Cost of your caffeine and sugar fix to stay high on El Niño

Instant coffee is being kept in security cases at a supermarket after the price soared to £10.50 a jar.
The GPS tracking cases were spotted on shelves at the Co-op food and petrol shop at Harborne in Birmingham.

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Prices of soft commodities have been outperformers this year, surging about 24% while the broader agriculture index eased 3% weighed by falling wheat and corn prices. “Consumers will start to see the cost of bread and pasta falling as the prices of grains have come down, but the last thing to fall will be your sugar and coffee and sweets,” said Kona Haque, head of research at ED&F Man.

Robusta bean production is expected to fall by 5% in Brazil, while in Indonesia, the world’s second-biggest robusta exporter, output is projected to drop by 20%. That combined with shrinking stockpiles in Vietnam, the largest-robusta producer, is likely to keep prices elevated.

For already-suffering chocolate makers, the pain brought by an El Niño could also get worse.

Production of cocoa beans in West Africa  — the largest growing region — may fall in the next season by as much as 8% on adverse weather, according to Fuad Mohammed Abubakar, head of Ghana Cocoa Marketing Company. Cocoa prices already surged to the highest in seven years this season following a disappointing harvest in top exporter Ivory Coast that worsened the global deficit.

But among breakfast items, orange juice has probably seen the highest price increase following a staggering supply shortage caused by disease and hurricane damage in US top producing state Florida. That led futures to rally to a 56-year record, with little relief in sight.

“We don’t expect major supply increases, while demand could slowdown especially in lower-income segments of the population that cannot afford such high prices,” said Marcos Fava Neves, a researcher at University of Sao Paulo.

There are already signs the beverage industry is moving away from orange juice, with bottlers shifting to different fruits or blends. In Japan, it was Kirin Beverage Company Ltd, for example, that recently said it is temporarily suspending the sale of Tropicana orange juice, blaming the tight global supply.

While supermarket prices may not fall much soon, sales of sweet treats are expected to remain resilient as they are considered small luxuries people are unwilling to give up compared to big ticket purchases like a holiday or a new car, according to ED&F Man’s Haque.

“There is also the whole science about coffee, sugar and cocoa being fairly addictive,” she said, “based on that alone it means consumption will hold up well.”