenges facing coffee production, they need our support more than ever.