Coffee Prices Hit 50-Year Highs Due to Drought and Global Supply Issues; More Increases Expected

Global coffee supply disruptions, worsened by climate challenges, will continue to raise costs for a long time.

By Thea Felicity

Dec 13 2024, 09:30 AM EST

Coffee Prices Rise As Drought In Brazil Affects The Crop's — SAN RAFAEL, CALIFORNIA - DECEMBER 04: Freshly brewed espresso drips into a cup at Red Whale Coffee on December 04, 2024 in San Rafael, California. Extreme weather and severe drought in coffee-growing countries have pushed coffee prices to a 47-year high of $3.35 per pound for Arabica coffee on the Intercontinental Exchange. Justin Sullivan/Getty Images

Coffee prices have jumped to nearly 50-year highs, driven by extreme weather conditions and a dependence on output from a few key producing regions. A favorite among coffee futures around the world, Arabica rose this year to 348.35 cents per pound, the highest since 1977.

Analysts caution this trend could last years as history demonstrates that prices are stabilized only when supply improves and stocks recover. Unfavorable weather, especially in Brazil, has had a drastic effect on production, creating an unfavorable scenario for one of the most consumed beverages worldwide.

The country faced its worst drought in 70 years, followed by heavy rains, disrupting the flowering of arabica trees, per CNBC. This marks the fifth consecutive disappointing harvest for Brazil. With coffee grown in a limited tropical belt—including Brazil, Vietnam, Colombia, and Ethiopia—such concentration makes the commodity highly vulnerable to weather anomalies.

Together, Brazil and Vietnam account for 56% of global coffee production, heightening the risk of supply shocks.

Coffee Demand vs. Supply Challenges

Even though demand for coffee continues to grow, particularly in emerging markets like China, supply lags behind. The USDA estimates Brazil's coffee production for 2024/2025 to decline by 5.8%, affecting both arabica and robusta varieties. Analysts fear that the climate crisis may further amplify risks as extreme weather events impede normal growth in coffee trees. Consequently, prices may rise even higher, prolonging the strain on global coffee markets.

Rising coffee bean prices will have consumers paying more for their daily cup of coffee, according to The Guardian. The leading brands, including Nestlé, have already begun to raise prices and reduce package sizes to adjust for the increased costs.

However, Starbucks, Lavazza and others have not commented, but price increases are likely to happen since manufacturers will have to pay for higher production costs while attempting to maintain quality.

The coffee price rally highlights deeper vulnerabilities in global commodity markets. As supply chains struggle with climate-related challenges, the road to price stabilization could be long. In the short term, coffee drinkers around the world should prepare for steeper costs.