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Coffee at its cheapest in years. What about in Poland?

23 Jul 2018 17:36|Marcin Lipka

"Coffee prices around the world have been falling for several months and are already half the price of seven years ago. Meanwhile, Poles are currently paying the highest price for their coffee in history. A cup of coffee in a café can even cost a hundred times more than the value of the beans used to prepare it," writes Marcin Lipka, Conotoxia Senior Analyst.

Coffee is quoted in the world markets like other agricultural commodities. Its price is determined by the price of Arabicas, a blend that comes from 19 countries, in the ICE market. Although coffee is quoted in American cents (currently 112 cents) per pound (450 g), it is not difficult to convert it into PLN and kilograms.

Record prices in the markets

Since the beginning of the year, the price of 1kg of coffee beans (before roasting) has fluctuated between 8.70-10 PLN. This is about 20% less than in the first half of 2017, remember that we are already talking about prices in the Polish currency.

Looking back over the last decade, current coffee prices are also close to long-term minima (7.40 PLN/kg in 2013) and far from historical peaks (over 18.8 PLN/kg in September 2011). The decreases observed in recent months are the result of high coffee production across the globe.

According to the U.S. Department of Agriculture (USDA) report in June, global coffee production is expected to reach 171 million bags (60 kg each) in the 2018/2019 season, 11.4 million more than in the previous year. Record harvests are expected in Brazil (44.5 million bags) and Vietnam (almost 30 million bags).

Also in Central America, harvests are increasing following a disaster (coffee rust) that erupted a few years ago. Overall, coffee stocks are expected to increase this season as supply will exceed demand. Thus, higher production and higher stocks result in lower prices.

But in Poland it's record-breakingly expensive

Although the prices of coffee expressed in PLN have gradually been falling since November 2016, Poles are paying more for coffee, according to the Polish Central Statistical Office (GUS). In May of this year, a 250 gram pack of ground coffee cost 7.44 PLN (29.76 kg). This is almost 4% more than a year ago and over 8% compared to two years ago.

In particular, the retail price of coffee in Poland is currently at a level close to that of 2012. At that time, one kilogram of ground coffee near the Vistula river cost slightly more than 30 PLN, but the cost in the markets exceeded even 18 PLN. Now market price is half that of six years ago, and retail price just as high as that of 2012.

When raw materials become more expensive, processors quickly increase wholesale prices, and this translates into higher purchase costs for consumers. Such a pattern, converted to coffee prices e.g. in 2011 and 2012, can be considered a normal phenomenon. However, when raw material prices fall, the costs for consumers are not decreasing at all, they are even rising. It is the latter effect that we are dealing with at the moment. Where does this come from?

The majority of the Polish coffee market (approx. 75% according to the analysis published by the already defunct Ministry of Treasury) belongs to five global food processors. Insufficient competition or pricing strategies set for specific regions may result in an asymmetric pass-through effect. Over the years, the French faced a similar situation, which was well described in the coffee market analysis in 1998-2006, as part of the project of transparency of food pricing policy, by Sofia B. Villas Boas from the California University of Berkeley and Celine Bonnet from the Toulouse School of Economics.

Overpriced coffee to go

Consumers have limited room to manoeuvre when falling prices in global markets do not translate into lower costs in coffee shops. In addition, it is difficult to give up the pleasure of meeting friends in a cafe and catching up over a cup of coffee.

However, you may be wondering, if it is worth buying coffee, e.g. on your way to work or when you are on the go. Popular takeaway coffees often cost more than 10 zlotys. If it is a drink without any extras, the value of the 10-15 grams of roasted coffee used to make it costs about 15-20 cents. So, sometimes for our black coffee we can even pay 100 times more than it is actually worth.


23 Jul 2018 17:36|Marcin Lipka

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