Starbucks Cuts Back on Coffee Purchases as Prices Soar

Moneybox
A blog about business and economics.
April 28 2014 1:16 PM

Soaring Coffee Bean Prices Threaten Even Starbucks

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Coffee is getting expensive—even for Starbucks.

Photo by Jewel Samad/AFP/Getty Images

Don't be surprised if your morning cup of joe gets more expensive soon. Coffee beans are now so pricey that even Starbucks has ratcheted back its purchases, the Wall Street Journal reports. The cost of arabica beans, the variety used by Starbucks and other upscale roasters, has surged roughly 90 percent this year due to a drought in Brazil, the world's largest producer of the beans. Arabica-coffee futures have lately approached $2.15 a pound.

Starbucks has locked in order prices through this fiscal year and some of the next, which begins Oct. 1, and Starbucks' head of coffee Craig Russell told the Journal the company is "confident we'll get our coffees." They might get what they need, but they'll almost certainly have to pay for it. Volcafe Ltd., a coffee trader cited by the Journal, predicts a worldwide shortage of 11 million 60-kilogram bags of coffee beans this season.

This is far from the first we've heard about escalating coffee prices. In February, Bloomberg Businessweek reported that Starbucks, in an effort to stave off the bean shortage, had purchased a 600-acre coffee farm in Costa Rica. In addition to the drought in Brazil, arabica production has been hampered by a fungus known as roya and climate change in general. Researchers at the Kew Royal Botanic Gardens consider arabica to be "vulnerable" to extinction.

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For the moment, Starbucks says it doesn't plan to raise prices on its coffee drinks. "Our strategy is stability," Russell told the Journal. "To have stability, you don't chase the market." The company is trying to get around the shortage in Brazil by purchasing more beans out of Colombia, the world's second-largest producer. If that strategy doesn't pan out, though, your sticker price on that caffeinated brew might be going up.

Alison Griswold is a Slate staff writer covering business and economics.

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