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Coffee drinkers won’t get break on higher prices

Colombia, the second-largest producer of mild arabica coffee bought by companies such as Starbucks Corp. and Nestle SA, said consumers will have to get used to higher prices because of rising demand and reduced supply.

Production next year will fall short of consumption, keeping the cost of arabica coffee in a range of $2 to $3 a pound for the next 12 months, according to Colombian National Coffee Growers Federation’s Chief Executive Officer Luis Munoz. Higher prices also reflect increased farming costs, he said.

Coffee has almost doubled in the past year as storms hurt plants in Colombia and demand increases globally. Rising costs are prompting Starbucks to boost the price of bagged coffee sold at U.S. cafes by an average of 17 percent, according to spokesman Alan Hilowitz. The company will likely continue to be an “important” buyer of Colombian coffee, Munoz said. 
Women sit at a Starbucks Coffee lounge in Long Beach, California. (Bloomberg)
Women sit at a Starbucks Coffee lounge in Long Beach, California. (Bloomberg)

“The final consumer is realizing that you have to pay a bit more for those little enjoyments,” Munoz said Friday in an interview at the federation’s headquarters in Bogota. “Not just Starbucks, but the industry in general, wouldn’t have been able to do anything besides raising prices.”

Starbucks rose 0.05 percent to $36.46 at 4:30 p.m. New York time. The shares have gained 13 percent this year.

Higher prices reflect how increases in farming costs, like more expensive fertilizer, are starting to be passed onto consumers, Munoz said. At the same time, coffee drinkers from Brazil to Asia are increasing consumption and are willing to pay more for high-quality coffee, Munoz said. Japan is one of Colombia’s best markets for coffee in Asia. (Bloomberg)









In Colombia, storms last year that damaged flowering likely will cut the second-quarter crop by about 10 percent to about 2 million bags, according to Munoz. Worldwide, producing nations’ stocks are at “precarious” levels and won’t make a sustained recovery, partly because of adverse weather, he said.

“It’s been raining here for two years,” Munoz said.

Antioquia, Colombia’s largest coffee-growing province, will get more rain today and tomorrow, the state-run Institute of Meteorology and Environmental Studies said on its website.

Arabica coffee for July delivery fell 1.90 cents, or 0.7 percent, to $2.637 a pound on ICE Futures U.S. in New York. Coffee reached $3.089 on May 3, the highest since May 1997.



Improving harvest



The Colombian harvest will improve in the second half of the year, Munoz said. The federation, which represents the majority of Colombia’s more than 550,000 coffee growers, forecasts 2011 production of 9.5 million bags, up from 8.9 million bags last year. In April, output declined 19 percent to 523,000 bags, a 15-month low, from 647,000 bags a year earlier.

In 2009, the Andean nation’s crop fell to a 33-year low of 7.8 million bags. Each bag weighs 60 kilograms, or 132 pounds.

Global coffee supplies will likely be “tight” through the rest of the year as stockpiles held by exporting nations such as Colombia stay near a 40-year low, Jose Sette, head of the International Coffee Organization, said in February. Global consumption last year rose 2.4 percent to 134 million bags, according to the group.

Brazil is the largest producer of arabica beans. 

(Bloomberg)
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