Why your coffee costs more: Lavazza says hedge funds are to blame

Why your coffee costs more: Lavazza says hedge funds are to blame

Giuseppe Lavazza, chair of the Lavazza Group, has accused hedge funds and other financial speculators of driving 80% of the recent surge in global coffee prices, warning that the resulting volatility has created “totally unsustainable” conditions for the industry and consumers alike, the Financial Times reported.

Speaking to journalists at Wimbledon, Lavazza said the spike in London robusta futures — which hit a record $5,700 per tonne in January — was largely disconnected from supply-and-demand fundamentals. While prices have since eased to around $3,500, they remain well above the historical average of $1,700.

“A big tsunami” triggered by small market moves

“Coffee is a big market, but the futures market is a small one,” Lavazza said. “So with [a small amount of] money, you can create a big, big tsunami.” The company chairman, whose family has led the Turin-based roaster for four generations, said the sharp swings had disrupted planning and pricing for coffee roasters, traders, and growers.

Lavazza singled out commodity trading advisers and large investment funds for exploiting thinly traded futures markets. He said while poor harvests and weather shocks had played a role, speculators “really made a difference” during the rally. “This is not a big risk [for them], but if they win the race, they can gain a lot of money.”

Price surge slashes consumption, strains industry

The volatility has already had an impact on demand. Lavazza said coffee consumption had fallen 3.5% over the past two years due to high prices, while market uncertainty and escalating margin calls had pushed some players to the brink. Netherlands-based Mercon Coffee Group, one of the world’s largest coffee traders, filed for bankruptcy in late 2023 just as the rally began.

The Lavazza Group has had to drastically increase its working capital to weather the surge. In 2023, the company spent €1.6 billion on coffee purchases, up from €600 million in 2018.

New threats: tariffs and deforestation rules

Lavazza also warned that while prices may have peaked for now — he called London’s £4 espressos “too high” — further spikes could follow from looming trade and regulatory pressures. Chief among them: U.S. President Donald Trump’s proposed tariffs on EU goods, and a controversial EU regulation that will ban the import of commodities like coffee if grown on recently deforested land.

While Trump’s EU tariffs are “fine,” Lavazza said U.S. levies on coffee exporters such as Brazil and Vietnam would be “more challenging” and could raise prices for American drinkers.

The proposed EU deforestation law, set to take effect by year’s end, poses an even bigger threat, he said. “It really puts some very strong limits for European roasters to import good coffee,” Lavazza warned. “The legislators pushing it don’t have any idea how our business works.”

With global coffee markets still feeling the effects of financial speculation and new policy threats looming, the world’s morning ritual may remain vulnerable to more price shocks — and roasters like Lavazza will continue to navigate what he called “unbelievable” levels of uncertainty.