Surging prices for coffee on global markets are coinciding with a weak Canadian dollar, putting a “pinch” on cafés and retailers that could end up hiking the cost of your cup of joe.
Adam Pesce, president of Ontario-based Reunion Coffee Roasters, tells Global News that the uncertainty tied to United States President Donald Trump’s tariff threats potentially coming to pass as early as Saturday feels like the latest domino set to topple onto his business.
“There’s not a lot of great news,” he says. “And of course that just trickles on down to the end consumer eventually just having to pay more for their coffee.”
Pesce warned Global News of a looming spike in coffee futures prices in September, when forecasts for a smaller crop coming from bean-growing nations such as Brazil and Vietnam were set to put a crunch on availability.
Since that time, Arabica futures have surged nearly 50 per cent on the Intercontinental Exchange, rising to above US$3.75 per pound as of Thursday. That’s nearly double the price year-over-year, with Reuters pointing to supply concerns out of Brazil as one factor contributing to the latest surge.
Statistics Canada data shows retail prices for a bag of coffee have fluctuated but largely risen over the past year, from an annual low of $6.16 per 340 grams last January to a record high of $7.09 for the same amount in August.
Coffee shops and processors source their beans based on long-term contracts set in the futures market, Pesce explains, where businesses like Reunion can try to mitigate the worst of the volatility. That could “slow roll” the impact for consumers, he says.
But the current market conditions are not sustainable for businesses like his, Pesce warns, and cost hikes could continue to flow through to Canadians in the months ahead no matter where they buy their coffee.
“It’s frustrating on a daily basis,” he says. “We do have strategies for hedging our purchases, but it’s very difficult to deal with the level of volatility we’re seeing.”
Drought, weak loonie pushing coffee prices higher
Weather issues like drought in countries that are major producers are limiting supply of coffee, putting upward pressure on prices.
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But no matter what price coffee beans are going for on global markets, it’s the fact that the commodity is bought and sold in U.S. dollars that’s putting a “pinch” on Canadian businesses, says University of Guelph food economist Mike von Massow.
“For people who are importing coffee, whether it’s beans to roast or in packages, a lower Canadian dollar means every pound of coffee that we buy is more expensive,” he says.
That’s bad news for Canadian businesses, as the loonie has lost nearly seven per cent in value year over year compared to the U.S. dollar, priced at around 69.4 cents US as of Thursday.
There are a few reasons economists point towards to explain the loonie’s slump against the U.S. dollar. One is the widening gap between the Bank of Canada and the U.S. Federal Reserve policy rates, which encourages investors to sell Canadian dollars and flood into the American greenback.
The other force hampering the loonie is trade uncertainty tied to threats of tariffs from Trump. The Canadian dollar’s exchange rate with its U.S. counterpart has largely suffered since Trump’s re-election in November as the returning president’s protectionist policies hurt the case for business investment in Canada.
If Trump makes good on threats to impose blanket tariffs of up to 25 per cent on Canadian goods as early as Saturday, economists expect the loonie would fall even further.
“If the tariff threat does go through, then the dollar gets considerably worse,” Pesce says. “That just will push the price of coffee in Canada up even higher.”
How could tariffs affect agricultural commodities?
As for the tariffs themselves, the world might’ve gotten a preview last weekend on how Trump’s trade threats could play out in the coffee market.
Trump threatened to impose steep tariffs and sanctions against Colombia — the world’s third-largest coffee producer, behind Brazil and Vietnam — amid a dispute with the nation’s president over accepting migrants deported from the U.S.
Though tariffs were never formally imposed after Colombia struck a last-minute deal with the U.S., arabica prices hit a new high on Monday and have continued climbing since.
The flash conflict over the weekend spurred some “panic” in the coffee market that has persisted in part because of fears that Trump could change his mind on Colombia or impose similar tariffs on other South or Central American countries amid ongoing immigration and trade crackdowns, von Massow says.
Trump on Monday named major coffee exporter Brazil among those he believes meant the U.S. “harm,” threatening potential tariffs, which Brazil’s president has vowed would be met with “reciprocity.”
If Trump does end up imposing tariffs targeting agricultural exports from foreign nations, the impact on global prices would be “complex,” von Massow says.
If Colombian coffee is hit with a tariff, the price of arabica in the U.S. might not shift much because there are other places to get the bean, if businesses are able to adjust their supply chains quickly enough.
When it comes to products like Colombian-cut flowers, those prices may fall for Canadians if growers are suddenly cut off from the U.S. market. Possible tariffs on flowers would represent a particular threat right now because production timelines are planned out far in advance and are likely set to peak ahead of Valentine’s Day.
“Those flowers would have to go somewhere. They can’t be held in storage. So the prices would come down,” von Massow says.
“If the U.S. starts trade wars with countries around the world, there may be actually some benefits to Canadians. Assuming he doesn’t put those tariffs on us, too.”
While actual U.S. tariffs could have a variety of impacts on markets — possibly pushing prices down for some countries, while driving costs up for those caught up in a trade war — von Massow says the supply crunch and weak loonie will have a greater impact and put “upward pressure” on Canadian coffee prices in the months ahead.
Pesce says he doesn’t expect much normalization in the coffee market until at least June, when there’s hopefully more clarity on the trade front and a sense of how next year’s crop is shaping up. Until then, he says Canadians should expect a higher cost per cup of joe or bag of coffee.
“In real dollars, we’re talking about an extra $1-to-$2 per pound of coffee,” he says. “What that amounts to per cup will be relatively low, but it’s still going to be impactful when you’re buying a bag of coffee to drink at home, for sure.”
Coffee giant Starbucks, meanwhile, said this week it would not make any further price hikes this year as it looks to appeal to consumers paring back on big non-essential spending.
— with files from Global News’s Anne Gaviola, Reuters
