The Bitter Reality
By Richard Corney
Managing Director of Flight Coffee
29th January 2025
The New Zealand coffee and café industry is in uncharted territory and things are about to get very scary.
While coffee prices are the highest they’ve been since 1977, this doesn’t tell the full story facing our industry in what is set to be a year of headwinds. So, what’s happening?
Weather, Geo-politics, Climate Change, supply shortages, and heavy market speculation are all at play wreaking absolute havoc with global prices.
It is a complex equation but in simplest terms the price of coffee in New Zealand is discovered by two primary factors, the coffee commodity price and the New Zealand Dollar exchange rate verses the United States Dollar.
The New York C (or the ‘C’ Arabica) is the market which all fresh coffee containing Arabica coffee in New Zealand is purchased against over various time periods. The current C price is trading at historic levels and has been gradually increasing on average year on year over the last 5 years, and overnight last night, it further broke its historic December 2024 value.
5 year snapshot of the NY ‘C’ Arabica Price and record ‘C’ price as at 28th Jan 25.
The NZD is weak against the USD further exacerbating cost pressures on coffee imports.
With both the Arabica and Robusta markets trading at extended unprecedented historic levels, all coffee, both fresh, instant, high quality and low, is going to get much more expensive. The impact these market dynamics are having on coffee roasters, not just in New Zealand but the world over, mean significant price increases for consumers are inevitable.
The Price of Green Coffee by The Numbers for New Zealand:
The below pricing is known as reference pricing and does not represent the actual price a roaster pays for a kilo of green coffee. This price is greater than what’s represented below.
By taking the average C price and NZD vs USD over the last 5 years we can see how dramatic the situation is for coffee roasters in New Zealand. The below table represents the NZD per kilo, green coffee price ‘FOB’ (Free on Board). This price is an average over the respective time periods and excludes all other input costs such as shipping, finance, storage, weight loss which occurs during roasting (up to 20%/kilo and typically no less than 16% depending on the roast profile), manufacturing, packaging and other operating costs such as labour, power etc.
It also excludes the in country internal differential price which depending on various factors such as internal supply and demand, can fluctuate between negative or zero values and add anywhere between 10-70 US cents/lb to these costs. The below table represents the two main drivers that form the price of a kilo of green coffee before it ships from its country of origin:
The 2022/23 average price was 29% up on 2021. 2024 presented an even more challenging year as the 2024 average increase on the combined 2022/23 average was a further $2.67/kg, or 36%.
January 2025 has been trading $3.79/kg above the 2024 average and when compared to the 2022/23 average, it is $6.49 or 86% above this period.
It becomes painfully obvious the margin challenges facing coffee roasters over the past 3 years. As coffee contracts booked throughout the 2024 period materialize, and dependent on when these were booked, when they end up in our favourite blends with other costs considered, coffee roasters are facing between a 25-35% reduction in margin, possibly more depending on the period you’re comparing this against.
What Does This Mean for Coffee Prices?
They are going up and they must.
In the same way consumers pay more for petrol when oil prices are high, consumers will be paying more for their coffee, from the supermarket shelf to their favourite café.
Roasters cannot sustain such an acute reduction in margin and will pass costs on. Café’s must also follow suit. Prices by the cup are already arbitrarily low when compared to the relative increases in operation costs impacting hospitality over the last 10-15 years in New Zealand. When in consideration of this, café operators have already subsidized the price of their coffee by the cup and now it’s essential they correct for this.
If roasters pass on a cost of $5-6 per kilo, this represents an increase of $0.10-$0.12/cup cost. By café’s putting up prices by $0.50/cup, they’ll be able to reasonably pass on price increases and offset other unaccounted for cost increases. In reality, when considering the cost increases experienced by hospitality over the last 10-15 years, based on the experience at our own café, The Hangar, a cup of coffee should be no less than $8 per cup, as discussed here.
Consumers must be prepared to pay more for their coffee or change their caffeine habits. Industry, hospitality and cafés won’t absorb these increases, lest they go under. There’s also every chance the market will continue to rise and breach the $4/lb mark. If this occurs, and the NZD continues to hold a weak value against the USD, brace yourself as $10/cup is likely on the horizon.
