Coffee prices have surged to record highs, fuelled by a significant reduction in Brazil's crop outlook. Brazil, the world's largest coffee producer, is grappling with unfavourable weather conditions and lower yields, leading to a global supply crunch.
Arabica coffee futures, the benchmark for high-quality coffee, have skyrocketed by 73% over the past year and 31% in the last month alone. As per Bloomberg, Arabica prices spiked nearly 5% on Tuesday alone. This sharp rise underscores the growing concerns about the availability of coffee, impacting markets worldwide.
Robusta prices have touched record highs during the quarter due to global supply shortages. Averages prices for Q2 were 82% higher YoY. Vietnam, which is the biggest producer of the cheaper variety, saw drought during the growing period and heavy rains at the beginning of the harvest, as per Bloomberg.
Global coffee production is set to witness a shortfall of around 8.5 million bags in the 2025-26, according to Bloomberg.
Impact On Indian Companies
The recent surge in global coffee prices is set to leave a significant imprint on Indian companies operating in the sector. Key players like Nestlé, Vintage Coffee, and CCL Products are bracing for higher input costs, which could compress their profit margins unless these increases are passed on to consumers.
However, for Tata Consumer Products Ltd., the scenario presents a silver lining, as the company is poised to benefit from better realisations.
Impact On Tata Consumer Products
Tata Consumer Products, which recently merged with Tata Coffee, is uniquely positioned to capitalise on rising coffee prices. The company outsources the management of its coffee plantations, while sourcing beans directly from these plantations. Indian coffee prices often mirror global coffee futures traded on the NYMEX, enabling Tata Consumer to benefit from higher realisations.
The company's Q2 revenue reflected this dynamic, posting a robust 19% growth, largely driven by exceptionally strong coffee realisations in the plantations business. Rising coffee prices are expected to continue bolstering Tata Consumer's revenues in the near term.
Challenges For Nestlé
For Nestlé, which markets coffee under its popular Nescafé brand, rising input costs pose a different challenge. Margins may come under pressure unless price hikes or reductions in pack sizes effectively offset the increased costs. Nestlé has already signaled its intent to manage this volatility, with plans to implement incremental price increases and packaging adjustments to shield its profitability from the impact of rising bean prices.
Exporters Under Pressure
Meanwhile, companies like CCL Products and Vintage Coffee, which cater primarily to export markets, face an uphill battle. As rising costs threaten to erode their competitiveness, these firms may need to reassess pricing strategies to navigate shrinking profit margins. Exporters that cannot adjust pricing without sacrificing demand may find themselves under significant strain.
As coffee prices brew a mix of challenges and opportunities, Indian companies are navigating this volatile environment with a blend of caution and strategy. While some players may struggle to stay competitive, others are set to benefit from the new pricing landscape.
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