Coffee supply squeeze set to push price higher

The retail cost of coffee is set to rise sharply after futures prices hit their highest level in more than three decades.

Coffee roasters are likely to increase retail prices for the fourth time in less than a year, industry executives said, after the cost of Arabica, the higher-quality bean, rose 2 per cent to $2.780 a pound on Tuesday, the highest since 1977.

Inventories of coffee have fallen to their lowest in at least 40 years, according to the International Coffee Organisation, driven by disappointing crops in Colombia, the top producer of high-quality coffee beans.

Cocoa prices also jumped on Tuesday after Alassane Ouattara, the internationally recognised winner of Ivory Coast’s disputed presidential election, said he would extend into March a ban on cocoa exports from the country, the world’s largest producer. Cocoa futures rose 3 per cent to £2,355 a tonne, approaching their highest level in 33 years. Executives warned consumers to brace for higher coffee and chocolate costs.

Coffee roasters, including multinationals such as Nestlé and Kraft, ordinarily attempt to keep the price of their product stable. But in the past year they have been forced to raise prices several times. JM Smucker, owner of the Folgers US coffee brand, warned last week that it would be forced to raise prices again this quarter, for the fourth time in the past year, if wholesale prices did not fall.

José Sette, executive director of the International Coffee Organisation, said: “The recent price increases have not been passed on to consumers yet.”

He added: “The fundamental situation is expected to remain unchanged, the tightness will continue at least until the end of this year.”

Supplies are particularly tight for high-quality Arabica coffee, which some traders believe could rise above $3 a pound within months.

(Source: http://www.ft.com/cms/s/0/e09be10a-3ec2-11e0-834e-00144feabdc0.html?ftcamp=rss#axzz1EpGYZGct)