The growing cost of coffee in Brazil

Micro-producers in the Campo das Vertentes Region, Minas Gerais, sorting green coffee from ripe cherries on an African bed

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In Brazil, coffee is part of everyday life – so important that it is classed an essential household item among food staples necessary for daily family life.

However, a half-kilo pack of commercial grade coffee (known as tradicional) has more than doubled in price since the beginning of the pandemic – 144% to be precise.

Inflation over the last 12 months has reached 12%, a figure influenced by fluctuations in the price of Brazil’s beloved coffee bean.

Prices around the world have been affected by supply chain disruption caused by the Covid-19 pandemic and the Russian invasion of Ukraine. While high inflation is not exclusively a Brazilian issue, coffee has contributed even more to the rise due to climate phenomena such as droughts and frosts in several producing regions.

As the largest coffee producing country in the world, not only by volume but also land area, the rising cost of fuel has pushed up the cost of production throughout Brazil’s coffee supply chain, impacting road transportation and machinery used for the harvest and crop management.

Price spikes for fertilisers and pesticides have also contributed to the economic challenges Brazilʼs coffee farmers face, alongside higher logistics and export costs.
 

High-price scenarios

Professionals from across the coffee value chain are facing a new economic landscape following the pandemic and the climate emergency, which have contributed to 2022’s record high coffee prices.

Luiz Eduardo Melo, owner of Supernova Coffee Roasters, located in Curitiba, Paraná, in the southern region of Brazil, says he decided not to pass price increases on to his customers because he had sufficient coffee stored from the last crop due to decreased sales during the pandemic.
 

“We couldn’t hold the prices down, otherwise we wouldn’t have the cash to invest in buying the new crop”

Luiz Eduardo Melo, Owner of Supernova Coffee Roasters

It was 2021, and prices had already started to spike. However, when his lower-price coffee stock dwindled, he had to go shopping and found the old prices were no more.

“We raised our prices in June 2021 and again in January 2022 – two rises in a short interval. We couldnʼt hold the prices down, otherwise we wouldn't have the cash to invest in buying the next crop,” he explains.

These price increases were made by businesses across Brazil. On average, 60% was added to price tags across the countryʼs supermarkets and coffee shops.

In the international market, Latitudes Coffees is an exporter. Its CEO and current president of Alta Mogiana Specialty Coffee Association (AMSC) Edgard Bressani says that “with rising production costs during the pandemic, prices of green coffee in the Brazilian market have responded accordingly. These high (prices) were due to climate issues we had.

“We were all caught off guard and so was the international market.” Bressani explains that roasteries he exports to outside Brazil needed to pass on the price increase to consumers, “who were not ready to absorb the impact of higher prices.” This has caused a significant shrinkage of profit margins and even resulted in losses. “Many roasteries have closed for good or were sold,” he says.

Expocaccer, one of the largest coffee exporters in Brazil, is located in Patrocínio, in the Cerrado Mineiro region. Sandra Moraes, who leads the company’s specialty coffee division, has other insights about the price increases: “In the international market, we had additional logistics challenges concerning the lack of containers and available ships, which drastically impacted the prices of international freight.”

Moraes evaluates that production costs for farmers in the region have swelled 60-70%. “Consequently these costs were passed on to the final price,” she explains. In addition, the Cerrado Mineiro region had large areas affected by a serious frost in 2021, which caused significant losses and impacted production.

Moreover, AMSC’s Bressani points out that the average production per hectare rate in Brazil is often low.

“Some producers who are more structured and professional have more efficient production methods and can manage rising costs. But many farmers donʼt even know their real production costs,” he says.

Instant coffee produced from commercial grade robusta crops also plays an important role in the Brazilian coffee market.

Coffee pickers in the mountains of Espírito Santo region, Espírito Santo State

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However, with robusta far less affected by the climate factors impeding arabica crop yields, subsequent increased demand is leading to disproportionately higher prices for the traditionally cheaper crop, according to Aguinaldo Lima, Director of Institutional Relations of the Brazilian Instant Coffee Industries Association (ABICS).

“In our country, the production yield of arabica was jeopardised, but canephora (robusta) was not affected.

Add to that a significant improvement in quality, and the industry migrates to canephora. Consequently, prices get higher compared to the international market, as in Vietnam, for instance. This causes a direct impact in the instant coffee industry,” he says.
 

Quality and consumption

Operating in the premium and specialty coffee market, Curitiba-based coffee shop owner and roaster Luiz Melo says it would be a gamechanger if “consumers able to pay more for a better coffee, but who typically buy commercial grade coffee out of habit, could ‘migrate’ to specialty coffee since prices are no longer much different.”

He has noticed new customers at his coffee shop – former commercial coffee drinkers – and he even recorded an increase in sales.

“This is my perspective in the domestic market, but it is still a local perception from the city I work and live in, Curitiba,” Melo adds.

According to AMSC’s Bressani, roasteries are tending to choose lower quality beans compared to those they used to buy: “Buyers can no longer pass the high prices to the products on the shelves or to the cup.

But that may be a terrible mistake because quality is deeply connected to consumption (habits),” he points out.

However, traders currently trying to get their green beans to be sold in August and September are facing challenges transacting with farmers.

“Some big players who had settled their deals on future crops at old prices are selling well with lower margins. Often the margins are good because they have bought at low prices but I buy from partner farms to sell [to the international market], and it is much harder. Nevertheless, we keep on betting that the market will stabilise”, Bressani concludes.

Expocaccerʼs Moraes also notes potential for growth in the specialty coffee market. She says consumers are increasingly seeking higher quality. Consequently, they are also looking for sustainability, organic and even regenerative certification.
 

“The production yield of arabica was jeopardised, but canephora (robusta) was not affected”

Aguinaldo Lima, Director of Institutional Relations of the Brazilian Instant Coffee Industries Association (ABICS)

“We had our first Regenerative Coffee Certification issued to Expocaccer associate Fernando Nogues Beloni, who put the Cerrado Mineiro region on the map and leads Brazil in this field,” she says.

For Supernova’s Melo, even though inflation will likely impact coffee consumption among Brazilian families, he does not anticipate overall trade volumes will change much.

“Curiously, our income is growing, especially now that we are in the winter. It all depends on how each coffee shop works around its prices.

Some traditional shops canʼt add much value to what they are offering. We, from the specialty market, have this differential.”

Coffee has long been a relatively cheap staple for households in Brazil and around the world. However, as coffee farmers continue to grapple with rising prices due to the pandemic, the climate emergency and geopolitical tensions, even commercial grade coffee destined for instant brands could see significant price increases.

Nevertheless, this dynamic has led some in the premium and specialty segments to bet on higher quality yielding greater perceived value, which could prove a boost to growers, roasters and coffee shops at the top end of the market.

Whatever the outcome, current environmental and economic headwinds look set to blow all grades of coffee into pricier territory – and could consign the days of the cheap morning pick-me-up to the history books.
 

Mariana Proença is an independent journalist and coffee specialist based in São Paulo, Brazil. Follow her at www.marianaproenca.com.br

K.J. Yeung is a Q-Grader and coffee photographer looking for the perfect cup of coffee and the perfect coffee shots. Working in the industry since 2013. Follow him on Instagram @kj.yeung

This article was first published in Issue 11 of 5THWAVE magazine.

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