Coffee roasters’ profit margins squeezed as pressures mount

coffee roaster
  • The price of arabica coffee hit a ten-year high at $2.52/lb in February 
  • Rising warehouse & transport costs have further reduced profit margins for coffee roasters
  • High interest rates and weak currencies in Europe have piled on the pressure

COFFEE ROASTERS around the world have reported smaller profit margins over the last few weeks as rising warehouse and transport costs add to a host of issues that have sent costs of production soaring.

The price of arabica on the C market hit a ten-year high back in February, trading at $2.52 per pound. However, despite falling back down to $2.19 per pound this week, coffee roasters have recently been hit with soaring shipping and warehouse costs, as well as the impact of higher interest rates, which has made financing green coffee more expensive for traders.

For European roasters, a weak euro and pound sterling relative to the dollar has also affected purchasing power. As a result, many have had to raise considerably more money to buy the same, if not lower, amounts of coffee than they did this time last year.

“Shipping and warehouse costs are on the rise,” says Priscilla Daniel, a senior coffee trader at DR Wakefield Ltd & Co. “We are now in a market with a rising C market, shipping costs, warehouse costs, and interest rates. This is in addition to a high dollar, and low euro and sterling. All these factors have inflated prices.”

However, demand for green coffee remains strong. This is in part thanks to the continued sale of roasted coffee via ecommerce channels, a trend that gained popularity during the Covid-19 pandemic.

While some report that wholesale partners have switched to cheaper alternatives, such as lower quality arabica or robusta-arabica blends, the retail market has helped prop up demand. But supply side issues stemming from adverse weather conditions and the conflict in Ukraine have limited stocks of arabica.

“There is still a good demand for coffee,” Priscilla says. “In the past few weeks, we haven’t seen a major change from roasters. They are still buying spot and contract coffees, and certified US arabica stocks have actually continued to fall.

“They currently sit at 710,000 bags, which is below the average of 2 million bags. This is why we also have an inverted C market, where levels are lower for future contracts than they are for spot.”

Country specific

While coffee roasters around the world have been affected by rising costs of production and high arabica coffee prices, each country has been hit to varying degrees.

In Turkey, for example, the effects of rising production costs have hit coffee roasters suffering from an ongoing currency crisis even worse.

“Rising costs have affected us not only because of global factors, but also for internal reasons,” says Orkun Üstel, the co-founder of Kafein Kültür, a specialty coffee roaster based in Istanbul.

“Although the global container crisis, the climate crisis in Brazil, and similar problems affect the entire coffee industry, including us, we are also struggling with the currency crisis in Turkey. This has caused us to reduce our profit margins per package, considering the falling purchasing power in the country.”

Meanwhile, those selling coffees from Colombia and similarly well-known origins have reported about their struggles to compete in the face of rising costs.

In an attempt to avoid passing higher prices onto customers, a number of wholesale partners have ditched long-standing relationships and started buying coffees from cheaper sources, such as Peru, Honduras, and Uganda.

This all raises the question of who, if anyone, stands to come out on top.

“The mega multi-nationals will have the marketing strength and financial resilience,” says another senior coffee trader. “However, the local firms will have flexibility, much shorter supply chains, which could win market share as with everything that is happening you would expect demand forecasting to become more erratic, leading to smaller short term contracts.”