Towards the end of 2022, there was a decline in coffee prices in Kerala, one of the southernmost states in India. In fact, since a couple of months before that, other parts of the world have also been compelled to bear the brunt of declines in prices.
Price drops in the coffee industry can affect several aspects of the whole chain, and it’s important to understand why they occur.
But before going into that, let’s see how coffee prices are set in the first place.
How are Coffee Prices Set?
As you may know already, coffee is graded in India by independent coffee producers and roasters.
But when it comes to coffee prices, the C Market comes into the picture. The C Market was set up in the 1900s by coffee producers in Central America. This is where all the coffee-producing countries of the world trade their arabica coffees.
Factors such as origin location, destination markets, stage of processing, coffee variety, and so on are reflected in the coffee pricing.
There’s something called the C Price, which is nothing but the global benchmark that is set for these coffees. Coffee exporters and roasters all have to take the C Price into consideration to price their own products.
This ultimately affects the final price of the coffee that consumers pay to get bags of whole beans or ground coffee.
The robusta coffees prices are set based on the Robusta Coffee Futures contracts wherein countries like India, Indonesia, Brazil and Africa participate to buy and sell robusta coffees.
What Causes a Drop in Coffee Prices?
Naturally, one of the most important principles that affect coffee prices is that of demand and supply.
When there is more quantity of coffee entering the market, that too from some of the top coffee-producing regions of the world, there is a surplus of good quality coffees available. This, in turn, can lead to a drop in coffee prices in case the demand for it hasn’t changed.
When coffee prices drop, farmers (especially smallholder farmers) are under greater pressure because their yield will not bring them enough returns to profitably continue producing coffee.
This can have dire consequences on future batches of coffee production as well. As a result, impacting how much produce the farmers can sell. If roasters, for some reason, aren’t able to get their hands on enough bags of coffee, it affects the end consumer.
On the other hand, the price of coffee can also shoot up when factors like poor environmental conditions affect supply.