Green price increase

[simon80]

Im hearing alot about rising coffee prices in Australia due to many factors in growing regions. I heard today from a supplier that he is about to pass on an increase, however didnt say how much.

Are we about to see an increase in beanbay prices also?

Can anyone shed some light on this?

[Fresh_Coffee]

Re: Green price increase

I dont look at BeanBay but I would be surprised if the increases in coffee over the past year havent already been passed on to you with each offering.

In that way I imagine you wouldnt necessarily have noticed anything much because it has been increasing steadily over time in small increments. You would have to remember what you were paying 12 months ago and compare it to what you are paying now for similar origin beans, to see the overall difference.

The type of increase you have heard about will be a more major single adjustment in the selling price of roasted coffee because roasters buy forward and in some cases can be well covered for some months on forward order contracts before increases in their next purchases start to bite at the higher rates.  And then they feel the difference between the old rate and the current rate in one big shift.

There is also the delayed effect of roasters sitting on old selling prices while they watch and see what the competition does, and there is always reluctance to be the first to raise prices which means many businesses absorb their increases and lose profitability for some time before they simply have to pass it on.

All of that also means that esteemed members of the general public need not start to demand price reductions immediately they see some story in the news media about prices settling back a bit some time in the future, because the same scenario that buffers roasters and their clients prices from going up quickly in the first place then has a reverse affect while roasters honour pre existing forward order contracts that were bought at the high prices.......

In the meantime the cost of doing busines also rises and is not even the subject of this discussion.

It probably wouldnt be unreasonable to expect to see rises in the order of say a couple of dollars kick in any time soon, and that would only be to recoup and or pass on DIRECT averaged increases in raw material (green bean) costs. I would imagine cafes and wholesale coffee clients will also need to pass on resulting increases in their cost.....there is only so much belt tightning you can do.

The market is still rising...no sign of a let up. In a rising market  farmers are reluctant to sell because if they hold on a little longer they will get a better return...creating artificial shortage & driving prices higher....

In this scenario, even with roasted prices going up now, this will not preclude further rises later, they will be in direct response to the increase in raw material cost, and if I may say so will be entirely justified.

Hope this helps,
Attilio
very first CS site sponsor.

[Andy]

Re: Green price increase

Very nice post Attilio.

I should add that BeanBay prices are always amazing!
8-)

Many of the beans currently on offer were bought are lower prices than I will be able to replace them for. The Kenyan and the Rwandan from last night were bought many months ago at the pricing then, today they would already be something like $2 more a kilogram.

Unlike the petrol stations that raise prices on stuff sitting in the tanks when the crude price moves we always sell at the landed price until the beans are sold out. When new beans arrive they are priced based on the landed cost at that time.

A couple of years ago most coffees were under $10, last year we landed many of the same coffees at around $10 and late in the year and this year Im seeing prices that will move that to $11 and $12/kg (green pricing)

One of the new crop beans that I was sent a forward sample of in November had a 40% price jump in just 6 months!

Some origins are quoting really silly prices at the moment but the demand is there and they are getting buyers still. If I had to guess on the current rate of rise I would say expect another $2/kg green by the end of the year on most stuff.

Can the roasters wear that? Maybe not, they have worn raw product and transport price rises for a few years already and I expect that the $40/kg roasted and $4 a cup will be become far more common soon.

Below is the current coffee index that all commodity coffee prices are based on, specialty coffee sort of follows this too as their pricing needs to be "x" times more than a similar commodity coffee. Pricing is per pound at origin (prior to shipping and other import costs) multiply by 2.2 for kilos.

In the last 8 months coffee increased by 65% odd, in the same period the AU$ gained 10% against the US$ which did help soften the impact but pretty soon it will have to equal higher prices on the ground.

[Javaphile]

Re: Green price increase

Transportation/fuel costs make up sizable portion of retail green prices and oil is now two and a half times the price it was 2 years ago. While much of this increase in transportation costs have been borne by the vendors, eventually those increased costs will be passed onto the roaster and inevitably the end user.  

Will we be seeing an increase in bean prices? Bet on it.


Java "Stockpile!" phile

[Gracey]

Re: Green price increase

Andy,
I started to read thru your post and then I started to feel my eyes cross.
My problem. But I would like to add that there is an arguement for pricing at replacement cost rather than original cost. Whatever. Im with
Java"prices are going up"phile.

[don_nairn]

Re: Green price increase

prices do increase over time.

often prices can be "sticky"

will this mean that we pay more for coffee or that the importers get a cheaper product to sell?

I dont know.

will some people stop drinking coffee if the price rises?

probably.

there a a few types of coffee that already are quite expensive and someone must buy them.

equally if a coffee importer thinks they can make money by importing a cheap low quality product they will do it.

the amount of poor quality coffee that is produced suggests that to some people price, convenience and perhaps caffeine strength are more important than flavor.

[Fresh_Coffee]

Re: Green price increase

prices do increase over time.
Yes


often prices can be "sticky"
Yes, the price of coffee may settle down a little some time in the future, but the cost of doing business never does and it is easier to leave a price up to account for that from time to time, than to put the price of coffee down because the cost went down, then go out again and canvass cafe owners to put it up again due to rising costs. You can imagine the reaction to that and frankly, it isnt good business management.

will this mean that we pay more for coffee or that the importers get a cheaper product to sell?
Any business that does not pass on their rising costs is not running a professional business because it places itself in danger of going out the back door by allowing its profitability to suffer, then its clients will have to go looking for another supplier......roasters base their entire business on the product they sell and it is not an easy task to go chopping and changing the varieties of beans they use in their mixes...yes they will look around for "subsitutes" at a better price but in the main they will continue to use what they always do and of course there is never any easy way to subsitute something for something else..... In any case the cheaper varieties have always been there and if it was that easy to slip them into a mix, they would already be there....

I dont know.

will some people stop drinking coffee if the price rises?
I dont believe so.

probably.
I couldnt DISagree more. Does anyone really think that an increase of say....a couple of dollars a kilo will kill their coffee buying habit?  And in this market where you can sell roughly 100 standard size cups of coffee per kilo, that makes an increase in cost of 2 cents per cup.  We nolonger have 1 and 2 cent pieces so the lowest denomination coin by which any cafe might raise its price is 5 cents per cup. Is anyone really going to stop buying their cuppa if it goes up 5 cents per cup due to a direct increase in the cost of green beans?

there a a few types of coffee that already are quite expensive and someone must buy them.
My opinion is people already buying the better qualities at higher prices will probably continue to do so.

equally if a coffee importer thinks they can make money by importing a cheap low quality product they will do it.

They already do because there is a demand out there for it and the people that want to buy cheap coffee will still buy it. I doubt people that want good coffee will be swayed to drop their standard, & this is precicely why the price must go up (because the clients will still demand the quality they are used to, and why should the roaster/supplier absorb the increase in his cost, not pass it on, and lower his own profitability?).
In any case your comment reads to me (whether intenionally or not) in a way as to insinuate that green bean brokers ("the importers") are only "in it for the money". This is (whether intentional or not) derogatory and if you were to extrapolate this out it means that anyone that works for a living "is only in it for the money".

the amount of poor quality coffee that is produced suggests that to some people price, convenience and perhaps caffeine strength are more important than flavor.

Again, this has always been the case and will continue to be, and I dont think this will affect the quality coffee end of the market. Indeed the opposite is true as more and more people get into better quality coffee.

In the end, I would say that the importance of, or actual size of any increases that will occur due to the current situation, are being played up to be bigger or more important than they really are or need to be.....

Dont worry, life as we know it will go on regardless  

Regardz,
Attilio

[pjchris]

Re: Green price increase

often prices can be "sticky"
Yes, the price of coffee may settle down a little some time in the future, but the cost of doing business never does and it is easier to leave a price up to account for that from time to time, than to put the price of coffee down because the cost went down, then go out again and canvass cafe owners to put it up again due to rising costs. You can imagine the reaction to that and frankly, it isnt good business management.

Regardz,
Attilio

I must wholeheartedly disagree.

A business should (must?) base its selling cost on either the replacement or historical cost of the goods they are onselling plus current business costs.

So if the cost price of goods or business costs changes so should the selling price.

Imagine if you will that petrol prices were sticky. We would stilll be paying $1.70+ per litre.

Imagine if fresh fruit was priced this way...Apples at the winter price even when in season.

Now Im not saying that the price needs to change at every slight price shift as the cost price of the raw materials here, green coffee beans, only makes up a fairly small proportion of the sale price when roasted...Somewhere about 25% based on $10/kg green and $40/kg roasted.

But when that cost changes by 20% up or down then yes I would expect the price to change to reflect that.

Leaving a price up because it is easier is offensive to me as a consumer and as a former small business operator, bad business practice.

Peter

[Fresh_Coffee]

Re: Green price increase

Hello Peter,

there is a lot more to the price / cost of roasted coffee beans than meets the eye and the industry is not governed by the same constraints and situations as the petrol industry or for that matter any other industry that I know of.

Additionally, there are 3  obvious sides to to the coffee supply industry. One is to the hospitality industry, another is to retail resellers (supermarkets) and the other is direct to the public. That means there are three sets of rules happening at the same time on three different pricing structures governed by different constraints and costs.

And of course there are some coffee suppliers that sell at rock bottom prices and who will need to put all their prices up and probably leave them there "sticky", others that charge fair prices and will look at the profitability of individual clients and raise their individual pricess accordingly to each, and there are other suppliers that sell at the high end and may absorb much of the increases. Oddly enough it is usually the most unprofitable clients on rock bottom prices that bleat the loudest about pricing increases and demand decreases when they think the market should go down.

You cant cover all bases in these kinds of academic discussions and frankly to go into any more depth than I have now done in this topic, in trying to cover insights into all areas (wholesale, reseller and retail) in a public forum where virtually all of the participants are not of the industry and can only see their own one side, would not be productive and I am sure no one from the petrol or other industry is waiting in the wings to jump in and get involved in a public forum and open up their doors for us to peak inside and....given the experience and expertise I have in real coffee business, I have no problem standing squarely behind all that I have written which in essence, is actually to help anonymous members of the public reading this to gain some understanding in this topic rather than to have those same anonymous people question my own professional bona fides for my trouble.

And frankly other than the local servo, I dont think I have ever seen any of my suppliers fall over themselves to lower the price of their goods and services once they have gone up and in fact, I dont necessarily think they should have to because I also understand most small businesses are working on very fine margins with a lot of aggressive competition and occasionally they also need to be given "a break". As a former small business operator I assume you have been in the situation to watch your prices eroded (by leaving them at the same level indefinitely thereby descreasing your profitability) while all your costs go up around your ears......

In the end individual coffee suppliers will do what they as individuals, have gotta do, and they will live by the consequences.

Hope that helps.

Regardz,
Attilio.

[don_nairn]

Re: Green price increase

the thing to remember is that people are individuals and what they do is up to them. even if economics treats markets a a whole group.

Sticky pricing refers to the way there is a delay in an increase in materials and the price of the product increasing in prices.

After all if the business down the street is selling for the same price as you if you increase your prices you may lose customers (you only have to think this before it affects your pricing decision)

Certainly people who have their coffee made for them a few cents per cup is all that the change in the price of the beans will cause.

people who buy green beans their coffee habit is probably only worth a few dollars a week so an few extra dollar in the weekly budget is not a lot.

will people drink less or drink cheaper coffee because of a price increase?

will coffee increase in price in real terms?

that really depends on a lot of things.

After all if everything goes up 5% (including wages) in real terms have prices stayed the same? :-?

however it seems unlikely that a price rise will increase demand but if demand is growing if may only reduce the rate of growth. :-?

[pjchris]

Re: Green price increase

Attillio,

I was in the petrol industry so if you have questions feel free to ask.

From that viewpoint my approach to business is that if the cost of my raw material changes then the part of my sale price that comes from that componant should change too.

As you say though, this is probably not the place for an in-depth discussion of either business practices or philosophies.

The OP original question was would increasing green bean prices cause an increase in Bean Bay prices I would answer that yes it would and should.

Andy has to make money and Im sure his (or anyones) margins cant absorb the current increases in green bean prices.

Having said that, the prices we pay on Bean Bay are an absolute bargain for the home roaster and no doubt will continue to be and we should all support Andy in his business as it allows us all to produce coffee in our homes that is nearly allways superior to cafe coffee, and always superior to any big brand supermarket bought coffee (Due mainly to the supply chain length and storage times of shelf items).

We are spoilt for choice and even though I am relatively new to roasting, the coffee I am making is hugely better than those I was getting previously even when I was buying relatively fresh beans from the Victoria Market in Melbourne.

Will I drink less coffee as the price rises?

Not really as I rarely buy coffee when out and about as it is often such a dissapointment and I will still drink the same number at home. After all the milk  + coffee costs me about 50c per coffee and my equipment so far works out at about 55c per coffee made and has cost nothing but cleaning in terms of maintainence so Im way ahead of cafe costs.

Peter

[simon80]

Re: Green price increase

Thanks for all the input guys.

I guess the main reason for the OP was to gauge if I was being sold stories from a supplier who was justifying an imminent price rise. I buy green beans from a few different places, Beanbay being one of them. Nowhere else had given an indication that their prices were set to rise.

Now that I understand a little more about the factors that drive prices, I can be a little more informed when he passes on his increase and decide if his pricing is fair and if I continue to do business with him.

Not sure whether to stockpile yet.....

[Fresh_Coffee]

Re: Green price increase

yes, not stories and the green bean coffee market continues to stay red hot as I write this.

There are any number of "bottom lines" to this.

1) any green bean vendor or roasted coffee supplier will shortly have to put up their prices if they havent already done so. The amount each individual vendor goes up however is entirely an individual thing governed by many factors incliuding which part of the total market they are selling in to.

2) the practice of purchasing greens on forward contracts means that prices will remain up fior some time in the real - end market even when the green prices from origin settle down (if they do). That is, there will be a delayed reaction which is entirely legitimate.

3) any vendors in the el cheapo end of the market or that are selling at rock bottom prices now are looking straight down the barrel of trading unprofitablly and if they have been caught short by this wont be able to meet their committments with their suppliers if they dont react appropriately and quickly....... That said, vendors trading in el cheapo product (beans) will be affected less because the percentage rise in a product that costs less will be lower in real money! Conversely, the real money rise is greater in the better quality / high end coffees that cost more to start with.

4) But is it that "bad" that it will stop anyone buying / drinkling coffee.........., and is it really that significant or important? Only individuals can answer that for themselves.

5), 6) etc etc etc  ....you can keep adding to this aas thoughts come to mind.

Regardz,
Attilio.