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Italian coffee giant Lavazza has warned that the price of coffee will rise from its current record as climate change, transport disruptions and new EU regulations drive up costs for roasters.
London robusta futures, the global benchmark, hit a high of $4,844 a tonne on Tuesday, having soared about 70 percent over the past year due to poor harvests in the world’s main growing countries in Southeast Asia.
However, Giuseppe Lavazza, chairman of the Lavazza Group, which owns Lavazza coffee, said the price of coffee on UK supermarket shelves, which has already risen by around 15 per cent this year, could rise by almost another 10 per cent from here by next year. .
“Coffee prices will not go down, [they’re] it will remain very high,” he said at an event on the sidelines of tennis’s Wimbledon. “The coffee supply chain is under dramatic pressure.”
Coffee roasters such as Lavazza have been forced to raise prices and cut profit margins as raw material costs have soared, said Lavazza, who is in the fourth generation to head the Turin-based coffee group.
He said the industry was used to dealing with fluctuating prices for higher-end Arabica beans – New York Arabica futures are at their highest level since September 2022. But he added that the recent surge in cheaper robusta was unprecedented and created more problems. industry.
“Climate change has affected production in the most important robusta countries around the world, particularly Vietnam and Indonesia, and has greatly reduced the available amount of these species.”
Weather forecasts indicate that Vietnam’s next harvest will not be able to replenish dwindling supplies of robusta coffee beans, which are used in espresso and instant coffee.
Whereas in the past roasters had to pay a higher price for robusta for several months or even a year, “in this case, we’re really paying for coffee for many, many, many months,” Lavazza said.
As inventories dwindled and prices rose, hedge funds and other speculators also flocked to the market, which he said he blamed for further increases in futures prices. “Speculation is one of the main factors.”
Rising futures prices meant the company had incurred an additional $800 million in costs from 2022 – equivalent to 2.5 times its ebitda – he said.
Higher transportation costs also contributed, he added. Since October last year, vessels have been forced to take a longer route around the bottom of Africa to avoid attacks by Houthi rebels in the Red Sea. That’s difficult for a coffee company that sources its beans from countries in Asia and East Africa, Lavazza said.
The Italian coffee maker’s net income was 68 million euros in 2023, down from 95 million euros in 2022, while ebitda fell from 309 million euros to 263 million euros in the same period, he said.
Lavazza added that new EU regulations banning the sale of coffee and six other commodities that were grown in deforested areas in the bloc would drive prices even higher.
The new rules will come into effect early next year and will also require food companies operating in the bloc to precisely geolocate the land where their commodities are produced.
“In the coffee industry, only 20 percent of farmers are ready to comply with the regulation,” Lavazza said.
He warned that European coffee roasters will be forced to buy almost all beans from Brazil, which he says is the only country ready to implement the regulation.
According to Lavazza, the recent European elections, which shifted the composition of the European Parliament in Brussels to the right, create the possibility of amending the legislation. Otherwise, about 8 million coffee farmers will be “cut off from being able to sell you coffee.”