High coffee prices set to continue

Coffee sellers are unlikely to pass on any savings to their customers, insiders say. Photo / Greg Bowker

Industry group says fally bean prices won't translate into cheaper cup in NZ.

Increased coffee planting in Brazil could eventually force down global prices for the crop, a report says, but a New Zealand industry group says any fall in prices is unlikely to be passed on to local consumers.

Arabica coffee surged to a 34-year high of more than US$3 a pound on the Intercontinental Exchange in New York earlier this year, before easing to around US$2.40 a pound last week.

New Zealand Coffee Roasters Association president Tony Kerridge said in January local roasteries would be raising wholesale and retail prices by at least 10 per cent this year as a result of the rally.

On Friday he said a drop in global prices was unlikely to benefit consumers here, as rising labour and other costs meant coffee sellers would be unlikely to reverse price hikes.

While record arabica prices have hit the wallets of coffee drinkers around the world, it has been a boon for farmers after years of low returns.

A Rabobank report says this year's high green bean prices may even encourage Brazilian farmers to increase tree planting.

The bank's analysis, based on the 1990/91 to 2009/10 crop years, indicated a 1 per cent increase in the US dollar value of a bag of coffee resulted in a 0.33 per cent increase in total Brazilian area harvested four years later, when the new trees reached production capacity.

Prices in New York rose by about 80 per cent between July 2010 and April this year.

Rabobank said increased planting could lead to an almost 30 per cent increase in Brazilian coffee production by 2014/15.

That could place downward pressure on global prices, the report said, as Brazil accounts for around a third of the world's coffee supply.

Expected production increases from other major producing nations like Colombia could add to the impact, the report said.

The commodity's rally to a three-decade high this year has been blamed on poor harvests in key growing regions in Latin America and Asia, speculators and increased consumption in emerging economies like China and India.

It was expected that the rally in global prices would take time to fully flow through to New Zealand consumers.

Kerridge said he believed any increase in future coffee production would be matched by consumption, meaning prices for the commodity were unlikely to fall sharply.

The strong kiwi dollar, which reduced the cost of imports, was helping New Zealand coffee roasteries and probably meant the full extent of the arabica rally had not been passed on to consumers, he said.