Coffee lovers face price hike

Lavazza, the Italian coffee giant, warned that coffee prices are expected to rise from their current record levels due to climate change, shipping disruptions, and new EU regulations increasing roasters' costs.

Robusta futures in London, the global benchmark, reached $4,844 per ton last Tuesday, up about 70% over the past year due to poor harvests in key coffee-producing countries in Southeast Asia.

Giuseppe Lavazza, head of Lavazza Group, said coffee prices on UK supermarket shelves, which already rose about 15% this year, could rise another 10% next year. Speaking at a Wimbledon tennis event, he noted that coffee prices would remain high due to severe supply chain pressures.

Lavazza explained that coffee roasters like his company had to raise prices and reduce profit margins as raw material costs soared. While the industry is used to volatile Arabica bean prices, recent Robusta price hikes have caused unprecedented problems. Climate change significantly impacted production in Vietnam and Indonesia, leading to reduced Robusta availability.

Forecasts suggest Vietnam's next harvest will not replenish dwindling Robusta supplies, used in espresso and instant coffee. Lavazza said roasters had to pay high prices for Robusta for several months, a situation worsened by speculation driving up futures prices. This increased costs by $800 million, equivalent to 2.5 times the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) since 2022.

Rising shipping costs also contributed, with ships taking longer routes around Africa to avoid Red Sea attacks since last October. Lavazza's net income fell from €95 million in 2022 to €68 million in 2023, with EBITDA dropping from €309 million to €263 million in the same period.

New EU rules banning coffee and six other deforested-region products from sale in the EU will further raise prices. Starting next year, food companies in the EU must geolocate the lands producing their goods. Lavazza said only 20% of coffee farmers are prepared to meet these regulations, forcing European producers to source most of their beans from Brazil.

Lavazza warned that around 8 million coffee farmers could be excluded from selling to the EU unless the new European Parliament, which shifted rightward in recent elections, adjusts the legislation.