Wednesday, March 16, 2011

Data Point: Expensive Coffee

Coffee is an agricultural good, but not a food necessity.  Given its whooping amounts of caffeine that clearly blow away all its natural competitors, some will also be want to pay for that addiction.
Arabica beans are the bread and butter of the gourmet coffee set.  They are not the most expensive of beans, but they are definitely a notch up from the robusto beans that are combined in with a lot of ground coffees.  Much of the value comes from where the beans are grown.  So arabica beans, much like beef,  can be thought of as a bulk-luxury item.

So why is coffee going up in price?  There probably are some input issues with the cost of transportation.  But coffee price increase is a very good illustration of increased costs due to increased world affluence.  The coffee is getting expensive because the Brazilians can afford to drink more of it themselves.

Arabica coffee futures hit a nearly 14-year high, as a pound of unroasted beans fetched nearly as much as a cup of brewed gourmet coffee.

Worries that scarce supplies won't be able to keep up with increased demand sent arabica for May delivery up 3.1% to settle at $2.8115 a pound on the Intercontinental Exchange, the highest price since 1997.

But a smaller, "off-cycle" crop out of Brazil expected this year coupled with Brazilians' increased demand for high-quality coffee have kept prices firm. 

Leslie Josephs, Arabica Coffee Futures near 14-Year High,  The Wall Street Journal, page C22, March 8, 2011.

No comments: