Is Coffee a Luxury Product? Market Dynamics Affecting Coffee Pricing

According to an ABC News report, for many Australians coffee is considered a fundamental part of everyday life… a marker of basic livability, rather than a luxury. 

As such, during tough economic times, consumers are often less willing to reduce their consumption of coffee, while also not expecting to have to pay a bit more, like they possibly would for wine or other products considered “treats” or “luxuries”. These consumer expectations have actually helped keep coffee prices in Australia relatively low compared to many major world markets.

Consumer expectations are key…and for products considered “essential”, price rises can be difficult to accept, even when they’re easily explained by economic and other factors. 

There has been a lot of news recently about the global rise in the price of coffee, and the following are the 3 main contributing factors behind these increases. 

1. Climate & Weather- Impacting Crop Volumes

Recent extreme weather events and unfavourable climatic conditions (drought) in major producer nations such as Brazil and Vietnam have disrupted coffee production, with lower crop yields leading to a decrease in overall supply. Demand remains high however, which in turn means higher prices.

2. Economy – Foreign Exchange Rates and Commodity Pricing for Green Coffee Beans

Green coffee beans are usually priced and purchased in U.S. dollars, which means the value of the U.S. dollar also influences the price that roasters outside the United States pay for their imported green coffee. 

For example, if the Brazilian real (BRL) becomes weaker against the U.S. dollar, Brazilian coffee might seem cheaper for an Australian buyer paying in U.S. dollars. But, if the Australian dollar also gets weaker against the U.S. dollar, the buyer will ultimately end up paying more in Australian dollars (AUD). 

Additionally, the price of green coffee beans is set on global commodity markets. Factors such as high demand or trading decisions can result in price rises, influencing costs for importers and consumers while also putting direct pressure on cafe owners who source from local roasters. 

It’s therefore important for roasters to manage the cost of procuring coffee and the wholesale price charged to cafes.

Supply chain expenses are also directly impacted by inflation, rising operational costs and currency fluctuations. 

3. Global Supply & Demand 

Global coffee consumption has been increasing steadily in recent years, driven primarily by Asian consumption, which has risen 14.5% since 2018. 

Traditional non coffee drinking nations (such as China and South Korea) have seen significant increases in the amount of coffee being consumed, especially among younger urban consumers. According to The World Coffee Portal, the number of coffee shops in China grew 58% to 50,000 in 2023 alone. 

This increase in demand, alongside the above mentioned decrease in global supply, means there’s simply less coffee to go around, which pushes prices up. 

What to Expect in 2025?

Due to these factors, we can expect to pay more for our coffee this year. Prices will go up, but mostly likely in small incremental increases.

The increased price cafes pay for their roasted coffee beans will mean that in order to maintain vital profitability and the level of quality their customers expect, selling prices will need to be reviewed and additional costs passed onto the customer. This will be reflected in the final price paid per cup. 

Aside from maintaining product quality, the ongoing sustainability of the industry is also key. 

In order to combat detrimental climatic conditions and low crop yields, producer nations are embracing innovation and change, implementing adaptable farming strategies as well as investing in and benefitting from improvements in agricultural science. 

For example, producer nations are focussing more on ‘ regenerative’ farming practices which aim to improve water quality, soil health and biodiversity. 

For coffee farming this includes: 

• Agroforestry (using shade trees to promote biodiversity)

• Composting (using coffee pulp and organic waste to enrich the soil)

• Integrated Pest Management  (using natural predators or organic deterrents rather than chemicals)

• Water Management (efficient irrigation systems to minimise water usage)

All of these practices help to improve the land’s productive capacity. 

Price increases in green coffee beans help to support sustainable practices, fair wages for farmers, and hopefully a greater appreciation for the incredible journey from bean to your cup. 

By investing more in each cup, we’re contributing to better livelihoods for farmers at origin, increased environmental sustainability, and a richer coffee experience for ourselves.