European statistics agency data shows that coffee prices are on the rise across the region. Apart from reasons like inflation, escalating energy costs due to wars, and disruptions in the global supply chain, there are some unexpected factors at play.
According to a report from the European edition of “Politico” on Tuesday, the ongoing conflict in the Red Sea involving the Houthi militants and decision-makers in Brussels have contributed to driving up the prices of coffee beans in their own ways. Additionally, rising labor costs, climate change, and fluctuations in the exchange rate between the euro and the dollar all have an impact on the prices of coffee in our hands.
As part of the “Green New Deal,” the EU Deforestation Regulation came into effect in June 2023 with an 18-month transition period, meaning that starting from December 30 this year, the detailed rules of the law will be fully applicable.
This law, which has the most significant impact on Europeans and potentially the least on forests, lists supply chains of commodities such as beef, cocoa, coffee, palm oil, rubber, soybeans, and timber that must come from regions that do not contribute to deforestation, regardless of whether the forest is within the EU or not.
The selected commodities are targeted because the European Commission estimates they represent a significant share of deforestation in the EU.
Coffee producers must demonstrate that their production has not led to vegetation loss. However, the process of collecting relevant evidence is cumbersome and costly. Businesses are also uncertain about how the rules will be precisely enforced, and this uncertainty could further drive up prices.
With the Houthi militants in Yemen wreaking havoc in the Red Sea, past cargo ships have become targets of attacks. More and more vessels are being forced to detour around the Southern tip of Africa, resulting in longer transit times and higher costs.
Global second-largest container shipping giant Maersk has advised its customers to prepare for the Red Sea crisis that may persist until the latter half of this year.
Climate change will also impact all natural commodities. A report cited economist and agricultural professor Christopher B. Barrett from Cornell University saying, “Coffee, like all crops, faces increasingly severe challenges from climate change.” As products become scarcer, prices soar.
For coffee shops, the rising cost is not only due to coffee bean prices but also the continuous increase in labor costs. When the cost of living rises, wages usually follow suit.
Furthermore, as coffee on the international market is sold in dollars, the recent strength of the US currency against the euro has led to higher prices for European buyers.