Cheap Coffee Is About to Get a Lot More Expensive

Cheap Coffee Is About to Get a Lot More Expensive

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Susmita Baral
Jan 20, 2017
(Image credit: Worthy of Elegance)

Few people drink instant coffee for its high-brow taste — the beverage is largely consumed for its convenience and affordability — but those addicted to their cheap coffee fix should know that it's going to start costing more.

Instant coffee is made of lower-quality, bitter-tasting coffee beans called robusta, which grows in Brazil, Vietnam, and Indonesia. Unfortunately, a supply shortage of robusta caused by environmental factors resulted in low output last year and similar trends are being forecasted for this year.

A Brewing Drought in Brazil

In 2016 Brazil suffered from a severe drought that diminished the nation's capacity to produce robusta. Vietnam and Indonesia also suffered from dry spells, courtesy of El Niño, which contributed to the decline in worldwide output of the affordable coffee bean.

Bloomberg reports that Brazil's Espirito Santo state is facing droughts similar to what was seen last year. As a result, the government has resorted to re-instituting limits on irrigation from rivers. With an ongoing drought, the already-low supply is further jeopardized and prices for instant coffee will most likely rise.

According to Financial Times, the global coffee market will see a supply shortage for a third consecutive year. But robusta, in particular, has a bleak outlook. The International Coffee Organization says the prospects for the coffee is "less positive with lower crops expected from most major origins."

What's Happening for 2017

As it is, the price of robusta is 43 percent higher at the start of 2017 than it was at the start of 2016. U.S. coffee manufacturer JM Smucker has already announced it is raising the prices of packaged coffee for several brands: Folgers, Dunkin' Donuts, and Café Bustelo. The increase will be, on average, six percent.

In addition to shaping the cost of instant coffee, the product output can change consumer consumption. While there is a shortage in robusta, there's an abundance of arabica — higher-quality, smooth-tasting coffee beans — and with the price point between the two narrowing, consumers may opt for a higher-quality coffee if it's the same price.

That said, there's a larger problem when it comes to the future of coffee aside from cost and consumer options. Climate change is altering the capacity for many countries that contribute the most to coffee output.

"Many countries where coffee exports form a main plank of the economy are also amongst the most vulnerable to climate risk," says a report by the Climate Institute, an Australia-based non-profit organization. "Honduras, Nicaragua, Vietnam, and Guatemala, for instance, rank in the top 10 for climate-related damages since the 1990s."

Is coffee scheduled to become an endangered commodity?

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