Rising Coffee Costs May Not Boost Production

Starbucks and Kraft Foods increased their coffee prices due to soaring costs of green beans.

March 23, 2011

NEW ORLEANS - Near-record prices for Arabica beans have not enticed coffee growers to increase production, the Wall Street Journal reports. The cost of coffee has skyrocketed during the past 12 months mostly because of less production.

Kraft Foods Inc., Massimo Zanetti USA and Starbucks Corp. have all hiked prices because of the rapidly rising green bean costs. Arabica coffee futures on IntercontinentalExchange jumped more than 50 percent during the past six months because adverse weather conditions slashed production in countries such as Columbia.

But despite the higher prices for coffee beans, farmers haven??t been quick to plant more fields. Companies that buy green beans have begun paying more to ensure product amounts.

Starbucks has a policy of paying farmers "equitable prices" for its green coffee. "If you want good coffee, you have to pay," said Dub Hay, senior vice president of Starbucks.

Fearing drops in prices ?" and the fact that a new plant is not ready to bear a good crop for three or four years ?" farmers are leery of making the investment of adding more plants, especially toe difficult-to-maintain Arabica coffee trees. "Farmers have suffered from bad prices for many years," said Henry Castillo, field manager at Costa Rica coffee co-op Coopeatenas. "What people don't want to do is invest and then have prices drop."
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