Market Power

Musings by an academic economist on the power of markets and the power over markets.

Tuesday, March 15, 2005

Higher Prices for Coffee

Who needs caffeine when the price of coffee is getting higher?

With wholesale coffee prices at a five-year high, some of the nation's best-known brands are raising their prices. Folgers, the nation's top seller, last week raised its price 12 percent, with Maxwell House following suit on Monday. Those increases come on top of a 14 percent increase that Folgers, Maxwell House and other major brands imposed in December.
What's causing this jump in java prices?

Analysts say prices have gone up because wholesale coffee buyers are worried about crop shortages in Brazil and Vietnam, the world's largest coffee growers.

Higher prices are welcome to coffee growers, who have struggled with an extended price slump. For many growers worldwide, the long downward price spiral "was a crisis," said Joseph DeRupo, a spokesman for the National Coffee Association.

At the lower prices of the past few years, "farmers were not able to survive, and they were going out of production," said DeRupo, calling the recent increases "good for the industry and good for sustainability going forward."


Americans are drinking more coffee than they have in a decade. In a survey set for release today by the coffee association, 52 percent of Americans reported drinking coffee every day.

While that's less than generations ago -- in the 1950s, 78 percent of Americans were daily coffee drinkers -- it's up from 49 percent a year ago and marks the highest number in 10 years.

The supply of coffee has fallen as some bean farmers have gone out of business. Couple that with an increase in the demand for coffee, and you have a recipe for higher prices.