The Coffee Industry Says the Current Price Surge Is Unsustainable: $8 for a Cappuccino Is Too Much

The coffee industry spent the last months of 2024 warning about the challenges ahead: 2025 was expected to be a difficult year for coffee drinkers. Due to several factors affecting crop yields and transportation issues, coffee prices have recently surged. Some major suppliers are already concerned that this situation may lead to a collapse sooner or later.

Additionally, consumer patience is beginning to wear thin.

A perfect storm. Coffee prices have risen significantly compared to a few months ago due to several key factors. First, climate issues have disrupted the ideal growing conditions for coffee in the world’s largest coffee producers, including Brazil, India, and Vietnam.

Another key factor is demand. Over the past two decades, China’s interest in coffee has skyrocketed, moving the country to the forefront of coffee consumption. In the 2022-2023 season, China demanded five million bags of 132 pounds each.

Moreover, navigating trade routes like the Red Sea, which transports Robusta coffee from Asia to the West, has become increasingly challenging. This has contributed further to rising prices. Naturally, trade tariffs have also played their part.

Lavazza’s stance. The coffee industry could’ve foreseen some of the challenges it’s currently facing. This includes the changes in European regulations aimed at combating the import of products from deforested areas. However, the sector has struggled to predict other factors influencing coffee prices.

In 2023, Lavazza chairman Giuseppe Lavazza initially predicted that prices would decline in 2024. However, following the perfect storm, he admitted that he was mistaken. “[Lavazza has] faced very, very strong headwinds. I don’t see any reason why coffee prices will go down,” the Lavazza director said in 2024.

The company has also pointed to consumer patience.

Limited patience. According to the Financial Times, Lavazza CEO Antonio Baravalle believes that consumer tolerance for rising coffee prices is reaching its breaking point. He acknowledges that several circumstances have directly influenced the price of coffee. However, he adds that speculation in financial markets is the one factor that affects consumers’ wallets the most.

Baravalle compared the situation to the stock market. “When I see three, four pounds for an espresso in London, or eight for a cappuccino in New York… I see the limit. It’s like when you see the New York Stock Exchange market going up, up, up, up and you say sooner or later it will collapse,” he explained.

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Different approaches. Like many other commodities in the stock market, the coffee market is experiencing significant fluctuations. In February, Arabica beans reached a record high of $4.39 per pound but have since declined to $3.45 due to President Donald Trump’s tariffs, which have reduced demand.

Lavazza saw its net profits rise by 20.6% in 2024. However, tariffs will impact it when exporting to the U.S. from the European Union. Baravelle also commented that the company’s profit estimates have been significantly lowered because it hasn’t altered its coffee blend. This means it’s not switched to cheaper coffee options. Additionally, Lavazza has partially absorbed the increased costs of raw materials.

This situation highlights a difference in approaches among companies. Some suppliers that sell directly to consumers previously announced that they could no longer absorb rising costs. As a result, the price of coffee purchased for home brewing increased. Baravelle points out that this cost increase has led to “an average global coffee market tightening of approximately 3.5% over the last two years.”

Climate change. Coffee prices have risen, and anyone who buys coffee for home use has likely noticed this. Unfortunately, optimism may be unwarranted for the future. Baravelle told the Financial Times that he expects a further decline in sales by 2025. “Climate change will be an issue in our category–but in the medium to long term, not a 2025 problem,” he said.

The Food and Agriculture Organization of the United Nations (FAO) also believes the worst isn’t over yet. El Mamoun Amrouk, a senior economist at the FAO, suggests that society must adjust to this reality because “extreme weather events will be frequent in the long run.”

As a result, Amrouk expects more “frequent surges in prices in comparison to the past.” In this context, if brands don’t absorb the rising costs and these are passed on to consumers, coffee substitutes may not seem so bad after all.

Image | Fahmi Fakhrudin

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