Italian coffee giant Lavazza warned that the price of coffee will rise as climate change and shipping disruptions, along with new EU regulations, drive up costs for roasters.
London robusta futures reached a record high of $4.844 per ton on Tuesday. The global benchmark has risen by 70 percent over the last year, due to poor harvests across the main producing countries in South-east Asia.
Giuseppe Lavazza is the chair of Lavazza Group which owns Lavazza Coffee. He said that prices of coffee in UK supermarkets, which are already up around 15% this year, may rise by another 10% by next year.
He said that coffee prices would not go down. “They’re going to remain very high,” at a side event to the Wimbledon tennis tournament. “The coffee supply is under tremendous pressure.”
Lavazza, the Turin-based coffee company’s fourth-generation leader, has said that the rising cost of raw materials forced them to increase prices and cut profit margins.
He said that the industry is used to fluctuating prices for higher-end arabica bean — arabica futures are at their highest levels since September 2022. He added that the recent spike of cheaper robusta was unprecedented, and is causing even more problems for industry.
Climate change has affected production in some of the most important countries producing robusta around the globe, including Vietnam and Indonesia. This has led to a significant reduction of the amount of robusta varieties available.
The next Vietnamese harvest is unlikely to replenish the dwindling supply of robusta beans used for espresso and instant coffee.
Lavazza said that while in the past, roasters had to pay a higher price for robusta coffee for a few weeks or months, “this time we are paying a lot for the coffee over many, many months”.
He said that hedge funds and other speculators piled in to the market as supplies have decreased and prices have increased. This has caused futures prices to rise further. “Speculation is a big factor.”
He said that rising futures prices had led to an increase of $800mn, or 2.5 times the company’s ebitda.
He added that higher shipping costs were also a factor. In order to avoid Houthi attacks in the Red Sea, ships have had to take a longer route around Africa since October last year. Lavazza, a coffee company whose beans come from Asia and East Africa, said that this is a difficult situation for them.
He said that the Italian coffee maker’s net profit fell from €95mn to €68mn by 2023.
Lavazza said that the new EU regulations that prohibit imports of coffee, and six other commodities grown in deforested regions from being sold within the EU will drive prices even higher.
The new rules will come into effect at the beginning of next year. They also require that food companies in the EU geolocate their plots of land where they produce their products.
Lavazza said that only 20% of coffee farmers were ready to comply with the regulations.
He warned that European roasters will be forced to buy almost all of their coffee beans from Brazil. According to him, Brazil is the only country ready for the implementation.
Lavazza says that recent European elections have led to a shift to the right in the composition of the EU Parliament in Brussels, creating the opportunity to amend the law. If not, then about 8 million coffee farmers will be “cut off from having the opportunity to sell coffee to you”.
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