Higher Coffee Prices Coming?

It looks like you might have to pay more for your morning fix pretty soon (Starbuckians have already felt the pain). The price of coffee hit a new 13-year high today. Arabica (the highest-quality coffee) bean prices keep rising, due to fears about the upcoming crops in Colombia, Costa Rica and Brazil. As you can see from the chart below, coffee prices, up 48% over prices a year ago, are about double what they were five years ago.

Figure 1. From the Financial Times. Prices have been volatile, but mostly rising

If you look back a little farther (Figure 2), you can see that coffee prices are not the highest they have ever been. Coffee prices spiked sharply in 1994 and 1997 due to supply problems (weather events in South America). Fortunately for coffee drinkers around the world, after each price spike there was a fairly rapid drop. This time, however, the increase in prices has been more gradual, possibly reflecting a more stable trend. It’s something to watch over the next couple years.

Figure 2. Headed for a new high?

(Note: If you want to play with the interactive chart, click on the Figure 2. Your browser will send you to the Financial Times page that looks like Figure 1. Click on the Interactive Chart link in the top left corner of the chart. A pop-up window with the interactive chart will appear and you can change the parameters and add trend lines to the chart.  It’s great fun if you’re an economics nerd like me.