A NYT editorial informs us today that retail prices for coffee products are rising (HT: Icarus Fallen). We are assured, however, that the price rise has been “relatively modest” and that an important factor is “changes in supply and demand in a global economy.”
The bad news in the editorial, at least for the fair trade crowd, is that these same forces of suppy and demand are raising the price for the commodity itself.
According to the International Coffee Organization, the composite price of coffee rose over 36 percent from the beginning of 2005 to the end of 2006. The organization predicts a down year for the Brazilian coffee crop, which could lead to a supply shortfall and even higher prices this year. While world demand has grown at annual rates of 1.5 to 1.8 percent over the last five years, it has been rising at a much faster clip of roughly 15 percent for smaller players like Russia and China. As more people enter the global middle class, the demand for coffee rises, putting upward pressure on the price.
I have argued previously that the very low price of coffee internationally was a pointer to the fact that we had a global glut in the bean supply.
That trend seems to be reversing and the rising commodity price for coffee is thus undermining the long-term viability, relevance, and credibility of fair trade coffee.