High consumer coffee price has “no correlation” with producer price

Retailers say a fall in the consumer price of coffee will eventually follow the decline in commodity prices after 2011 spike

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December 19th, 2012 11:50 am| by admin
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Coffee prices in supermarkets and corner cafes skyrocketed in the spring of last year, based on a poor South American coffee harvest in 2010. But now that the price of beans has come down again, the cost of a morning jolt remains inexplicably high, according to a report by economic think tank Det Socioøkonomiske Råd.

The report shows that coffee bean prices had already started to come down as early last summer, but the falling price of the commodity has not translated to a corresponding drop in price at the supermarket. The discrepancy between the two has led to additional profits for importers and retail chains in the neighbourhood of 700 million kroner annually.

Prices rose in the spring of 2011 as a result of a freeze in South America, during the coffee growing season in the fall of 2010. As a result, the price per kilogram of coffee on exchanges jumped from 26 kroner to nearly 34 kroner. Prices remained at that level until the summer of 2011. Commodity prices then began to stabilise and actually fell to 24 kroner.

“There is no apparent correlation between the retail price of coffee and the market price of beans,” Michael Hertig, head of Det Socioøkonomiske Råd, told Politiken newspaper. “All existing economic theories say that the purchase price should sooner or later begin to reflect the market price, but that does not seem to be the case here.”

Two of the country’s largest grocery chains, Coop and Dansk Supermarked, said that so long as the price for beans remains low, it is only a matter of time before there will be a drop in the checkout price for coffee. They denied that there had been any price fixing.

“The prices are not that unusual,” Michael Svendsen, head of purchasing at Dansk Supermarked, told Politiken. “Taxes, changes in the market and the high value of the US dollar must be taken into consideration.”

Svendsen said prices seem to be on their way down again, and that consumer prices for coffee could be five kroner per kilo less in January than they were during the same month this year.

Jes Asmussen, an economist with Handelsbanken, said that what goes up does not necessarily come down.

“It is not only coffee, there is a general trend toward ‘sticky’ prices: once they go up, it is hard to get them back down,” Asmussen told Politiken.

Consumer watchdog Konkurrence og Forbrugerstyrelsen is keeping a close eye on coffee prices as well.  

“There is a mismatch, and there may be several explanations,” Søren Rasmussen, a consumer affairs specialist, told Politiken. “But we also see a market with limited competition and companies that may be looking out for each other.”

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