By Carl Khoury
In recent years, inflation has surged across many economies, significantly impacting the food and consumer sector. The effects are particularly pronounced in the coffee industry, where climate change, supply chain disruptions, and inflationary pressures are driving prices to unprecedented levels.
Coffee has been significantly affected by adverse climate conditions. Heavy rainfall in Brazil and drought in Vietnam have disrupted production, leading to sharp increases in coffee prices. The International Coffee Organisation (ICO) reported that the composite indicator price reached a 13-year high in April, up 16.4% from March, averaging 216.89 US cents per pound.
Brazil, the world’s largest coffee producer, is facing price increases due to heavy rainfall, which will likely affect the country’s 2024/25 supply. Vietnam, the second-largest coffee producer, is also experiencing supply difficulties due to poor harvests in recent years. The country's agriculture department projected a 20% drop in production this year, the lowest in four years.
Prices for both Arabica and Robusta coffee beans have risen notably. Robusta hit a 45-year high in April, while Arabica stocks increased by 1.7% since March 2024. The high demand for Robusta beans has particularly affected Nestlé’s production.
The increase in international green coffee commodity prices, fuelled by rising global demand, supply disruptions in key producers like Vietnam and Brazil, and escalating shipping expenses, has had a pronounced effect on production operations. In response to these market pressures, Nestlé has implemented strategies to minimise the impact of these price hikes across its product range. Concurrently, the company is actively pursuing optimisation and cost-saving measures across its value chains to alleviate the financial strain on consumers caused by these market fluctuations.
Despite annual consumer price inflation remaining unchanged at 5.2% from April to May, the latest figures spell bad news for coffee lovers. According to the Consumer Price Index (CPI) May 2024 report by StatsSA, the price of hot beverages increased from 11.4% in April to 14.2% in May, the highest level since January 2023. Inflation for instant coffee, ground coffee, or coffee beans, and black tea is above 10%. Instant coffee prices increased by an annual 17.9%, up from 13.8% in April. The average price of a 250g pack of instant coffee was 82% higher in May 2024 than in January 2017, according to StatsSA.
Additionally, coffee drinkers who enjoy sugar and milk with their favourite cup can expect to pay higher prices for these goods, as their costs have also risen over the same period, though not as sharply as coffee. While sugar inflation cooled in May, annual increases in the price of both white and brown sugar were in double-digit territory, at 18.8% and 15.8%, respectively.
Addressing the coffee crisis and ensuring a sustainable future for farming communities requires changing farming into driving more regenerative agriculture practises that companies like Nestlé are fully committed to and re-engineering production methods to reduce carbon emissions. It also involves reshaping consumer preferences towards more sustainable options. Studies indicate that around 65% of consumers are inclined towards making choices that contribute to a more sustainable lifestyle.
To meet this demand, food producers, suppliers, and retailers must make sustainable options easy, affordable, and attractive. This involves overcoming barriers such as price and availability and ensuring that sustainable options are as tasty and appealing as less sustainable alternatives. Innovation, reformulation, and the use of quality ingredients are essential in achieving this balance.
Despite these challenges, there are efforts to minimise the impact of price increases while pursuing optimisation and cost-saving initiatives represent a promising step towards addressing the underlying issues in coffee farming and fostering sustainable practices. Aligned with the findings and recommendations of the recent World Economic Forum (WEF) report, amid worsening food crisis, leaders call to mobilise finance for African agriculture, these initiatives aim to improve sustainable coffee production while enhancing the lives of farmers and their families.
However, broader collaboration and innovative solutions will be needed to ensure a stable and sustainable future for coffee farming communities worldwide. By investing in sustainable agriculture practices, modernising agricultural infrastructure, and promoting public-private partnerships, we can ensure food security and sustainable growth in Sub-Saharan Africa and beyond.
The private sector also plays a critical role in addressing these challenges. Companies can support sustainable agriculture practices by investing in research and development, developing sustainable supply chains, and supporting local farmers. By leveraging the strengths of each sector and working together, we can build a more resilient and sustainable future for farming communities and tackle the broader challenges posed by climate change in Africa and beyond.
The current climate crisis is having a profound effect on the continent, with many communities facing significant challenges related to food security. Rising temperatures, changing rainfall patterns, and increased frequency of extreme weather events are all contributing to decreased crop yields and increased food prices.
Addressing these challenges requires a coordinated and sustained effort involving governments, non-governmental organisations, the private sector, and local communities. By working together, we can drive positive impact for consumers, coffee farmers, communities, and the planet.
Carl Khoury is the business executive officer: coffee & beverages for Nestlé East & Southern Africa Region.