Don’t worry: The price of a cup of coffee at Providence’s Coffee Exchange isn’t going to skyrocket. But coffee futures have jumped about 25 percent during the past few months and wholesalers are feeling the strain, including Lincoln’s Autocrat, which is passing those costs on to its customers.
Coffee Exchange President Charles S. Fishbein last week told PBN the cost of a cup of coffee at his Wickenden Street café has very little to do with the price he pays for the coffee.
That’s because Coffee Exchange’s imports are bought through contracts with his 23-member Cooperative Coffees. For the cooperative members – small coffee roasters around the United States and in Canada – prices are negotiated directly with farming cooperatives, so the price of coffee as a commodity – related to investor interest in coffee futures – doesn’t directly affect his importing prices, he said.
The price for coffee futures does, however, give coffee producers leeway in negotiating a higher price with coops, though Fishbein says he’s not been forced to increase his per-cup prices as a result because they are more closely tied to energy, paper and service prices.
But the increase in price paid by the coop will be felt in his payroll, which will be reduced slightly, Fishbein said.
For larger importers like Autocrat, commodity prices play a much larger roll in selling its product. It’s never an easy decision to raise prices, said Chairman and President Richard M. Field Jr., but that’s what Autocrat has had to do this month.
“We have increased prices, as much as we don’t like price increases – my inventory goes up, my receivables go up, it’s tough on my business,” he said in an interview last week. But there are positive aspects of such an increase, “like from a long-term standpoint, a little more money to the farmer provides more long-term consistent products.”
With its price increase, Autocrat is following industry big guns, including Procter & Gamble and Kraft Food, Field said.
Each month the London-based International Coffee Organization, the UN-sanctioned intergovernmental organization that tracks the coffee trade, releases a pricing report for coffee futures. During February, the group reported that the commodity rose 13.5 percent – to $1.39/pound – over the January price. During the last 30 years, those prices have ranged from about 50 cents to $3.00, said Field.
“Some of the increase in cost can be absorbed within the company, but when you’re faced with a 25-percent increase in cost in any business, certainly a portion – that’s not a good portion – of that increase has to be passed on to the customer,” he said.
And many Rhode island restaurants and hotels use Autocrat coffee – either under Newport Coffee Traders or their own name. In Providence, Hotel Providence and L’Epicureo serve Autocrat coffee, Field said.
Market-rate fluctuations for coffee aren’t unusual, he said, adding, “We are highly dependent on that as a cost. From our standpoint, as prices rise as they have done recently it seriously affects the cost of our inventory and the cost of selling and accounts receivable.”
Field said some of the impact on the coffee market’s growth can be attributed to many international economic markets – including New York Stock Exchange and Standard & Poor’s 500 Index – showing little or no growth during the last year.
“So what’s happened in the last four to six months, a lot of the investments in those funds have jumped into commodities,” he said. “The normal market has been in decline and hasn’t had a lot of strengths…so a lot of these huge funds – investment funds – have put their money into commodities.”
The International Coffee Organization credited the “volatility” of the market to the same cause and said it’s expected to continue through the end of 2008.
For an importer and roaster like Autocrat, there’s also been a substantial increase in demand during the last 30 years. The emerging Asian market is quickly becoming a large cross-section of Field’s business, he said.
Cold coffee products – ice cream, coffee milk, cabinets and others made with coffee extracts – have long been staples in the Rhode Island coffee market, but are growing increasingly important in Asia, where tea had traditionally been the drink of choice, Field said. The price of his products is raised based on coffee futures, but for smaller guys, like Coffee Exchange, importing and retail prices seem to operate outside that market.
“When it gets down to people at my level, the small roasters who buy through coops, you’re talking about set prices” per cup, Fishbein said. •