Coffee-nomics

Most Australians find it difficult to start the day without a cup of coffee – or two or three.

"In terms of consumption per capita, the US Department of Agriculture ranks Australians at tenth in the world, consuming the equivalent of around 4.5 kg of ground coffee per year.”

Given that buying a coffee in the morning is a ritual for so many people, as they wait for 10 minutes while the tattooed barista churns through the orders and heats the milk to a perfect temperature, changes in the price of coffee will often be a talking point.

Heading further into the second half of 2023, this will especially be the case as people re-evaluate their spending as the cost of living increases.

While there is no common economic reference point for the average cost of a cup of coffee in our major cities, ask any coffee lover and they will always say prices always seem to be climbing.

So what are the pressures being exerted on coffee prices this year?

In terms of consumption per capita, Australia is ranked eleventh in the world, consuming the equivalent of around 4.5 kg of ground coffee per year. Apart from Canada, all the countries in front of Australia are European.

The world produces two major varieties of coffee - Arabica, which makes up around 60 percent of the world’s coffee, and Robusta, which makes up around 40 percent.

Arabica coffee is known for having a more complex and nuanced flavour while Robusta is described as having a more bitter and straightforward taste.

Robusta contains around twice the caffeine of Arabica. As a result, Robusta is often used in blends to add caffeine content. In terms of growing regions, Arabica is grown in higher areas with cooler temperatures and greater rainfall; Robusta is grown at lower areas which are warmer and drier.

Over recent months, global coffee prices have been impacted by a number of factors.

On one hand, there has been some downward pressure on prices as traders worry tighter global economic times may reduce consumption.

While there have been some concerns about a short-term tightening of global supply, good rains in Brazil have many in the market feeling these worries will be temporary, with strong harvests to come.

In contrast, heavy rains in Indonesia, the world’s third largest Robusta producer, are likely to see that country’s coffee production fall by around 20 per cent.

That said, the concerns around the emergence of an El Nino weather pattern which have impacted other agricultural forecasts have also raised concerns for global coffee production, particularly around the end of 2023.

All this leads to the big question of just how much the change in global coffee prices are likely to impact the price of your morning coffee, whether it be takeaway, home espresso, coffee pod, plunger, moka pot or even good old instant (as your correspondent swears by).

If we look at the most conservative case of ordinary global coffee market fluctuations, we should not see an impact on the cost.

That said, a sustained increase in the price of global coffee could ultimately filter through in costs and contribute to a retail price increase – but that would combine with other inflationary pressures already buffeting the cost.

Factors such as rising wages, increased energy prices, higher rent and packaging costs all loom large as inflationary pressures on your takeaway morning pick-me-up. Moreover, Australians drink mainly milk coffees so the price of milk is a key factor.

How could any price pressures ultimately impact the Aussie love of drinking coffee?

It is already being suggested that supermarket coffee sales are rising as consumers switch from takeaway coffee to more homemade to save their vital pennies.

In addition, as the supermarkets widen their overall home-brand ranges they are now including products like coffee pods, selling them far more cheaply than well-known brands.

Another part of the coffee market which continues to grow is coffee sales from convenience stores and service stations. It’s difficult to miss a lot of the advertising around many cities, promoting $1-2 coffees, presumably in the hope this will entice consumers to put $100 worth of fuel into their car while they’re there.

These coffees also reflect the advances in coffee-making technology. Once upon a time, a coffee from a servo may well have consisted of a spoonful of cheap instant coffee, a squirt of boiling water from the urn, a UHT milk capsule and a long pour of white sugar.

These days, convenience store and servo machine coffee is not only quick but a good enough quality to satisfy many (though not all) city coffee drinkers (who can trend to the coffee snob end of the spectrum).

What does this mean for our café culture?

It’s worth considering whether a future fall in input prices – including coffee beans, energy costs and café coffee machines – might possibly see the price of a cup of coffee from a café go down in the longer term. Particularly if they want to entice customers back from home brews.

Café owners put a lot of thought into their coffee prices – they need to tread a line between being high enough to cover costs while not pricing so high it either deters customers or puts a café too far above the prices of competitors in its vicinity.

When economic conditions do ease, as they inevitably will, the nation’s café owners will face an interesting series of choices.

Michael Whitehead is Director Industry Insights and Agribusiness at ANZ