Coffee drinkers are facing soaring prices, with some London cafes now charging £6.50 for a flat white, as the industry grapples with extreme weather, rising costs, and market speculation. The head of Italian coffee giant Lavazza warned that the sector faces 'exceptional volatility' and that customers have limits to how much they will absorb.
Inflation hits the coffee cup
Higher energy bills, government tax and wage increases, and volatile weather in coffee-growing regions are driving up costs. A 'super El Niño' weather phenomenon, causing extreme rainfall and drought, is forecast for late 2024. In Brazil, heavy rain in June left rainfall nearly 2,000% above historical norms, waterlogging fields and delaying harvests by 52%. In Vietnam, the largest robusta producer, farmers face drought, while fertiliser and fuel prices have jumped 30% year-on-year and labour costs 33%.
Lavazza passes on costs
Giuseppe Lavazza, chair of Lavazza, said: 'Volatility is the new constant. This has been a year of high turbulence and pressure, not just in the coffee market but in the general economy.' Arabica bean prices have risen 230% since 2021, and robusta 325%. Lavazza has increased prices: a flat white at its Regent Street cafe now costs £4.40 to take away (up from £4) and £6.50 to drink in (up from £5.50). Other chains are also raising prices: a flat white is £5.20 at central London Starbucks and £4.70 at Costa.
Speculation and supply concerns
Lavazza said the conditions have created 'the perfect environment for speculators to step in to move the price to the record levels we’ve seen.' He added that at least two years of good harvests from Brazil and Vietnam would be needed to calm the market, but weather conditions make this unlikely.
Consumers absorb but limits loom
Susannah Streeter, chief investment strategist at Wealth Club, said: 'Arabica coffee prices have been highly volatile over the past two years, as extreme weather has disrupted supplies and fuelled sharp swings in the market. With coffee prices still prone to volatility and operating costs remaining elevated, many companies are building a buffer into their pricing to protect already tight margins.' She noted that for now, customers appear willing to absorb higher prices, but 'there are limits to how much consumers will pay if the cost of a daily coffee continues to rise.'
Profit margins squeezed
David Abrahamovitch, founder of artisan chain Grind, keeps his flat white at £4.10 but said it yields only an 18p profit. For each £4.10 flat white, £1.60 goes to staff costs, 55p for mugs and cups, 96p for operating costs, 68p for VAT, and 13p for other costs. The price of green coffee beans has more than doubled since 2024. Paul Rooke, executive director of the British Coffee Association, said: 'We’ve seen significant volatility in global coffee markets over the past few years, and that looks set to remain a feature of the sector for the foreseeable future. The price consumers pay is also influenced by domestic factors such as rising energy, labour, and regulatory compliance costs.' Despite challenges, demand for coffee remains strong.
