Demand for premium Arabica coffee beans is off and there is a killer on the loose, the K cup. As one pundit put it, most coffee is consumed by the drain, so a more efficient delivery system will have a strong impact on end demand. Demand for the K cup has increased from about 6,000 tonnes in 2005 to currently over 36,000 tones of coffee. But, what would consumption have been if there was no K cups. It would have likely have been higher. The demand of single serve coffee is cutting into normal brewed coffee by the pot. The end result has been a demand shift causing a price decline.
There are other reason for the decline in Arabica bean prices. These are the beans that are sold to the most discerning users which are in the EU. With income levels falling in the countries that have the highest per capita usage of coffee, the premium bean is getting hit hard. The cafe lifestyle of Spain and Italy is declining. As incomes fall, there will greater demand for the inferior good, the Robusta bean,(break out the microeconomic book and review the section on inferior versus luxury goods).
Coffee is a commodity now driven by strong structural demand shocks and not the usual supply shock.
There are other reason for the decline in Arabica bean prices. These are the beans that are sold to the most discerning users which are in the EU. With income levels falling in the countries that have the highest per capita usage of coffee, the premium bean is getting hit hard. The cafe lifestyle of Spain and Italy is declining. As incomes fall, there will greater demand for the inferior good, the Robusta bean,(break out the microeconomic book and review the section on inferior versus luxury goods).
Coffee is a commodity now driven by strong structural demand shocks and not the usual supply shock.
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