Expect to keep paying record prices for coffee

[WASHINGTON] Americans have been paying more for a cup of coffee after the US imposed a 50 per cent tariff on Brazil, the world’s largest producer, in July. 

This week, prices spiked again in the futures market as stocks of Brazilian beans in the US dwindled to their lowest level since 2020 and Donald Trump threatened tariffs on Colombia, another big exporter. 

But the president’s trade war obscures another major factor driving up coffee prices: climate change.

Coffee producing regions in Brazil have been undergoing an intense drought. Over the past month, parts of the state of Minas Gerais, a major coffee-producing region, have recorded about 70 per cent of the average rainfall for this period. Last week, the area got less than half the historic rainfall average, according to the Bloomberg Brazil Weather Analysis.

“There’s still the climate issue,” said Fernando Maximiliano, coffee market intelligence manager at financial-services network StoneX. “These tariffs, they’re an additional layer, but we can’t ignore the main, structural factor, which is the tighter supply.”

Since August of this year, future prices for arabica, a coffee bean variety mostly grown in Brazil, have climbed almost 40 per cent and are near record levels. Prices for Robusta, another variety that’s mostly used for instant coffee, have increased about 37 per cent.

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Brazil produces almost 40 per cent of the world’s coffee. The country has undergone droughts every year since 2020, resulting in global coffee demand outstripping supply, according to analysts. Maximiliano expects the situation to even out, not because of increased production, but because people are cutting back on coffee due to high prices.

The National Supply Company (Conab), the Brazilian government agency that manages agricultural policy, said it expects recent rains to mitigate the stress on plants from the earlier drought. And earlier this month, US President Donald Trump and Brazil President Luiz Inácio Lula da Silva opened up talks to remove tariffs on Brazilian goods. A deal would result in cheaper coffee prices for consumers as imports refill US warehouses.

In the long run, though, prices are expected to continue rising as temperatures increase. Because of climate change, only about 50 per cent of today’s coffee-growing regions will be suitable for coffee production by 2050, studies say. 

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Producing countries are already preparing for the future. Researchers in Brazil are zoning new coffee-growing areas with mild temperatures, rainfall or irrigation options. Countries, including Brazil and Uganda, also are looking for ways to protect plants from the heat and drought, as well as cloning to create more heat resilient crops.“Brazil is a very rich country,” said Kleber Santos, tax auditor at the Brazilian Ministry of Agriculture. “A major advantage for us is that right here in the country, we can find suitable, differentiated conditions for coffee.”

Arabica, which fetches the highest prices, is more sensitive to climate change than robusta, which can tolerate higher temperatures. Regardless of the variety, coffee production needs consistent rainfall. Andrea Illy, chairman of IllyCaffe, an Italian coffee company, estimates that less than 10 per cent of the world’s coffee plantations are irrigated. He expects that share will need to grow to a third to keep up with current climate trends and demand.

This and other changes to make coffee more resilient will further increase its cost, including from investment in new production techniques, fertilisers and better coffee-bean collection. 

“If the climate is changing, we have to understand that and adapt,” said Daniel El Chami, sustainable strategy director at TIMAC AGRO International, which offers technological solutions for sustainable agriculture. “We can’t keep creating new needs and new consumption materials as if climate doesn’t exist.” BLOOMBERG