Rising Coffee Prices: Lavazza Predicts Significant Increase Due to Climate Change and New EU Regulations

The Italian coffee giant Lavazza has indicated an imminent increase in coffee prices, driven by climate change, disruptions in maritime traffic, and new EU regulations. The London Robusta coffee futures market, a global benchmark, reached a record value of USD 4,844 per ton last week, rising by about 70 percent within a year. The reason for this is poor harvests in major growing regions in Southeast Asia. Giuseppe Lavazza, chairman of the Lavazza Group, warned that the coffee price in British supermarkets, which has already risen by about 15 percent this year, could increase by another 10 percent by next year. "Coffee prices will not decrease; they will remain very high," he commented on the sidelines of an event at the Wimbledon tennis tournament. "The supply chain for coffee is under enormous pressure." Coffee roasters like Lavazza were forced to increase prices and reduce profit margins as the cost of the raw material has drastically risen. Giuseppe Lavazza emphasized that the industry is accustomed to fluctuating prices for higher-quality Arabica beans, whose futures in New York have been at their highest level since September 2022. However, the recent rise in the more affordable Robusta beans is unprecedented and causing significant issues. Climate change has significantly impacted production in the main Robusta countries like Vietnam and Indonesia, which has considerably reduced the available quantity of these varieties. Predictions suggest that the next harvest in Vietnam will not be able to replenish the dwindling supplies of Robusta beans, which are used for espresso and instant coffee. While higher prices for Robusta previously had to be paid for only a few months or a year, the current price trend is long-lasting due to several factors, Lavazza said. He added that speculations by hedge funds and other actors have further fueled the futures market. "Speculation is a big factor," he said. The increased futures prices resulted in additional costs of USD 800 million for the company, equivalent to 2.5 times its EBITDA. Higher freight costs have also contributed, as ships have had to take longer routes around South Africa since last October to avoid attacks by Houthi rebels in the Red Sea. This is particularly challenging for a company that sources beans from Asia and East Africa. Lavazza's net profit fell to 68 million euros in 2023, compared to 95 million euros in 2022, while EBITDA dropped from 309 million to 263 million euros over the same period. New EU regulations that prohibit the import of coffee and six other raw materials from deforested areas will also drive prices further up. The new rules will come into effect at the beginning of next year and will require food companies to accurately locate the growing areas of their raw materials. Lavazza warned that only 20 percent of coffee producers would be able to meet these requirements. European coffee roasters would therefore have to source almost all their beans from Brazil, the only country prepared to implement the regulations. The outcome of the recent European elections, which shifted the parliament in Brussels to the right, could enable a change in legislation. Otherwise, about 8 million coffee producers would be excluded from the opportunity to sell coffee to the EU, Lavazza warned.