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Why coffee prices are skyrocketing

Coffee prices have increased in recent weeks due to unprecedented hot and dry weather in Brazil. The South American country produces nearly 40 percent of the world’s coffee.

Prices were at $1.75 per pound on Monday, up 3 percent. According to Reuters, last week’s 20 percent surge was the largest one-week rally since December in 1999.

January was the hottest month on record for parts of Brazil, and the drought was said to be the worst in 50 years. Carlos Paulino da Costa, president of Cooxupe, the world’s largest coffee cooperative, estimated that 30 percent of the coffee crop may have been lost.

The U.S. Department of Agriculture commented, “Dry, unseasonably warm weather persisted in coffee areas of southern Minas Gerais and Espirito Santo.”

According to Business Insider, the impact on consumers was uncertain. Coffee beans account for no more than 10 percent of a Starbucks franchise’s operating costs and service providers are usually insulated from short-term price run-ups by contracts for future orders.

But RBC Capital Markets’ Starbucks analyst David Palmer expected that a protracted rise in coffee prices would require one or more of Starbucks’ other types of products, such as lunch meals, tea, juice or carbonated beverages, to fill the gap left by less affordable coffee.

By Lee Shin-young, Intern reporter (sylee@heraldcorp.com)