Java's Price Jolt
Coffee prices are something like mortgage rates: quick to spike, slow to decline. In the last quarter of 1994, retail coffee prices jumped sharply because of June and July frosts that destroyed much of the crop in Brazil, the world's largest coffee producer. That hike ended a four-year run of prices “at their historic low,” according to Christopher Calkins, president of the Spinelli Coffee Co. Since then, retail coffee prices have remained stubbornly high — as much as $2 a pound or more.
But a change may be coming. The basic price of coffee, which peaked at more than $2.40 a pound late in 1994, has fallen back to a little over a dollar a pound. “It's a certainty that retail coffee prices will be coming down — unless something happens,” says Jim Reynolds, vice president of Peet's Coffee and Tea.
That drop is most likely to come in the spring, when local coffee roasters begin taking delivery of the cheaper coffee. Until then, they're still roasting and selling beans they acquired last year — at last year's high prices. Retail coffee prices are “not based on the replacement cost of the beans,” according to John Gozbekian, roastmaster of Pasqua Inc., a chain of coffee bars in the city, but on the wholesale price the roaster paid for them.
“We're not experiencing the lower wholesale prices for coffee yet,” Calkins says, “but when we do, retail prices will be considerably lower.” Will they return to the levels of two years ago? Calkins and Reynolds are hopeful, but they both say that the price of green beans accounts for no more than half the roaster's cost in producing the retail product. There are increases in labor costs and medical benefits. “And milk and paper prices have also skyrocketed,” Calkins says; those “hidden costs” also must be recovered in over-the-counter prices of a cup of joe.
The persistently higher prices have not damped overall demand, but “bean sales have shifted,” according to Calkins, with customers buying more of the cheaper house blend and French roast coffees. Reynolds says that sales of Peet's house blend (whose price has been kept “artificially low” in order to keep people buying and drinking Peet's) have risen 3 to 5 percent over the past year. On the other hand, sales of premium blends such as Major Dickason's (Peet's signature coffee) “are down.”
Coffee drinkers may be happy about lower prices, but Reynolds wonders if they might not be too low. While coffee has been “a good method of foreign aid,” he says, the new prices “don't provide growers the margins they need to pay their workers.”
By Paul Reidinger