Good news for coffee lovers – it looks like the price of coffee will remain stable. So despite the fact that most other foodstuffs will see a hike in prices, coffee is set to remain stable or at realistic levels, according to First National Bank (FNB).
Fears of a spike in coffee prices heightened after Brazil, a major global coffee exporter, suffered a severe drought last year. However, Brazil has since had a good amount of rain and is set to produce its largest harvest for the 2016/2017 season, which will lead to lower prices globally. Also, competition is set to be fierce with Starbucks entering the South African market soon.
Dawie Maree, head of information and marketing at FNB Business, Agriculture says South Africa has not yet experienced supply challenges as we import most of our coffee beans from Eastern African countries, which continue to increase yields and produce quality crops.
Unfortunately, lower global prices will not necessarily translate to coffee prices dropping in South Africa since there are a number of factors that affect the prices that retailers currently charge.
Maree explained the competitive local coffee market has managed to keep prices low and affordable for a number of years. However, the industry is now faced with a double whammy when it comes to setting realistic coffee prices that consumers can afford and maintaining profit margins.
Food price inflation, high input costs, low disposable incomes of consumers, coupled with the weak Rand which increases the price of imports is threatening the profit margins of local coffee retailers.
Starbucks is expected to charge slightly higher prices and this is creating uncertainty among some local coffee retailers who are already considering reviewing the prices they charge for a cup of coffee.
What could hike coffee prices in the future?
However, caffeine addicts may yet face paying more for their coffee in the not so distant future. FNB warns that if dairy farmers who are currently struggling to feed animals start running into production shortages, this may also increase the price of milk leading to coffee retailers paying even more for input costs.
Moreover, the tax on sugar-sweetened beverages, which the government intends to introduce in April next year will add further strain to local coffee businesses leaving them with no choice but to increase the price of coffee in the long-term.
However, FNB reckons that the customer will have the final say. “Regardless of the current challenges, any attempts by the local coffee industry to increase prices in the short-term will likely be met by resistance from consumers who are already struggling to make ends meet in this tough economic environment. As a result, the coffee industry will have no choice but to absorb costs in the short-term and gradually factor in increases, in order to remain relevant to consumers,” concluded the bank.
Coffee Price Comparison