Coffee Prices - 10 Year High - We Hold our Prices

Coffee companies are raising prices on jars of instant coffee and packets of ground coffee with unprecedented speed after being surprised by the surging cost of unroasted coffee beans.

Kraft Foods, owner of the Maxwell House coffee brand, this week became the latest company to increase prices, lifting them by 4 per cent, as wholesale prices for both robusta and arabica beans hit their highest levels in more than a decade.

The price of robusta coffee futures contracts traded in London have soared this year, with the May contract rising by some 40 per cent, as global demand for coffee runs ahead of supply.

Both Kraft and Procter & Gamble – owner of the Folgers brand – have twice increased the price at which they sell coffee to retailers in the US in the past month, highlighting the pressure food companies are under to pass on the cost increases. Kraft has also lifted prices in Europe.
Folgers has raised prices by 45 cents in total over the past six months.

In October it increased prices on a 10.5oz-13oz pack of ground coffee by 10 cents; in February it raised them 15 cents; and this week it put them up 20 cents.

Food companies blame high wholesale coffee prices on increased hedge fund activity in the commodity markets.

Kraft said: “The wholesale price of coffee beans has increased significantly since the beginning of 2008, due to a combination of the weak US dollar and a dramatic increase in speculative investments in commodities, including green coffee.”

But analysts say that food companies have been caught on the hop because they did not hedge their coffee purchases adequately, and need to pass on price rises quickly to avoid losses.

Sudakshina Unnikrishnan, a commodities analyst at Barclays Capital, said wholesale prices for both robusta and arabica coffee were also being driven higher by record low stocks in coffee-producing countries and strong global demand.

Nestlé, the Swiss owner of the global Nescafé brand, said its prices varied by market and it declined to comment on specific pricing actions this year.