Prices are rising for the black sludge that helps make the world’s gears turn. If you think we’re talking about oil, think again. Petroleum prices have tumbled from their record highs. No sooner was there relief at the pump, however, than came a squeeze at the pot. That jolt of coffee that a majority of American adults enjoy on a daily basis has gotten more expensive and could go even higher this year.
Before home mixologists get too jittery and begin tinkering with a hybrid solution to this crisis — say, a coffee-tea blend for morning fuel — they should know that the increases thus far have been relatively modest. Procter & Gamble raised the list price of its Folgers brand coffee last week by 10 cents per small can of ground coffee and 20 cents on bags of its premium coffee. It was the company’s second price increase in three months. Back in October, Starbucks raised prices on coffee drinks in its stores by 5 cents and on most whole bean coffees by 50 cents per pound.
While these changes are unlikely to bankrupt anyone, they can start to add up for the serious caffeine addict. For everyone else, it serves as a real-world economics lesson, a reminder that fluctuations in commodity prices are not just about oil and violence in the Middle East, but are also about changes in supply and demand in a global economy.
The prices consumers pay have gone up much more slowly than the price of the underlying commodity itself. According to the International Coffee Organization, the composite price of coffee rose over 36 percent from the beginning of 2005 to the end of 2006. The organization predicts a down year for the Brazilian coffee crop, which could lead to a supply shortfall and even higher prices this year. While world demand has grown at annual rates of 1.5 to 1.8 percent over the last five years, it has been rising at a much faster clip of roughly 15 percent for smaller players like Russia and China. As more people enter the global middle class, the demand for coffee rises, putting upward pressure on the price. Sound familiar? You’ve got the whole world in your mug.
