How much are you willing to pay for a cup of coffee?
- Cafe owners pass on rising coffee prices to consumers
- Input costs are rising due to high oil prices and low grain supplies
- Staffing shortages add to the pressures facing businesses
- Economist warns pressures won’t ease until next RBA interest rate hike takes effect
That’s the question consumers need to ask themselves, as the cost of everything from green coffee beans and milk to containers and gasoline has risen.
In some cafes, a shot of caffeine now costs around 30 to 50 cents more.
In west central New South Wales, coffee roasters and owners say they have been absorbing these spikes for several months and now is the time to pass them on to the consumer.
The Coffee C contract, which is the global benchmark for Arabica coffee, has effectively doubled from around $1.24 in early 2021 to around $2.40 per pound today.
Orange-based Academy sources beans from South and Central America and raised its price per cup by 50c a few months ago.
Owner Matt Swiatkiwsky said one of the worst frosts in half a century hit Brazil in the middle of last year and created a global shortage, driving up the cost of beans.
He said it would take the plants another three years to recover and grow.
Companies are struggling
Mr Swiatkiwsky said the price of a coffee pallet has nearly doubled from around $7,000 to $13,000 in the past two years.
“Freight would be the big issue for us with the rising cost of fuel,” he said.
Mr Swiatkiwsky doesn’t expect the price of coffee to drop anytime soon, if ever, as some companies are “just getting by”.
“In all honesty, I think a lot of these awards should have been passed on a while ago,” he said.
As farmers along the equator face harsh weather conditions and receive low wages, he warned the industry was in a dire state.
A struggling hospitality industry
Labor shortages have further aggravated pressures on businesses in the region.
The unemployment rate is heading for lows not seen since the 1970s, below 4%.
“There are more people working now than there have been in 40 years, people have just moved away from hospitality,” Mr Swiatkiwsky said.
Michael Everett, owner of three cafes in Orange, said that like the cost of living, the cost of running a business has also increased.
“Unfortunately, no, I don’t see it ending anytime soon,” he said.
In all the establishments, it employs 20 people but does not have sufficient personnel in its stores.
“My business is viable, yes, but it’s getting harder every day,” Mr. Everett said.
A broader economic picture
Former ANZ Bank chief economist Saul Eslake expected inflation to top 3.5% this quarter.
The rise in coffee prices was “certainly an illustration of something happening across a wide range of prices”, he said.
Mr. Eslake explained that inflation is outpacing annual wage growth, which means that real wages are indeed falling.
This means the Reserve Bank of Australia will likely raise interest rates this year.
“It takes time for interest rates to finally have the desired effect,” he said.
In the meantime, Mr. Eslake said, smaller companies should pass on rising input costs as long as their larger competitors do.