- Illycaffè is raising global prices by 4% and considering U.S. production to offset tariff pressure
- With U.S. tariffs at 10% and climate-hit harvests pushing global prices higher, roasters face tough choices
- Localised U.S. production is emerging as a potential cost-saving trend for multinationals
Illycaffè’s recent announcement of a 4% global price increase and consideration of establishing a U.S. roasting facility marks a significant shift in the coffee industry’s approach to navigating trade tensions and climate challenges.
Although some of the products sold in the U.S. could possibly be manufactured locally, the rest of the production will remain in Italy, where a 120 million euro investment will go ahead to double production capacity.
The company aims to boost brand visibility and expand its consumer reach through accelerated investment and broader distribution. While growth in North America is expected to be organic, acquisitions could be considered if the right opportunity emerges. Illy is also eyeing growth in China, where it currently sells primarily online.
This growth and resilience strategy reflects broader trends among multinational coffee companies adapting to an increasingly complex global landscape.
“Many grocery companies are pushing back against significant price hikes from big roasters,” says Marc Schonland, Strategic Adviser. “So this 4% increase may be all Illy could manage for now.”
CEO Cristina Scocchia emphasised the company’s commitment to maintaining quality while addressing these external pressures.
The U.S. has recently imposed a universal 10% tariff on imports, with higher rates for certain countries. This move directly impacts coffee imports, especially from major but vulnerable producers like Vietnam and Indonesia, for example.
Compounding the issue, climate change has adversely affected coffee yields in key producing regions. Brazil and Vietnam have experienced significant crop losses due to extreme weather conditions, leading to a surge in global coffee prices.
In this challenging environment, coffee companies face tough decisions: Absorb increased costs, pass them to consumers, or explore alternative strategies.
“I’d guess most roasters have already run through their lower-cost inventory – or will soon – and further price increases will be unavoidable to avoid selling at a loss,” says Marc. “Otherwise, they may be forced into uncomfortable blend changes just to hit a lower price point.”
Illycaffè’s decision to raise prices reflects a broader industry trend of adapting to sustained economic and environmental pressures.
Global roasters reevaluate production and distribution
The current trade climate prompts a reevaluation of production and distribution strategies.
Non-U.S. companies have indicated they are exploring expanding operations or establishing production facilities in the United States to offset the impact of recently introduced broad-based import tariffs. These include BMW, Campari, Honda, Hyundai, LG Electronics, and Novartis, to name just a few – according to a recent Reuters report.
The coffee industry is no exception, and some major coffee roasters are following suit. Illycaffè is considering establishing a roasting facility in the U.S. to mitigate tariff impacts and streamline its supply chain.
Lavazza, another major Italian coffee roaster, is also reassessing its U.S. production plans in light of new tariffs. While it already produces around half of what it sells in the U.S. at its Pennsylvania plant, the company intends to increase this output to 100%.
CEO Antonio Baravalle noted the expansion could take 18–24 months if it proceeds, underscoring how trade policy is shaping operational decisions across the sector.
Meanwhile, Nestlé has suggested the world’s largest food maker is “immune” to tariffs due to the shape of its manufacturing footprint. The company’s CEO Laurent Freixe has reportedly said: “We produce where we sell. Almost everything we sell we make in that given geography – 90% of what we sell in the US is made in the US and so is immune to tariffs. It is the same in China and Europe.”
Nestlé’s resilience and success seems to have offered a blueprint for other major roasters, who are now busy preparing.
The potential shift toward localised manufacturing of consumer products in the U.S. could lead to increased investments in domestic facilities, altering traditional supply chain dynamics and potentially stabilising prices for American consumers.
Marc remains cautious. “It’s too early to know whether the industry will go ahead with an implementation of this strategy at scale, given the non stop changes and revisions to tariff policy,” he says.
However, if it does, this raises the question of what the impact will be across coffee supply chains.
Implications for the global coffee industry
A move toward localised production by multinational coffee companies could have profound effects on the global coffee industry.
Establishing roasting facilities in the U.S. may reduce reliance on international supply chains, impacting exporters and reshaping trade relationships.
“If freight costs increase because of changes in destination or the need for longer or alternative shipping routes, that’s ultimately bullish for the final price,” says Marc.
“On the other hand, if destination changes lead to more European production shifting to the U.S., it could lower logistics costs for European roasters. Shipping green coffee to Europe and then sending roasted product back across the Atlantic adds a costly second ocean freight leg – something local U.S. roasting could eliminate.’
For consumers, while localised production might offer price stability, it could also lead to reduced variety if companies focus on specific blends suited for regional markets.
Higher prices will also likely be met with considerable pushback. JDE Peet’s has encountered resistance from major European supermarket chains over proposed price hikes, resulting in stalled negotiations and limiting the company’s ability to offset rising raw material costs.
In markets such as France and Germany, retailers have temporarily pulled key JDE Peet’s brands – including L’OR and Jacobs – from their shelves amid pricing disputes. Despite sharp increases in green coffee prices, the company, whose European operations consistently maintain profit margins above 20%, has shown little willingness to compromise on its margins.
These trends underscore the importance of sustainability and resilience in the coffee industry. Companies may invest more in sustainable farming practices and diversify sourcing and manufacturing and distribution locations to mitigate risks associated with climate change and geopolitical tensions.
Illycaffè’s response – combining immediate price increases with longer-term plans to potentially establish U.S.-based production – demonstrates a dual strategy of resilience and forward-looking growth.
As Illycaffè and its peers navigate these challenges, their strategies will likely set precedents for the industry’s future, balancing quality, sustainability, and economic viability in an ever-shifting and complex global landscape.
The industry’s response will partially hinge on how the ongoing tariff disputes evolve in the coming weeks and months.
Coffee Intelligence
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