Crop failures to push wholesale coffee prices to 13-year high

By Matt McClure
Calgary Herald

August 25, 2010

Wake up and smell this coffee. Your morning brew may soon cost more.

An expected crop failure in Colombia and speculation in commodities markets have pushed coffee futures to a 13-year high. While specialty retailers like Tim Hortons and Starbucks are holding the line for now, small independent cafes may have little choice but to hike prices.

Starting Sept. 1, Calgary's Fratello Coffee Roasters is increasing the price it charges 200 independent cafes around southern Alberta for beans by up to seven per cent -- a hike the firm's owner believes is here to stay and one he expects will be passed on to customers.

"We're seeing rising consumption worldwide in countries like Brazil and India, along with bad harvests for the third year in a row in Colombia, one of the world's largest suppliers of Arabica beans," said Fratello owner Russ Prefontaine.

"It's a perfect storm of increased demand and reduced supply."

The benchmark price for coffee beans has increased 30 per cent this year. Futures contracts for December delivery hit $1.88 US a pound in trading this week on New York's Intercontinental Exchange -- the highest level since September 1997 -- before retreating back to $1.70 Tuesday after reports Brazil might increase its supply to world markets.

At least one city cafe supplied by Fratello plans to hike prices. At Caffe Beano in southwest Calgary, a 16-ounce coffee will soon go up 10 cents to $2.10, the first increase in three years.

"We value our customers and we realize these are still tough economic times," said owner Margie Gibb, "but there is really no way around it."

Still, restaurant chain Tim Hortons said it has no immediate plans to charge more for a cup of coffee. In an e-mail, company spokesman Dave Morelli said the company "books its coffee contracts at least six months at a time, which protects our owners and customers from fluctuations in worldwide futures markets."

And it appears no increase is in the immediate offing at Starbucks' 785 company-operated stores in Canada. The company said it had offset "short-term fluctuations" by diversifying the regions from which it buys its coffee.

But a caffeine jolt at home will cost more. The makers of popular brands such as Maxwell House and Folgers said they plan price increases of about 10 per cent across the board this fall.

At the Higher Ground cafe in the trendy Kensington district, manager Dan Clapson said there are no plans for a price increase, and little worry about the impact on sales if he's forced to hike prices later. When the price of a 20-ounce cup of joe went up by 10 cents to $2.25 a few months back, in step with large chains, customers didn't balk.

"People want their caffeine," said Clapson, "and they're happy to pay to consume it in a nice atmosphere."

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The Reporter, Matt McClure, can be reached at: mmcclure@theherald.canwest.com