Post-Brexit Britain wakes up to smell a pricier cup of coffee

[LONDON] UK coffee drinkers should brace to pay more for their morning fix in the coming months as domestic coffee roasters start to pass on increased import costs.

London's small-scale coffee roasters, who help supply the capital's burgeoning taste for a quality roast, are facing a steep price rise in coffee beans after the pound slumped to its lowest level in 30 years against the dollar.

As with most imported commodities, UK roasters pay for the raw product in US currency, and the foreign exchange reaction to Britain's vote to exit the European Union has jolted the market.

Customers of Square Mile Coffee Roasters, based in East London, have to pay 50 pence (S$0.90) more for some 350g bags of coffee ordered online, representing an increase of 3 percent to 5 per cent, according to owner Anette Moldvaer.

"We ended up paying a lot more for our green coffee," Ms Moldvaer said in an interview. The second payment on a US$150,000 order of 18,950 kg of Costa Rican beans got about US$7,500 more expensive after the June 23 EU referendum."We kind of got caught in the middle of it as far as our payments were concerned."

Square Mile roasts around 120 metric tons of green coffee beans per year, sourcing from countries such as Brazil, Burundi and El Salvador. It then sells to coffee houses wholesale, and to individual customers online.

The costs are will inevitably be passed onto the customers, of which Prufrock Coffee, a cafe and barista-training centre, based in London's Clerkenwell, is one. The impact on sales of drinks tends to lag a few months behind as roasters first clear stocks of beans.

"Roasters are buying large quantities of green coffee that last them 6 to 12 months," owner Jeremy Challender said over an espresso. The real squeeze will come as roasters order their next batches before Christmas - if the pound fails to recover - - and pass the extra costs onto outlets, he said.

Prufrock also imports a significant proportion of coffee from roasters on the European continent where the weak pound is already bumping up costs. "Suddenly we're paying more," Mr Challender said.

Already due to the high cost of rent in London, Mr Challender's customers are paying almost double what they were five years ago, he said. Prufrock charges 2.20 pounds (S$3.95) for an espresso and 2.80 pounds for one with milk.

COFFEE CRISIS

The short-term effect of Brexit is exacerbating the upward trend in the price of premium arabica coffee. Requiring high altitudes, the best coffee takes longer and is more challenging to grow. When combined with an increased global demand for top- end coffee, climate change and crop disease, the price inevitably rises and is borne by the consumer.

"There is a crisis in the world of coffee, a long-term crisis where the industry is starting to wake up," Jeffrey Young, chief executive officer of Allegra Group, a UK consultancy, said by phone.

Coffee's addictive nature may temper the blow as consumers are generally willing to bear price increases for their fix, he said.

Ms Moldvaer at Square Mile is also optimistic about the future despite the weak pound. "The cost of coffee is always volatile," she said, and her customers tend to be understanding. Besides, Brazil is apparently in line for a bumper crop of good coffee this year - just in time for the Christmas order.

BLOOMBERG