Coffee prices have surged dramatically over the past year, with green coffee increasing by 78%. In this episode, International Coffee Traders GM Raihaan Esat joins hosts Gene Tunny and Tim Hughes to explore the key drivers behind this spike, including harvest shortages, supply chain disruptions, and geopolitical factors. Discover why your morning brew may soon cost more and how the coffee industry is navigating these challenges.
If you have any questions, comments, or suggestions for Gene, please email him at contact@economicsexplored.com.
You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.
About our guest: Raihaan Esat, General Manager, International Coffee Traders
Raihaan Esat is a passionate and seasoned coffee professional with extensive experience across the coffee industry. From working in bustling espresso bars and competing at the highest levels of barista competitions to managing roasteries and developing quality control systems, Raihaan has cultivated a deep understanding of every facet of coffee craftsmanship.
As General Manager of International Coffee Traders (ICT), a green coffee sales business, Raihaan connects both commercial and home roasters with premium green beans and equipment, sharing his love for exceptional coffee. Inspired by mentors like Phillip Di Bella and a history of innovation, Raihaan is also spearheading coffee events at The Coffee Commune, fostering a thriving community of coffee enthusiasts. Dedicated to excellence and driven by a lifelong passion, Raihaan continues to inspire others through mentorship, entrepreneurship, and a relentless pursuit of the perfect cup.
Source: https://www.roastmagazine.com/roastsummit/events/raihann-esat
Timestamps for EP267
- Coffee Market Overview and Initial Discussion (0:00)
- Factors Contributing to Coffee Price Increases (7:36)
- Quality Concerns and Market Dynamics (19:41)
- Consumer Behavior and Market Volatility (26:44)
- Impact on Coffee Shops and Consumers (47:07)
- Geopolitical and Weather Impact on Coffee Prices (54:20)
Takeaways
- Green Coffee Prices Surge: Over the past 12 months, green coffee prices have increased by 78%, impacting every part of the supply chain.
- Major Producers Facing Challenges: Brazil and Vietnam, responsible for a large share of global coffee production, are experiencing lower yields due to weather conditions and harvest quality issues.
- Geopolitical Factors: Disruptions in trade routes, such as those caused by Middle East conflicts, have further strained the coffee supply chain, driving up costs.
- Changing Consumer Expectations: As prices rise, consumers may need to reconsider what they expect for a $5 cup of coffee and the value they receive in return.
- Sustainability of Cafes: For cafes to survive, they need to adjust their pricing to reflect increasing costs in labor, rent, and coffee supplies.
Links relevant to the conversation
Our previous conversation with Raihaan, “The Future of Coffee: Climate Change & Rising Prices w/ Raihaan Esat, International Coffee Traders – EP217”:
Raihaan’s slide explaining factors driving up coffee prices:
https://drive.google.com/file/d/1JAhmCl_TmfSoWRkh9wF9fDFU395mPnyL/view?usp=sharing
Chart of the green coffee price:
https://drive.google.com/file/d/1qnX28VagJ3FtD40JntMujADsNKI-NhBs/view?usp=sharing
International Coffee Traders at the Coffee Commune:
https://www.coffeecommune.com.au/international-coffee-traders
ABC News article “Coffee prices hit record high after bad weather”:
https://www.abc.net.au/news/2024-12-11/coffee-prices-hit-record-high-after-bad-weather/104711708
Greensquare coffee roaster app:
Lumo Coffee promotion
10% of Lumo Coffee’s Seriously Healthy Organic Coffee.
Website: https://www.lumocoffee.com/10EXPLORED
Promo code: 10EXPLORED
Transcript: Is DeFi the Future of Finance? Exploring VirtuSwap’s Vision w/ Prof. Evgeny Lyandres – EP262
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:05
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene, Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the program. It’s the 20th of December, 2024 we’re rapidly approaching Christmas, and I’m here today at the coffee commune with my occasional co host, Tim. Hughes, Tim, good to have you on the show again. Good to be here. Thanks. Gene, yes, and we’re catching up with Ray at from international coffee traders at the coffee commune. So, Ray, good to have you back on the show. So good to be back. Excellent. Ray, so there’s been a bit of news regarding the coffee market. We’ve seen stories about how coffee prices have spiked. Can you tell us a bit about what’s happening in the market? Please?
Raihaan Esat 01:17
Yeah. I think in the last episode we recorded, I made some predictions, and I said, Oh, you know, the coffee market could go one or two ways. Things could get very, very, very expensive, or things could level out and flatten out and become more stable. Turns out, things got very, very, very, very expensive. Yeah. So, you know, there’s a huge amount of reasons, and I hope, hope we can tackle some of those things today in the podcast on why the coffee market has become so expensive, especially around green coffee, which is the input source for so many roasters who roast the green coffee, produce it into drink, produce it into roasted coffee, send it to cafes, who then produce it into drinks. But it starts as at the raw material, at the source. Okay,
Gene Tunny 01:59
so in terms of very expensive what are we talking about in price terms? Okay.
Raihaan Esat 02:04
So in a nutshell, coffee is traded on an exchange in us, dollars per pound, and roasters need to buy coffee based on the market rate at the time. Yeah. So historically, the market used to change no more than a couple of cents a week, you wouldn’t see that much volatility. Coffee prices were relatively stable. Then after COVID, things got a bit more volatile. But in the last 12 months, coffee has increased something like 78% we’re talking about green coffee here. The input that goes into roasters, 78% price increase in the market. That’s massive over 12 months. And that’s not something that a business can just absorb. It has to get passed on down the chain, down the supply chain, and eventually into cafes. So eventually you’ll see cups of coffee prices increasing quite substantially. And everyone’s kind of worried about it. You know, there’s a lot of talk in the media about we’re not willing to pay more than $5 for a cup of coffee, that sort of thing. That’s a value discussion that we can get into a bit later. But, you know, it’s unsustainable for businesses to continue charging what they’ve been charging up until now. Things have to move down the chain. You know, because the supply chain costs. The value increases through every step it’s it gets passed on. And it’s not just green coffee that’s gone up. Gas and electricity has gone up. Everyone’s feeling it, on water, on wages, on every single other input cost that goes into manufacturing coffee. It’s not just green coffee,
Gene Tunny 03:40
yeah, just on that, on the $5 coffees. I mean, I guess I’m paying that already at quite a few places, but yeah, I guess there is that sensitivity to the price of it. Maybe there are some places out I’m wondering what we won’t name any particular cafes, but I’m just just thinking, because a lot of Yeah, the coffee prices have started to rise already, haven’t they? I mean, we’re Yeah, I think
Raihaan Esat 04:03
so. I think we need to start asking a different kind of question here. Rather than asking, uh, you know, is $5 too much for a cup of coffee, we need to ask, if you’re gonna pay above $5 for a cup of coffee, what do you expect to get for it? Yeah, right, if you’re gonna pay six or $7 for a cup of coffee. What do you expect to get for it? Yeah, in return, what’s going to make it a valuable transaction to you? I’m sure we can find some sort of trade where you’re willing to sec to pay $7 for a cup of coffee, but what? What are you willing to going to receive in return? Yeah, are you going to receive incredible service. Are you going to have a barista that remembers your name and says hello to you joyfully the next time that he sees you? Are you going to have a very, very, very delicious cup of coffee? Are you going to have something that’s a little bit more premium in feeling? Is the paper cup going to be the cheapest paper cup on the planet, or is. Going to be something a little bit more substantial, something that feels nice to drink out of, is the environment that you step into, welcoming and friendly. I think all of these things contribute to how good a cup of coffee tastes and what it’s worth. So that’s
Tim Hughes 05:15
very much the experience, rather than just the coffee and the price of a coffee bean, it’s
Raihaan Esat 05:19
high value as well. How do you put a price on, you know, the atmosphere in the cafe, but it’s something that contributes to your perception of value. Yeah,
Tim Hughes 05:29
that’s a it’s a good point, because not every, I think we’ve all experienced that. When we go into a place where you don’t get that, and you don’t get a great coffee, and you don’t get any kind of experience, and then you go to somewhere, like we went to this morning, yeah, and the coffee we had, we remarked on it. It was so good here at the coffee commune, I’m gonna say it, you know, like, and it was a special blend that was put together for Christmas. It had shortbread in it. We tasted it. I could taste whiskey in it, yeah, which there wasn’t, but I could taste it. So it was that thing. It was an experience. It was beyond a coffee.
Gene Tunny 06:05
That was the taste of shortbread. It didn’t actually, literally have shortbread in it. Did it? No, no,
06:10
no. But that’s the thing. Like it was all
Raihaan Esat 06:12
done through the experience, right? That’s exactly right, yeah, yeah. And I’m not going to argue that cheap coffee shouldn’t exist. I think Cheap Coffee definitely has a place. It’s just the the the arbitrage, the the gulf between cheap coffee and expensive coffee will get wider and wider. And I think anything in the middle is probably gonna gonna need to rearrange themselves or reevaluate their business and figure out, do they want to be budget coffee or do they want to be experienced coffee? Yeah.
Gene Tunny 06:39
Yeah, exactly. Okay, Ray, we might get on to I want to ask you about the drivers of the price increase, but before we get there, Tim, do you have any follow on questions for Ray after that? No,
Tim Hughes 06:54
it’s funny, because I think we get hung up on price all the time. Yeah, but it’s absolutely, I absolutely I absolutely agree that the experience of whatever it is you’re having, and you see it in cinemas as well, like I think of cinemas often with these comparisons, the experience at a cinema is very different from one place to another. Yeah, the film’s the same, but the experience is different. And so, yeah, you can put that over to many different industries, but especially when it comes to coffee, going beyond just the price, how else can it be better and a different or better experience?
Raihaan Esat 07:26
Okay, so we’re going to get stuck into some green coffee talk, right? I
Gene Tunny 07:29
think so. So you, you did a presentation recently which itemized or identified, I think it’s nine different drivers of the price increase. Can you tell us a bit about what was that presentation? And then if we could, if you could tell us what you think the the drivers are, and I guess you know what the most significant ones are in your view. I know it can be hard to
Raihaan Esat 07:53
Okay, yeah, but So in a nutshell, the last 12 months have been a roller coaster for everyone in the industry. And my role has not just been to source coffee, but also to help educate roasters and understand what’s going on in the market so that they can make informed and educated decisions for their business in the future. So some of the drivers, some of the fundamental things that are affecting Green Coffee pricing, and I’ll just run through them really quickly, and then we can go deeper into them and talk about them one by one. But first of all, like I said, 78% cost increase on raw materials, green coffee, the base price, has gone up by that much, 78% and some of the factors that contribute to that, the two main producers, this is number one, the two main producers, Brazil and Vietnam, they produce close to 60% of the world’s coffee production. It’s massive how much they contribute to the world’s coffee they’re looking ahead to the 2025, harvest season, and they’ve said our harvest is not going to be that great. So there’s some speculation about the quantity of coffee that’s going to be available in 2025 second, you’ve got two main types of coffee. You got Arabica and you’ve got Robusta. Now, generally, there’s been an arbitrage between the two. Robusta is usually the cheaper option. Arabica is the more expensive option. But when you’ve gotten got a when you’ve got a shortage on the cheaper option, what happens? All the supply shifts back to the more expensive option, the Arabica, and vice versa. So you’ve had a couple of shifts towards Robusta and back towards Arabica through the year, which has created a lot of volatility, right?
Gene Tunny 09:38
Can I just ask you about that, in terms of that substitution, what’s the degree to which that can occur? I mean, is it within a certain Is it is it bounded? Or is it just or could it be 100% could you just shift completely, 100% from one to the other, the
Raihaan Esat 09:56
way I look at it? Okay, so everything is an ingredient, like a chef. Would a chef would choose the mushrooms for his pasta, right? Okay, yeah, I can’t get field mushrooms today, but tomorrow I can get Swiss mushrooms. Okay, right? There is a degree of substitution that you can do, yeah, but there is an impact. A Swiss mushroom doesn’t taste like a mushroom. Yes, it’s a little bit different. So there, there are some of those things to manage in the process, but there’s no reason why you couldn’t, from a purely fundamental point of view, right? Okay, interesting. Other things that have been affecting the Green Market, US politics. We’ve got President Donald Trump is has just been elected and is going to take office in the new year. So his promise has been to strengthen the US economy. How does that affect us in Australia and other countries around the world, while a strong US economy strengthens the US dollar, so we’re going to be seeing some effects based on transactions that have to happen. Coffee has to be financed, it has to be transported around the world. So you’re gonna, you’ve got, you’ve got effects from that decision by the US to elect President
Gene Tunny 11:03
Trump, and you’re buying coffee in US dollars, aren’t you? You have to, yeah, you have to. The contracts are written in US dollars, yeah, gotcha
Tim Hughes 11:10
on that note, because I know that he’s made a point about talking about tariffs as being his favorite word, and there’s a small question about how that affects the consumer, as to whether that actually makes it more expensive for somebody in America or not. So I’m putting that to Eugene, I guess yes, you How does is that a thing that the tariffs can ultimately make it more expensive for a US consumer? Yes,
Gene Tunny 11:34
because it’s the tariff is essentially a tax on, well, it’s a tax on imports and so, yeah, it’s passed on to local consumers or businesses. I mean, I think one, one of the problems is it’s going to impact both consumers and businesses, because they’ll face higher input costs. That’s why I think some of the people in the market expect that a lot of us is just tough talk from Trump, and he won’t go through as much as as he’s threatened, because, you know, ultimately, it will be counterproductive if they do this like, I think the markets are hoping that this is some type of negotiating tactic with China to get them to make some concessions, but who knows? Yeah, but it’ll definitely cost consumers. Yeah, it seems
Tim Hughes 12:17
to be a little bit more complicated than it would initially appear, where tariffs, you would imagine, is going to be to the expense of whoever is exporting to the US. But it’s not necessarily the case. Well, the
Gene Tunny 12:28
Tariffs applied when the at the when it’s imported, right? So it’s applied at the by the, you know, on the imports into the US, yeah,
Raihaan Esat 12:37
the producer doesn’t wear the cost of that. It’s the importer that weighs the cost of that and has to pass it on to to the to the next level,
Gene Tunny 12:44
yeah, I mean the so the producers in China could be it affected to the extent there’s an impact on the demand for their product, right? So, and maybe they have to discount to some extent to to compensate for the the tariff in the other country. Like there could be some impact, but the major impacts going to be on the consumers in in that country? Yeah, so that’s why, I don’t know how many dozens of economists, like prominent economists, came out critical of of Trump’s tariff plan, and the only argument you can make in favor of it is it’s some sort of strategic strategy. It’s a it’s a negotiating position to try and get some concessions from China. So it
Tim Hughes 13:23
would help American companies who for any products that can be produced in America. There’s an advantage given homegrown stuff, but where all those imports clearly, there’s not enough coffee being grown in America. In
Raihaan Esat 13:36
the context of coffee, and you’d expect these tariffs would protect a local industry. There’s not a lot of coffee grown in America. There’s nothing to protect. Everything has to get imported. Are they going to risk? You know, tariffing coffee, which is, which is 98% imported from overseas, yeah.
Gene Tunny 13:53
But if you know, and China’s not exporting coffee the US, is it all so?
Raihaan Esat 13:58
Well, China is an emerging origin. At the moment, they are producing a heck of a lot of coffee. The government is investing massive amounts into improving the networks, the processing facilities, everything around coffee production, to increase the amount of coffee that China produces in green form. So that could be a target for Donald Trump, if he specifically wants to target China, but that just means it’s got more coffee available for us, right?
Tim Hughes 14:25
Because China’s coffee consumption per capita has increased somewhat, yeah,
Raihaan Esat 14:30
massively, massively. Actually, this is another, another major factor that’s happened this year is the China’s very, very strongly growing in coffee consumption. They’re traditionally a tea drinking company. Country. However, we see brands like luck and coffee and Starbucks expanding very aggressively. And in fact, there’s been a deal done between luck and coffee and the Brazilian producers to to purchase. $1.4 billion worth of coffee from Brazil in the next harvest. So they’ve already contracted a huge quantity of coffee that hasn’t even been produced yet. Yeah, that’s what they’re expecting to need. That’s what they’re expecting to use. Now, the way that that affects us is, you know, we can’t access that coffee. That’s coffee going to China. That’s coffee off the market now. So there’s technically a shortage of Brazilian coffee for the rest of the world. Gotcha,
Gene Tunny 15:32
this is probably something that you probably don’t, you probably can’t answer. But you know, like, How significant is that as a share of the total market? I mean, 1.4 billion sounds like a lot of money, but a billion dollars doesn’t go as far as it once did. You know what I mean. So that’s a big global market, so look,
Raihaan Esat 15:51
it’s significant enough that everyone is worried. Okay, you know it’s enough to cause a stir in the market, because there’s a significant quantity of coffee behind that. And it’s an indication, more than anything else, that this is the direction that China is going in. They are willing to pre contract huge amounts of coffee well in advance and take it off the market. So, you know, if that’s their move this year, what’s the move in? 2026 going to be 2027 2028 right? So, so there’s a bit of forward thinking going on here that, geez, China’s Making Moves. You know, we should be thinking that far ahead as well. Should we be contracting that far ahead? Maybe we should,
Gene Tunny 16:30
yeah, well, I mean, so there’s a scramble, yeah, by you, you mean maybe we should, you talk, you’re talking about international coffee traders here, yeah, yeah, gotcha, yeah.
Raihaan Esat 16:38
But I’m not the only one thinking like that. There’s, there’s many traders and importers also starting to think like that and going. It’s creating a bit of a scramble to go, oh, well, okay, that coffee’s off the market. I better secure mine now. So we have this inflated demand for Brazilian coffee that’s been caused by this China deal,
Gene Tunny 16:58
right? Okay, very interesting. How
Tim Hughes 17:01
far ahead do people normally do those kind of deals? Like, is it like a six to 12 month sort of, you know, foresight, or is that now being extended to to longer periods with what’s happening with China? Yeah,
Raihaan Esat 17:13
generally, generally, you can, you can contract out, you know, something for next season. Producers generally don’t offer anything past that. So if the next harvest is coming up, for example, in February March, they’ll they’ll say, okay, you know, we’re expecting to produce this amount of coffee in February or March next year. We can start taking contracts against that now, you know, pair that up with what I just said previously, where Brazil and Vietnam both both forecast a lower production than expected. That creates a situation where there’s an increased demand and an expected shortage in supply. And so the price effects are crazy, because everything is so sensitive, because everyone is speculating. There’s people wondering, are we going to get our coffee? Are we not secure it now, even if it’s a high price, there’s other people sitting on their hands going, price will come back down. This is short term wait. And then they can’t wait any longer, and then they buy at a high, even higher price, yeah. So there’s this huge speculative effect that’s also feeding the volatility in the market, right? It’s, it’s really, I mean, if I was, if I had a box of popcorn and I could just sit back and watch it, it’d be very entertaining, but I’m in the middle of it, and it’s, uh, can get kind of stressful sometimes. Yeah,
Gene Tunny 18:38
it’s fascinating market dynamics. I mean, one thing I learned when we said, sat down earlier for a coffee, you’ve got a platform. Maybe we talked about it last time we caught up, but you’ve got a there’s an online platform where you do these trades, where you got all the data on the market. And what’s that platform called? Again,
Raihaan Esat 18:54
there’s a few different ones I use. You can look at just the basic C market. You can look at that on almost any trading platform that that that gives you data on any commodities like gold, silver, zinc, wheat, cotton, they’ll usually list coffee as well, yeah. But I have a platform that we look at called green square. It’s it gives us up to date data, all that every day. But there’s some other functionality that’s useful for us as well.
Gene Tunny 19:26
Good. One, okay, so we’ve have we covered one or two factors so far. What we covered, the demand, the shock to was it one, Brazil and three. I think we’ve got three. Rough three. Okay, okay, yeah. What else is
Raihaan Esat 19:41
there to mention here? There’s quality concerns over the next, next harvest in a number of countries, all because of these high prices. So I was just in China recently looking at some coffee farms there and connecting with some new producers. And one of the, one of the guys I spoke to, he said, You know, there’s, there’s some high pricing. Right now, farmers are very excited by it. They are getting paid higher prices for their coffee, but the result is they’re not sure if the high prices are going to last, so they’re just picking everything. They are harvesting coffees that should not be harvested yet. They’re not ripe, or they’re taking coffee that’s overripe and that’s outside of the acceptable quality, because they can get money for it. Yeah. So the quality is a little bit all over the place. Having said that, the way that they’re picking as well is that they’re just stripping coffee off the trees. In some cases, that affects the tree for next season, that tree will not produce the same amount of coffee next year, if it’s harvested incorrectly, if it’s basically just, you know, stripped of all of its coffee,
Gene Tunny 20:47
right? What’s the correct way to harvest? Well,
Raihaan Esat 20:50
I spoke to a farmer about this, and, you know, he said, When the coffee is ripe, if you’ve ever seen a coffee cherry before, it’s a red cherry. It’s beautiful. It looks delicious. You’ve got to grab it, you’ve got to pinch it, and you’ve got to twist it, and that breaks it clean, and that doesn’t do any damage to the branch on which it’s growing. If you damage the branch, like if you pull it and you strip some of the bark away, that area will not produce coffee again.
Gene Tunny 21:19
Yeah, that makes sense. So you know, it’s
Raihaan Esat 21:21
not just an impact now, but there’s an impact down the line of how you harvest that ensures whether you’ll get a good harvest next year or not. Yeah. So the short term thinking is, look, I can get a high price for my coffee now, get everything off the tree as quickly as possible. But the long term effect is, next year you’re not going to get as much coffee. Yeah, okay, that all makes sense, yeah. So you’re affecting next year’s supply, and I think there is some understanding in the market right now that next year’s harvest is not going to be quite as good. There are going to be some effects because of that, and people are willing to pay a higher price now to ensure that they get coffee, and to some degree, even stockpile coffee to see them through some part of next year, right?
Gene Tunny 22:04
So, yeah, everyone’s concerned. And I mean, how are we? How’s ICT? I mean, you guys, fine, you’ve got to talk about it. If it’s okay. If it’s
Raihaan Esat 22:12
No, I can’t. I can’t personally confident. There’s some things I can’t say, but some things I could definitely can say. ICT works on both sides. We work with producers and we work with roasters. Yeah. So, you know, traditionally, a trader will bring coffee into Australia, have it in their warehouse and say to a roaster, right, here’s 20 different coffees that I have available, right? Choose what you want, and this is the price. Yeah, that’s the traditional coffee trading model. ICT is a little bit different. We we go to our clients and we go, what do you want? We’re gonna go find it for you. Give us your price parameters. Give us you give us your idea for what you want, for flavor, what you want for quality, and let’s see if I can find that for you. If I can’t find that, let me, let let us take our knowledge of coffee, our understanding of roasting, our understanding of production and operations, and give you some good alternatives. Yeah, so even though you’re asking us for organic certified Peruvian coffee, you know that that has a high triple A antioxidant, high antioxidant content. Thank you very If I can’t, you know, if I can’t find that for you, I’m going to bring you three alternatives. One might be from Ecuador, one might be from Uganda, one might be from Siberia. I have no idea what I’m going to find, but unless I go looking, I don’t know what I’m going to come up with. Yeah. So we’re okay, from that perspective, because the coffee is pre sold already that we’re selling in the market. You know, we agree on a price, we agree on terms and conditions and everything before we sell the coffee, before we even bring the coffee into Australia. Yeah. So everything is kind of pre, pre agreed. Of course, all the volatility in the market makes those discussions a lot more difficult, but that’s why we do things like this? We put out a lot of media. We have discussions one on one with our clients to say, Hey, this is the situation on the ground. So you can make informed decisions for your business. Here are our recommendations. But we’re not the only people with knowledge out there. Go and do some research, find out, get other quotes from other traders, and you know, see what’s the best option for your business. But
Gene Tunny 24:22
so in terms of your clients, teams, one of your your clients, is that correct? Tim, a client of ICT. Yeah.
Tim Hughes 24:27
So I just want to explain. ICT is International Coffee traders, for those who don’t know, and based here in Brisbane. So it was through these guys that I was able to launch my coffee business, Lumo coffee. So, so yes, essentially, and that whole process that Ray just described was what we went through. And because it was such a specific brief, I was able to use the connections that Ray had had built over the years, and no way I could have done that on my own. And the and what they do here with the ray. Interesting as well. So the all of those connections. It’s a very complex business like I guess many businesses are, when you get into the nuts and bolts of it, but it just shows how those relationships that are built, and the dependency on the weather, the global economies, local economies, whether all of these things that we’re talking about now. It’s fascinating to see it play out. What goes on to get a cup of coffee in front of us. Yeah,
Gene Tunny 25:28
have you been impacted by the rising prices this year? Not
Tim Hughes 25:31
yet. So this, and this is one of the things, because this is normally six to 12 months out, so it’s a conversation we get to have when
Raihaan Esat 25:38
Tim’s coffee runs out. Yes, he will be impacted, but we’ve got foresight on that. You know, Tim. Tim knew what his price was going to be for the stock that he secured. And you know we’re holding that stock for him. It means that he knows exactly what his price is going to be. And guess what? When it when we’re running at, say, 25% of what’s left, when we know we’re at that level, 25% of stock remaining, we can go, Tim, this is your replacement cost for the same coffee. Gotcha. So you can make some decisions for your business.
Gene Tunny 26:07
Oh, that’s very good. And
Tim Hughes 26:08
that’s also the nature of I knew that at the time, whenever you get a supply of something like this, it’s not necessarily going to be there forever. You go with you have to be flexible. And we spoke about that at the time. You know that there’s, there are comparisons that you can draw with other ones. We’d have to test it because of the nature of what we do with the high antioxidants. So we need to find something that’s as good as, if not better, but that’s, we sort of knew that was likely to happen. So that’s always been part of the plan is to have contingencies and other options open and so, yeah, they’ll get explored if our supply gets impacted in any way,
Raihaan Esat 26:48
right? Yeah, I think we take it for granted that coffee is an organic product. It’s it’s an agricultural product. It’s something that’s grown on a tree. It has to be harvested. It’s not available all year round. It is seasonal, you know, and it’s something that has to be grown, harvested, produced, processed, dried, shipped halfway around the world, roasted, turned into a beverage and then served in a cafe. There is a huge supply chain behind getting a cup of coffee to a consumer at the end of the day. So, you know, the more that we can understand the supply chain and the pressures behind it, the more that we can do better, better business. You know, on both sides, we need the farmers to be sustainable. We need to be sustainable, the roasters need to be sustainable, and then the cafes need to be sustainable as well. You can’t have too much pressure on the supply chain in one spot, otherwise, things start to break. Yeah,
Gene Tunny 27:41
yeah, absolutely. Okay. It’s been a lot of pressure lately, that’s for sure. So Ray, so far, we’ve covered the harvest there. They weren’t what was expected. So that’s been an impact. We’ve we’ve covered quality issues. We’ve covered, uh, yeah. Buyers get it all, you know, the the traders getting ahead of the trying to get ahead of the market. They’re worried that price will be, will be higher later on, so they’re trying to secure supplies now. Or they’re worried about, yeah, they’re worried about the availability later on. What else is there that we, that we should, that you should mention, I
Raihaan Esat 28:14
think, since we’ve been talking about farms and talking about farmers and producing countries, there is an under undercurrent of producers are starting to understand that they can affect the global market. They, in the past, were kind of held to the bodies in their in their governments, or in their local areas, just sort of dictating prices. But producers are starting to understand now that if they withhold stock, they can drive the price up. Withholding supply into the market means that they create an artificial shortage, and the price will naturally increase as a result of that. So we’re starting to see traders all around the world, or sort of like producers all around the world starting to go withhold coffee if they feel like the market can move up, and then they sell coffee at the right times. They’re not just selling everything all at once. So So do
Gene Tunny 29:11
you is this? Is this coordinated? Is it? Are you saying there’s some sort of cartel like behavior in the coffee market? I
Raihaan Esat 29:17
don’t. Wouldn’t go so far to say it’s a cartel like behavior, but something like a communal behavior, there is an understanding, because the coffee producers are moving into a new generation now, okay, traditionally, you know, coffee producers were families that have had farms in their family for, you know, two, three generations, and It was just something they did. But the new generation, of coffee producers, they’ve been educated, they’ve gone to Europe, they’ve traveled the world. They’ve, you know, seen how business gets done, and they’re going back to their home countries and going, we have this coffee farm that’s capable of so much we can produce coffee, and it’s very good coffee. And. Let’s get what it’s what it’s actually worth,
Gene Tunny 30:02
yeah, which is fair enough. And so I mean that. So I’m just trying to understand to what extent, because economists are generally fairly skeptical of of of cartels. Cartels are very difficult to to enforce and to keep everyone, uh, cooperating, because there’s always an incentive to cheat, to go behind the back of the cartel. And, yeah, try and undercut the cartel. And so that’s why, you know, OPEC, historically is sort of waxed and waned in effectiveness. And yeah, so I’m just wondering to what extent there’s an actual genuine collusion or a cartel, because, because otherwise it’s hard to see how that could I mean, it’s an interesting hypothesis. I just have to think more about how that could work in what I
Raihaan Esat 30:45
should just preface this by saying that coffee actually has been too cheap for too long. Okay, and we’re suffering the effects of that now, coffee is probably back where it’s supposed to be. This is, this is a more sustainable price for the entire supply chain where we’re at now, it was just too cheap for too long. If you look at some of the historical data, coffee has had these spikes of volatility through its life. But then from the same mid 90s right up until the mid 2000s coffee price was actually going down, and it was getting cheaper and cheaper and cheaper a green coffee price, and that was because producers didn’t know the value, the actual value, of their coffee. Roasters were demanding cheaper and cheaper coffee. There was a lot of pressure put on the supply chain to deliver cheaper and cheaper products, but that was becoming very unsustainable, especially on the producer side, and now, because of this volatility, now we’re paying what we actually think the coffee is worth, but it’s a shock to the system, because it’s coming, because it’s come all at once, yeah, if it had happened gradually over the last 15 years, you know, this sort of price increase, we wouldn’t even have felt it. Yeah,
Gene Tunny 31:58
yeah. Gotcha. Gotcha. Okay, so what does
Tim Hughes 32:01
this look like by the time it gets to a cafe like so coffee’s sold in cafes underpriced, in your view, right?
Raihaan Esat 32:10
So I think cafes are where it’s going to hurt the pockets of the consumer the most, right? Because that’s where the consumers go, and that’s where they feel the effects of any price increases through the supply chain, cafes traditionally have also behaved like the supply chain, where they’ve just gone. We’ll bear it. We’ll bear it. We’ll bear the cost of labor increase. We’ll bear the rent increase. They’re not passing it. Haven’t passed it on well enough. So you know, if you think back 10 years ago, how much was a coffee? 350, $4 yeah, 10 years ago, yeah. And what is it now? Maybe $5 yeah. So $1 increase over 10 years. That’s nowhere near keeping up with CPI, with inflation, with interest rates, with everything that’s happened over the last 10 years on cost increase. So you know, cafes need to move their prices along with price increases, not just with green coffee from their roasters, but you know, the on all the input costs, actually, the biggest cost to a cafe right now is rent, not rent. Apologies, labor, yeah, especially in Australia. In other countries, probably not so much. But in Australia, most cafes would be running at least 45% labor. Yeah? Well,
Gene Tunny 33:21
yeah, yeah, yeah. Actually,
Tim Hughes 33:24
there was an interesting there was a good article in the ABC recently, Australian Broadcasting Corporation, for those in America,
Raihaan Esat 33:31
yeah, I think that article that you’re referring to actually showed labor at about 35% is on the low side. Yeah,
Tim Hughes 33:38
that’s what Gene said exactly that he thought that was lower, but I was interested to see, and if this sounds about right to you, so they had the coffee at around 11% and milk around the same. In fact, milk was a little bit more. And so we were talking before earlier, about just that. And the with milk, it’s including soy all the alternatives, which, of course, are a lot more expensive than regular milk, but that has a significant contribution towards a coffee price as well. So we were talking in the you know, for instance, if people just had espresso or long black, short blacks, basically anything without additives, that’s fundamentally a cheaper coffee for them to drink and for a cafe to produce. Do you think that might be reflected in how the pricing is changed in the future, with cafes to really reflect that in someone who’s having a grand day with, you know, almond milk,
Raihaan Esat 34:34
if you just drink black coffee, it’s definitely the one with the least amount of inputs into it. There’s still the labor, there’s still the rent, there’s still the cup to wash afterwards. Someone’s got to do all of that. But there’s no milk. There’s no extra syrups or any additives to it to make it more expensive. So if you’re looking purely from an economical way of drinking coffee, yeah, probably, probably black coffee. Is the way to go. But at the same time, am I going to encourage people to to give up their cappuccinos and start drinking black coffee? Probably not, because if you went to a restaurant, would you say, oh, you know, it’s cheaper for you to get the burger patty without the bun and the lettuce.
Tim Hughes 35:18
Yeah, I would do that. I would do that, but not everyone would not for the price just to not eat the bread. Yeah, I’m hearing it. I’m hearing it, yeah.
Raihaan Esat 35:26
So, you know, there’s that discussion to have on consumer preference. And I think with all of these rising prices, consumer behavior is something that’s very interesting to observe. You know, people making decisions on value now and really considering where they spend their money, how they spend their dollars, whether it’s on the production side, whether it’s on the cafe side. You know, we’re going to see some interesting observations. And the thing that I have about, I mean, I studied economics at university. I love economics, and it’s a big part of what I do. And the thing about supply and demand is that it assumes everyone is logical. And when have you ever met a logical human being? So that’s the that’s the only thing that like that that comes into preference, that comes into how consumers behave, how people behave based on emotion rather than logic, because that’s a decision making process. Sometimes emotion matters, and that’s one thing that, you know, it’s hard to measure.
Gene Tunny 36:29
Yeah. I mean, we like to think that markets tend back towards more rational outcomes over time, that there is an incentive to be rational, right? So you’ll go out of business if you’re irrational, or you’ll you’ll suffer if you’re irrational. So there’s a, there is a strong incentive for people to to act rationally and eventually or figure things out. But yeah, the markets can be markets, collectively can be irrational. And I guess that does reflect some irrational behavior. There’s a famous quote, was it? John Maynard Keynes, it was someone who said that the market can remain irrational longer than you can remain solvent, which is just a reminder that, yeah, you can have some outcomes that look a bit a bit irrational. Oh, well,
Raihaan Esat 37:14
I’m going to say that if the market is behaving in an irrational way, yeah, the best decision to make is an irrational decision, because it’s consistent with the market, right? If you’re making rational decisions in an irrational, behaving system, you’re almost fighting against a grain. You’re making a risky decision there, because you’re assuming it’s going to behave logic, yeah, yeah.
Gene Tunny 37:39
I guess there’s a bit of insurance too. So a lot of people are trying to take out insurance against things being worse in the future, the shortage in the future. So they’re scrambling to get get coffee now, yeah, that’s right,
Raihaan Esat 37:50
but the decisions are not based on logical reasons. The decisions are risk aversion,
Gene Tunny 37:55
yeah, yeah, which I guess, you know, maybe that is logical. I mean, if you had perfect foresight, it probably wouldn’t be but I guess we don’t have perfect foresight. So big questions here Ray about about markets and expectations and rationality. That’s
Raihaan Esat 38:11
also sparked a thought in my mind, when you said people are taking insurance by buying more coffee. Now that’s created another pressure on that’s on finance, yeah. So you see, not just not just us, not just small businesses, but even very large traders are starting to have financial difficulties right now, because in a market where the price of coffee has nearly doubled in 12 months, how do you finance that you know when you when you’ve got a Finance Facility of let’s just pick an arbitrary number here. If you’ve got ten million a year to spend on coffee, and the price of coffee doubles, your ten million doesn’t go as far as it used to last year. So how do you fund the coffee that you need when banks, financial institutions, prefer to lend on your balance sheet rather than on your stock holding, yeah, or on your stock requirements, yeah, yeah. There’s some really difficult situations that businesses are facing now when it comes to funding their coffee, because you need to buy your product before you’ve sold it. In most cases, you’ve got to buy it, get it here, into Australia, and then sell it. So you only get your money back after you’ve sold it, and sometimes that can be three to six months later,
Gene Tunny 39:26
right? Okay, so is this something that’s increasing the costs of to the Yeah, the producers. Is
Raihaan Esat 39:33
it? Well, the, it’s not so much the cost to the producer. It’s a cost now on the on the roasters side, roaster Yeah, yeah, the roast the roasters. The Coffee Roasters have to spend more on their coffee because they’ve got to finance it for longer terms. There’s a risk that they may not get it next year. So they’ve got to buy more coffee and hold it for longer Yeah, you’ve got store, extra storage costs now, yeah, to you know which increases the cost of your coffee and. And, you know, the finance rates haven’t been cheap lately. You know, think back to the to the mid 2000s the finance was quite cheap, but then interest rates went up and up and up and up to try to control Fla inflation. And that was, you know, that was monetary policy from the government side. They wanted to control inflation. Interest rates were going up. That’s the tool that they’ve got. But how that affects us? We are importers in Australia. Australia imports, not just coffee, but so many things, all of that has to be under finance that contributes to the increasing costs. So, you know, while it’s not a fundamental supply and demand sort of discussion on finance, it affects the price to the end consumer, because it’s an add on cost. Yeah, it’s important
Gene Tunny 40:47
to consider. It’s something you’re, you’re, you’re obviously dealing with, I think, in terms of the storage. I mean, you guys here, you’ve got those big silos downstairs, haven’t you? Yeah, that you can stick the,
Raihaan Esat 40:58
yeah, we store coffee. We store coffee here, but that we burn through that in no time. That’s only temporary. What we have downstairs in the silos, two ton silos. It’s probably only about a week supply. Okay? We have a warehouse over near the near the port that has a couple of 100 tons waiting, waiting to get pulled in and used. So we are holding enough stock, and we’ve got enough stock on the water to see through the contracts and see through our see through our clients for the next 12 months. Not everyone is in that position.
Gene Tunny 41:30
That’s impressive. I didn’t realize that. I mean, I guess I hadn’t thought about it in any great death, but that the amount of throughput you’re talking about is massive. So is this, I guess, I guess, compared with say, say, NES cafe or something up at Gympie or whatever, you’re smaller, but you’re still significant in terms of, where are you in the tunnel?
Raihaan Esat 41:53
We are international coffee traders. Is a very small coffee trader. In the grand scheme of things, there are many much larger coffee trading businesses in Australia. Okay? Last year, I’ll give you some numbers. Last year, we bought and imported something like containers, 20 tons of coffee, and we did about 30 containers, source, that’s 600 tons of coffee into Australia. That’s tiny in the grand scheme of things. What that makes in terms of, if you did the numbers, it, how many coffees could you make with 600 tons of green coffee, something like 1.9 million cups of coffee? Yeah, okay, okay. But the in Australia, 1.9 million cups of coffee. That’s not even a day, yeah? Days for assumption for the whole of Australia,
Gene Tunny 42:40
yeah, yeah, yeah. That’s right, yeah. I think I’ve seen stats like that somewhere. I’ll have to dig them up and put them in the show notes. I think Arturo, who works in my business, did an article on that. But, yeah, that’s interesting to think about it that way. It’s still impressive, like thinking about that many tons of coffee flowing through coffee commune that’s amazing, or ICT that you’re handling, yeah,
Raihaan Esat 43:02
look, ICT supplies green beans, not just a coffee commune, but to many roasters around Australia, right?
Gene Tunny 43:09
Gotcha. Yeah, extraordinary. Too many questions. No,
Tim Hughes 43:15
actually, I did have a thought, just going back slightly, because with coffee, for instance, like it is, you know, for instance, the emotional attachment that we have to coffee. You know, when you catch up with someone for a coffee, it’s never just to sit there and drink a coffee. It’s what comes with that where, whether it’s business, personal, whatever. So it’s this thing, of like, it’s, we have an emotional attachment to this product that is beyond just the drink itself, you know, it represents an opportunity to catch up with other people and exchange so that’s part of the experience that we attach with coffee, you know? So, yeah, it’s an interesting product to be talking about because it’s part of our DNA now, and especially over the last 20 years. For instance, living in Brisbane, I’ve seen that change in somewhere like Brisbane. There are certainly parts of the UK where that hasn’t happened, and you can imagine it happening. I’m sure it’s happening in the bigger cities, but out in the sticks where I come from, it hasn’t transferred it to be the same kind of cultural sort of norm coffee and tea and beer rather would have those but certainly not coffee yet.
Gene Tunny 44:21
Yeah,
Raihaan Esat 44:22
yeah. I’ve always wrestled with this, with this idea of coffee, because on one level, coffee is a commodity, just like other commodities, just like wheat and cotton and soya beans and products like that. And I don’t have the same attachment to those products yet. Wheat we consume every day, if you eat bread, and cotton is on all your clothing. And you know, coffee is lumped into commodities, just like those things, and it’s traded as commodities, just like those things, but we have such a deep emotional attachment to it, yeah, and even the people that don’t drink coffee have an opinion about coffee. Yeah. Up. So everyone’s got something to say about coffee. Well, I
Gene Tunny 45:03
mean, coffee was, you know, there’s a good case to be made that coffee was responsible for the growth of capitalism. I mean, well, essentially, because, you know, it powered all of the, all the business people in London, when all the coffee, the coffee houses opened up. And it was also responsible for the enlightenment, because all
Raihaan Esat 45:21
the coffees were actually called Penny universities, yes, because you could, because of the people that it attracted into the coffee houses, and they would have these high profile discussions. They would have educated debates over cups of coffee. And so people would pay a penny to get a cup of coffee, yeah, and they could be surrounded by these, uh, academics who were discussing, discussing intricate theories and concepts, and it was like going to university. That’s why they started being called Penny universities, exactly.
Gene Tunny 45:49
And didn’t Lloyds of London start out as a coffee house, a coffee house that, right?
Raihaan Esat 45:53
And then it became an in the world’s most well known insurance broker, yeah, yeah. And in fact, a lot of the workers in Lloyds are still called waiters. Is
Gene Tunny 46:02
that right? Yeah, okay, that’s interesting. Love to do a show about Lloyds sometime, yeah, and also the history of coffee, and it’s linked to capitalism and the enlightenment. Because I think I was, yeah, I was basically freestyling a bit there, right? Oh, okay, a couple of things we should pick up on. Tim, you were talking about the costs of a cup of coffee. And I think, did you ask, like, what’s the flow through from this thing? Like, we’re talking about a large increase in green bean prices, the figure, the figures you were quoting. Tim, so 12% of the cost of a cup of coffee is the beans, but that’s roasted beans. So that’s so the actual cost impact of the green beans on the cup of coffee is going to be smaller than that. So if you’re talking like you may have a large increase in the price of green beans, but it might translate into a relatively small increase in the price of a cup of coffee,
Tim Hughes 46:57
but it might eat into considerably the profit per cup, which we were talking about. So part of that, I’ll let you explain this ray in detail, like so if we talk about, say, three main sizes of coffee here in Australia anyway. So would you say the smallest is a six ounce, or is it an eight
Raihaan Esat 47:14
ounce? Yeah, generally, six or eight ounce is a small coffee in Australia. Then we got a 12
Tim Hughes 47:18
ounce and a 16 ounce. So sort of small, medium, large. What would that look like if, because currently you feel they’re underpriced?
Raihaan Esat 47:26
Yeah. Okay, so I’ve done a lot of research on this, and we’ve got about 700 cafes on our network here at the coffee commune. So, you know, we get a lot of data from those cafes on what they’re charging, what consumers are thinking, that sort of thing. There’s two parts to this. The first, first is a question I need to ask. If Green Coffee goes up by $1 Yes, how much does a cup of coffee need to go up by? Yes? Cover it exactly. All right, the answer may shock you. Okay, it’s only about three cents. Yeah.
Gene Tunny 47:55
And I think that makes sense, given what the figures Tim was saying, yeah, yeah. So
Raihaan Esat 47:59
if Green Coffee goes up by $1 the cup of coffee at the end of the line is impacted by about a three cent increase. Yeah, because one kilo of coffee makes about 40 cups of coffee, you know. So the increase gets spread over quite a large quantity. Yeah. Now the problem is those increases haven’t been passed on over the years, and so now there’s a bit of shock in the system, because all of it’s coming all at once, because businesses are failing, and businesses are finding it very difficult to maintain their prices. So you’re finding larger increases being delivered in the market, which don’t really refresh reflect the size of the increase on the green side, also, coffee is only 10 to 15% of the total cost of a cup of coffee. There’s all the other inputs as well. The second thing that Tim mentioned is you’ve got different cup sizes, and I think fundamentally, what the data is showing us is your small coffee, whether that’s a six or eight ounce, is roughly priced around the 480, to $5 mark. Your medium coffee, which is usually a 12 ounce coffee, is something like maybe $1 more, 50 cents to $1 more. So that’s 550, or $6 and then you some cafes even do a larger, large coffee, like a 16 ounce or a 20 ounce. And again, generally they go up by 50 cents to $1 the extra milk, the extra labor, the extra coffee that goes into the larger coffees is not being valued correctly for the most part. And I’d like to see cafes really nail down their costings, and what they’ll see is that their small coffee is the most profitable. Yet the 12 ounce, the medium and the large is what’s most popular. So they’re selling lots of those coffees which are much less profitable than the small coffee. So pricing strategy we’re now getting into behavior you can dry. People to buying the more of the small coffee by increasing the price of the large one. Yeah, right. So you can keep the small one the same, you can actually discount that a little bit, yeah, and offer that as a value option for a cafe, you can say our small coffee is going to be 450 we’re not moving the price, but the big ones we are. Yes,
Gene Tunny 50:20
yeah, that’s interesting. And consumer education, is there a consumer education piece in in that? Do you have to, yeah?
Raihaan Esat 50:27
Look, you need to know how to cost a product. You know? You have to be able to say, right, I buy 1000 lids at this price. What’s one lid cost? Yeah, I buy 1000 cups at this price. What’s one cup cost? When I build my coffee. It’s a lid, plus a cup, plus a shot of coffee, plus milk, plus a person to do it, plus a person to take the money, plus F plus charges, plus, plus, plus, plus, plus. You look at everything that runs your business, all the dollars in, all the dollars out, and you figure out the cost per unit, yeah,
Gene Tunny 51:03
yeah. So much depends on utilization. I was just thinking about this earlier, because if you can, if you can do more coffees an hour, your labor, cost per coffee falls. So yeah. So there may be scope to Yeah, cut, yeah, if you can increase the demand for your product by cutting the price. Yeah, so shifting demand from the larger coffees to the smaller coffees? Yep, and you could end up the company, the business could end up being better off.
Raihaan Esat 51:30
Yeah, you can make more coffees in less time because you’re doing the small ones, not the large ones. Oh, yeah. There’s a lot of lot of additional benefits to this. There’s here’s here’s another thing that that’s always been on my mind, is I, this is a consumer behavior sort of discussion. If I increase the price, even if I sell less coffee, I can sell that coffee. It’s more profitable, but I can sell less of them. Yeah, so there is already some parity that comes back just because of that. Making less coffee means I can do so with more quality, because I’m not rushed off my feet to make 400 coffees a day. Now I only have to make 300 coffees a day. I can deliver better service. I can use less staff to do it, and I have less input costs like milk. I’m using less cups. I’m using less less less less less. So I think there’s an optimum for every cafe on how many cups a day they should be producing, and then they should price accordingly. If they’re over producing, they need to increase their price and actually produce less. Or if they’re under producing, you know, discount a little bit and produce more. So there is some pricing to quantity ratio that that needs to be optimized, not, and I think that’s something that’s not well, scienced, if that makes sense.
Tim Hughes 52:48
Yeah, there is some, sorry, the that’s taking the experience into consideration and using that as a commodity, I guess, in a way, like it’s a focusing more on the experience rather than just the production,
Raihaan Esat 53:01
yeah, yeah. It’s very hard to produce more and maintain quality, right? So at some point you go, Well, I’m just going to increase my price. So that way, that way I actually keeping people away.
Gene Tunny 53:11
Yeah, yeah. It reminds me of Jerry Maguire. Show me the money. No fewer clients, more time, yeah. And then all of his colleagues just go,
Raihaan Esat 53:23
Yeah, but, but it, but it works. If you’re in that situation where, you know, you can’t really produce more,
Gene Tunny 53:30
yeah, that’s interesting. I have to think, yeah, that’s another consideration. So I mean, the way economists will often think about this is that, you know, to the extent that the demand is price inelastic, so demands not that responsive to price. You can increase the price, and then you can, you’ll get more from the higher price that compensates for the loss of some some customers. Yeah. And there’s always
Raihaan Esat 53:52
been the discussion on the green coffee side that, oh, if we increase quality, we can charge more. And now what we’re finding is that we can charge more because there’s a shortage, and it’s easier to do that than to do it on quality. And that’s a consumer mindset thing. That’s a production mindset thing, that I think we’re more risk averse than we are looking for better products. It’s an interesting trade off between the two. Yeah, it’s
Gene Tunny 54:19
amazing to get all these insights into the market, right? It’s great. We might go back to the just these nine factors, and I’ll put these in the show notes, because I think that slide you’ve you prepared for that presentation you gave here, which sounds like it was a ripper of a presentation. I mean, like, that’s some great insight in that that slide, I guess, to some to finish off with, what do you think the major factors are like, if I had to put a percentage contribution to each of those factors, what do you think the top one would be, and would it be about 50% or would it be about 40 or 30? I mean, do you have a sense of that?
Raihaan Esat 54:59
At the one that’s in the news that’s the most important, but, and that might be different every day, okay, so, you know, there’s one that was very topical about two weeks ago. It drove some prices up quite significantly, and that was, that was the I’m trying to try to figure out what’s a nice, neat way to say this. There was some conflicts in the Middle East. Oh yes, that were, that were a Frick affecting trade supply routes through the Red Sea. So through the Red Sea, you’ve got the the canal, and a lot of shipping lines use that canal to shortcut their way through to Europe and through to this part of the world now, with attacks on shipping vessels in protest of conflicts in the Middle East, all the shipping lines went we’re not shipping through that channel anymore. Guess what? There’s a container shortage now in Ethiopia, you can’t ship coffee out of Ethiopia. It’s had a massive effect on global supply chains, yeah, and that news going out to the world meant that everyone kind of overreacted. And was like, Oh man, we gotta buy coffee. We gotta get it out now we gotta there was caused a massive reaction. But then the news of, you know, that sort of dies down and quietens down, and then no one’s really acting on that, even though that that stuff is still happening right now. So whatever’s topical, whatever’s in the news, is kind of has the biggest impact at the time. At the moment, whatever’s being covered, there’s nothing, I don’t know how to say it, but, but there’s so it’s all about news. It’s all about what’s brought to our awareness.
Gene Tunny 56:41
But that impact on the supply side, on the harvests you mentioned, was it weather conditions in was it Brazil and Vietnam?
Raihaan Esat 56:49
Yeah, especially Brazil has had an unusually hot season, very little rain. So that’s, you know, there’s, there’s some speculation that that’s already caused crop damage for next year. So there are, there are some bodies in Brazil, like agricultural associations and stuff, that will report on this stuff, yeah. And, you know, with us, we deal directly with producers as well, and we can get on the phone and ask them, how are things looking, and they’ll go, we’re concerned, we’re
Gene Tunny 57:20
working, yeah, but now that must be one of the bigger drivers of what’s been happening with the price, because
Raihaan Esat 57:25
there’s a saying in the coffee industry that if Brazil sneezes, the whole world catches a cold, right? Yeah, because they are 30% of the entire world’s production. So they have a major impact on on pricing, on availability, on what happens in the world of coffee. Brazil, massive, absolutely massive. Vietnam, I would say the biggest contributors out of the things that we spoke to today, geopolitics, like the war in the Middle East, because that affects oil prices, transport prices, transport, trade routes. And that’s, you know, we need to get coffee from halfway around the world to Australia, Brazil and Vietnam and finance, those are probably the three biggest and then everything else after that. Yeah, okay,
Gene Tunny 58:11
right. This has been a really good summary of what’s going on the coffee market. I mean, if you’re listening and you got any thoughts or any questions on the coffee market, please send them through to contact at Ekta economics, explore.com and I’ll want to
Raihaan Esat 58:28
keep this discussion going. There’s a lot going on in coffee, and it means a lot to everyone. So I don’t mean to be the bearer of bad news, but I want to, want to, you know, voice what’s happening in the world right now of coffee and so that people understand what’s going on
Gene Tunny 58:43
Absolutely. Well, we’re realists on the show. We deal with reality, so we want to know what’s happening and and how do you best position yourself to deal with that reality? Tim, any final questions for Ray,
Tim Hughes 58:55
you had me at coffee? Very good. No, it’s great. It was really good. It’s funny. I wasn’t expecting it, but it’s such a big part of it, like is the experience that you talk about, as far as the value of a coffee is a really interesting prospect. And as humans, the probably the most interesting thing that we can look at, you know, like so I think it’s really good having that as part of the conversation. Yeah,
Raihaan Esat 59:26
I think my final thought for this podcast would just be on the consumer side. You know, we’re all consumers. We all go to coffee shops. We all go to restaurants, whatever it is, we’re all consuming coffee to some degree. And I think we can all be more mindful of the places that are doing a really great job and support them. Pay more for your coffee, but get value in return. It makes it worthwhile that we support the businesses, the local businesses, doing a fantastic job, and it allows the entire supply chain to be healthy if we’re pricing things correctly on the. Consumer side, it all flows back through for a healthy supply chain.
Gene Tunny 1:00:04
Okay, so support your favorite cafe everybody. I think that’s a that’s a good message. And yeah, the Yeah, recognize that they have to charge these prices to cover their costs, and those costs are rising. So I think that’s a important point, right? Oh, Ray from international coffee traders, thanks so much for your time. It’s been a lot of fun. Appreciated it. Yep, it’s been terrific. Tim, always a pleasure to catch up any to have on your show. And finally, 10% off Lumo coffee for economics explored. Listeners. Details are in the show notes. Okay, thanks. Gene, good on you.
Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.