News from the shops
Milk Prices and the Global Coffee Market
It’s been pretty hard to avoid the debate over milk prices here in the UK over the last few weeks. The price paid to farmers has fallen by 25% this year and recently dropped to as low 23p a litre prompting widespread protests from farmers. The average cost of production for milk is estimated at 30p per litre and it is the fact that the price has dipped so far below this cost of that has caused outrage. The price is being driven down by the big supermarkets who are desperately competing in a price war against new low cost competitors like Aldi and Lidl.
This is a bleak situation for the milk farmers in the face of the buying power of the large supermarkets and reflects to a certain extent the trends we are currently seeing in world coffee prices. In the last year the coffee C market price (the futures market on which Arabica coffee is traded) has dropped from a high of around $2.25 per lb last October to around $1.30. This has been caused by a variety of factors including a global surplus, currency fluctuations and large predicted harvests for Brazil and Indonesia this year. The cost of production for Arabica coffee varies from country to country but is estimated at around $1.40 per lb for commercial grade coffees and $1.50 and upwards for specialty coffees. Therefore the market is currently trading below the average cost of production for most farmers and has been since March. This is as untenable for coffee farmers as 23p per litre is for milk farmers and if it continues will lead to financial ruin for many producers. The last period of sustained pricing below cost of production on the C market led to the coffee crisis of the 1990’s that devested the producing side of the industry and bankrupted thousands of farms.