Coffee prices post Brexit vote
- By Graeme Shevas
- 11th July 2016
- 1 comment
Well it is astounding that we have voted to leave the European Union, but the idea of GB turning its back on Europe is as daft as the idea that the rest of the world will want to deal with Britain in unfettered trade deals far better than we could have brokered as a member of the EU.
However, the purpose of this blog isn't to discuss the merits of either approach, but to look at some practical issues around the procurement of coffee into the UK.
Coffee is a commodity - grown largely in a belt around the world, between the tropics of Capricorn and Cancer - it is an important commodity, but not as some would have you believe the second most traded commodity in the world!!
Supply and demand are at play constantly and as supply outstrips demand prices drop - farmers who are sometimes at subsistence level anyway turn away from coffee to explore other commodity crops. When demand outstrips supply prices increase - the farmer may then look to go back to coffee production again, but it takes several years for a coffee plant to produce a worthwhile crop. This ebb and flow of supply and demand leads to price fluctuations.
On top of this coffee is brought based largely on futures - a buyer commits to buying a certain volume of future coffee production at a given price (usually expressed in dollars). This futures market accounts for most of the trade, with short term requirements being met by spot trading (often priced in euros).
The collapse in the GBP since the vote will lead to an inevitable increase in spot traded raw coffee priced for the UK market as the pound is not worth what it was pre-Brexit vote. Also, as the futures contracts run through the prices will remain higher as new deals will be more expensive.
There is already talk of coffee going up in price (as has been predicted for most goods) and in my view the reality is likely to be a significant increase way beyond the currency issue. Currently coffee prices around the world are on the rise - 123 at the start of the year now sitting at 152 - the next few months could be a bumpy ride!
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