Wake Up And Smell The Climate Crisis: Coffee Prices Set To Increase In 2025

RIYADH: It is the caffeine, not the cost, of a morning coffee that is supposed to help you shake off any lingering sleepiness, but the world’s wake-up drink of choice is set to get more expensive in 2025.

December saw the cost of Arabica beans hit a record high on the global commodities market, while Robusta prices nearly doubled in 2024, reaching $5,694 a tonne by late November.

The price rises came as the global coffee industry battled a perfect storm of challenges, with climate change, supply chain disruptions, and global market forces all having an impact.

It is against this backdrop that Saudi Arabia is looking to expand its involvement in the sector, with the Middle East consuming more than its fair share of the product.

The International Coffee Organization estimated that 6.3 million 60-kg bags of coffee were drunk in the Middle East in the year 2022/23 – 3.6 percent of the world’s consumption.

“The region’s population is 196 million, or 2.6 percent of the world’s population. The region is consuming above its share,” the organization noted.

Dock No, statistical coordinator with the Secretariat of the ICO, highlighted that Saudi Arabia became the second country in the Middle East to become a member of the International Coffee Organization, when the country signed the International Coffee Agreement in February.

“The coffee sector in Saudi Arabia is growing fast and is an important part of our plans for the future and the change we wish to bring to our country as it contributes to diversifying the national economy,” No said.

The coffee organization highlighted the Saudi Coffee Co., a new venture launched by the Kingdom’s Public Investment Fund. With a $319 million investment over 10 years, the company aims to significantly expand Saudi Arabia’s coffee production from 300 tonnes annually to 2,500 tonnes.

This growth will be driven by a focus on sustainability throughout the coffee supply chain, from production to distribution and marketing.

“Varieties are a key tool for any agricultural system, and improved varieties will contribute to productive climate resilient coffee systems in Saudi Arabia, just like anywhere else,” CEO of World Coffee Research, Jennifer Vern Long emphasized in an interview with Arab News.

A global challenge

Andrew Hetzel, a coffee and high-value agriculture specialist, told Arab News that climate change, particularly prolonged droughts and unpredictable weather patterns, is directly affecting bean crops.

Brazil, which primarily produces arabica, and Vietnam, which is the largest robusta producer, are experiencing unseasonably dry weather, leading to lower yields and quality for the 2024/25 season.

The South American country is also the second-largest robusta producer, and has faced crop yield losses due to unusually dry weather in key growing regions. No also noted the country’s vulnerability to past extreme events like the frost of July 2021 that affected its crop​.

Hetzel said: “Brazil is the most sophisticated agribusiness producer of coffee as a nation, but even they do not irrigate all of their fields.”

Long emphasized the urgency of increasing coffee productivity globally to meet growing demand.

She said: “Improving productivity doesn’t just ensure the supply of coffee can keep up with demand, it also decreases carbon emissions from coffee farming.”

Long further explained that current investments in coffee agricultural R&D, which stand at only $115 million per year, are far too low for a sector with such global significance.

This surge in robusta prices is driven by a mix of climate-related challenges, geopolitical issues, and tightening supply chains.

In Vietnam production is expected to fall by 10 percent for the 2023/24 season, and the ICO’s No told Arab News that Vietnam’s local markets have reported domestic stocks running low.

Adding to these pressures is the disruption of key global trade routes. The Red Sea crisis has heavily impacted shipping, particularly for exports from Vietnam and Indonesia to Europe.

Roasters are now grappling with longer shipping times and higher costs due to rising insurance premiums and intense competition for container space.

As a result, robusta inventories are plummeting. By January 2024, certified robusta stocks had dropped to 0.48 million 60-kg bags, a sharp 15.4 percent decline on the previous month, according to a report by the ICO.

The ICO’s coordinator explained that coffee stocks in Europe have fallen by almost half since 2021, reducing from 15.5 million 60-kg bags to 8.7 million​.

Hetzel said some coffee prices are still being impacted from the COVID-19 pandemic, pointing to its effects on transport costs. “The cost of ocean freight from Indonesia to North America quadrupled as exporters fought for empty containers and ship bookings. Container shortages persist today,” he said.

No added that shipping disruptions through the Suez and Panama canals in the past 12 months have only exacerbated these logistical issues, forcing coffee exporters to take longer routes, which added to the cost.

Though green coffee bean exports saw a 12.6 percent increase in December 2023 compared to the previous year, this short-term boost is unlikely to ease the growing strain on supply.

Innovation needed to address coffee’s sustainability crisis

A recent report by World Coffee Research set out how the sector faces an innovation crisis that requires urgent attention, particularly in the wake of climate change.

The organization’s CEO explained that a significant increase in global investment — around $452 million per year — is required over the next decade to meet rising demand while mitigating climate-related yield losses.

The report emphasized that climate change is reducing coffee origin diversity and endangering smallholder production. This, combined with rising demand, could further destabilize the industry if not addressed.

Hetzel also underscored the vulnerability of smallholder farmers, particularly in developing regions. “The vast majority of coffee production is in fragile states that are highly susceptible to climate change,” he said, adding that many smallholder farmers are likely to be severely impacted by economic losses, leading to food insecurity, conflict, and out-migration.

How climate change will continue to drive up prices

Compounding these issues is the broader impact of climate change. The recent declaration of an El Nino weather event by the US Climate Prediction Center is expected to bring more drought to Vietnam and excessive rains to Brazil, further threatening coffee production.

Meanwhile, the war in Ukraine has driven up fertilizer prices and energy costs, adding to the financial burden on coffee growers and roasters alike. As Hetzel noted: “The war in Ukraine has increased energy costs downstream from the farm – transportation, roasting, and distribution costs have all risen.”

No also highlighted the broader effects of inflation and rising input costs on coffee producers, particularly those in the Americas dealing with seasonal labor shortages​.

According to the WCR report, increased global investment is essential to ensure the long-term viability of coffee producers. Long warned that without action, the industry will continue to experience supply constraints and rising prices.

For the global coffee industry, navigating this turbulent environment requires vigilance and greater investment in innovation. As supply constraints and climate events continue to unfold, traders, roasters, and consumers alike are bracing for what could be a prolonged period of high coffee prices.