As you may have heard in the media, Toasted, alongside all NZ coffee roasters and global coffee markets, are about to venture into unchartered territory with the cost of green coffee prices being the highest they’ve been since 1977 and unfortunately continuing to rise. This is due to the international coffee price being at a record high, circa 415 US cents/lb compared to 200 US cents/lb this time last year – in effect an increase of over 120% on our green coffee prices in just 12 months. These increases have been driven by shortages of coffee supply from the two largest coffee-producing nations – Brazil and Vietnam – due to severe droughts amongst other factors.
This is a difficult time for coffee roasteries and hospitality businesses across NZ (and the world), some of which are still recovering after the pandemic and recession … but we’re a resilient bunch!
For further context, the cost of coffee in New Zealand is determined predominantly by two key factors – the coffee commodity price ('the C') and the NZ Dollar ('NZD') exchange rate against the US Dollar ('USD'). The New York ‘C’ is the market where all green coffee containing Arabica in NZ is purchased, and it’s this price that is trading at a historic high, having been on the increase for the past 5 years and likely to continue. This graph illustrates the increase over this period:
TABLE SHOWING COFFEE ‘C’ PRICES OVER THE LAST 5 YEARS
https:/tradingeconomics.com/commodity/coffee
Further exacerbating these increases is the NZD being weak against the USD as seen in the below chart:
NZD TO USD OVER THE PAST 24 MONTHS
The hard cost per kg of green beans has increased 33% over the past month alone with a staggering 120% increase over the last year. Bear in mind this excludes shipping, a weight loss of 16-20% depending on a roast profile due to the dehydration, and all associated costs once these beans reach our roastery for production (manufacturing, packaging, shipping, employees, rent, power, gas etc). Factoring in all these fixed costs with production, it goes without saying that this is an incredibly challenging time for all coffee roasters in NZ and around the world right now.
GREEN COFFEE COSTS IN NZ IN REAL TERMS (BASED ON ‘C’, NO FREIGHT OR MARKET DIFFERENTIALS, IMPORTER MARGINS INCLUSIVE)
Being a natural product, the price of coffee will always fluctuate as a result of shipping issues, supply shortages, climate change, heavy market speculation, weather and not least, geopolitics. The journey of seed to cup takes 5 years and must go through numerous stages before reaching that delicious drop in our cups … growing, harvesting, processing, shipping and then - from our side - storage, roasting, packaging, rent, power, employees, marketing, courier costs, equipment and training. A somewhat exhaustive list but hopefully gives you a sense of the many, many variables involved before we can lovingly roast and ship our delicious coffee. Hospitality business owners will understand first-hand with their own businesses how much these variables can (and have) changed over recent years as a result of the pandemic. Every single process along that journey attracts a cost and in most cases, these costs have all risen over previous years. As these costs rise, so must the cost of coffee to reflect a fair, true price to ensure everyone involved along the production line is paid fairly and in line with market rates.
Unfortunately, this leaves Toasted, alongside all roasteries and hospitality businesses across New Zealand, with no choice but to pass on some of these costs to customers as they simply cannot be absorbed. Given we are a smaller, family-owned independent roastery, and not governed by a large multi-national, we understand first-hand the impact these rises can take on small businesses however with also being independent, this allows us the ability to adapt quickly and to conduct regular reviews, adjusting pricing accordingly should prices reduce again over the near future (fingers crossed)! You may be concerned you will lose business to your neighbours – rest assured they’ll all be putting their prices up too and likely waiting to see who makes the first move before adjusting their own. Back your business, your team, great food (and coffee) and you should continue to receive the same support from your community.
There’s a large piece of education required for the general public, which thankfully the media is starting to convey, around why coffee prices must go up. People are happy to buy a $13 beer and not bat an eyelid (often going back for another 1 or 2 drinks) yet may balk at $6.50 for a flat white. As any cafe owner or barista can attest to, the care, skill required and craftsmanship behind producing a great coffee is far superior to someone pulling a handle behind a bar.
Each additional $1k per kg on the wholesale price of coffee equates to 2c NZ (plus GST) on the price of a cup of coffee, so these increases should easily be absorbed through bringing coffee prices in line with market pricing. Our recommendation to our wholesale family is to look at a minimum flat 20c per coffee increase across the board, with minimum pricing for a black coffee being $5.20 and a small flat white $5.70 (not including alt milks, add on’s, etc).
As always, happy to have a chat and answer any questions or concerns. You can reach me at scott@toasted.co.nz
Further Reading Links below
https://sucafina.com/apac/news/navigating-the-4-coffee-market
https://www.beanscenemag.com.au/arabica-prices-top-us4-for-the-first-time/