Bad news for South Africans who drink coffee

Coffee prices have surged to unprecedented levels, reaching their highest level in over 50 years. This means coffee drinkers in South Africa should expect to pay more for their daily fix.

The latest Consumer Price Index (CPI) data from Statistics South Africa (Stats SA) revealed that inflation dropped to 2.8% in October 2024, down from 3.8% in September.

The latest inflation figures are significantly lower than the 4.5% mid-point of the South African Reserve Bank’s target range of 3% to 6%.

The primary factor contributing to this decline was a decrease in fuel prices, with petrol and diesel prices falling by 5.3% from September to October, resulting in an annual fuel inflation rate of -19.1%.

In October, the price for inland 95-octane petrol was R21.05, the lowest it had been since February 2022, when it was R20.14.

However, coffee prices have remained under pressure. From October 2023 to October 2024, instant coffee prices saw one of the largest increases at 16.8%.

Condensed milk, chocolate slabs, Ceylon tea, and drinking chocolate were among the top five highest increases, with prices rising between 14.3% and 19.1%.

Over the past year, coffee prices have surged nearly 17%, reaching their highest levels in over 50 years.

Paul Makube, Senior Agricultural Economist at FNB, explained on The Money Show with Stephen Grootes that this price rally is a result of weather problems that have ravaged producing areas, particularly South and Central America.

“Brazil has been having serious challenges with rainfall, which has actually constrained its supply,” Makube said.

With a market share of 39%, Brazil is by far the world’s biggest coffee producer. “So if you have a problem in Brazil, it affects the whole market.”

Recent rainfall has not fully alleviated the damage caused by earlier dry weather. According to Trading Economics, below-average rainfall since April has adversely affected coffee trees during the critical flowering stage, diminishing the prospects for Brazil’s 2025/26 arabica coffee crop.

Additionally, the USDA’s Foreign Agricultural Service (FAS) has projected Brazil’s coffee production for the 2024/25 season at 66.4 million metric tons (MMT), a decrease from their previous forecast of 69.9 MMT.

The FAS also estimated that Brazil’s coffee inventories will be at 1.2 million bags by the end of the 2024/25 season in June, representing a 26% decline compared to the previous season.

While there are other coffee producers, not only do they produce a much smaller supply, but they have also come under similar pressures in recent years.

Vietnam, the world’s second-largest producer, accounts for 17% of global production, Makube said. The 2023/2024 production is estimated to have dropped by about 20% year-on-year.

The country is also facing a significant downturn in its 2024 and 2025 coffee production, with a projected 10% decrease.

Similar to Brazil, Vietnam’s production decline is also largely weather-related, particularly severe droughts and unpredictable rainfall patterns in key coffee-growing areas like the Central Highlands.

With production declining at these rates in the world’s two biggest producers, it is not surprising to see this “scramble for the local stock that is available,” Makube explained.

Adding to this “scramble” is the fact that demand for coffee is increasing while production is under this pressure.

The popularity of at-home coffee consumption, global coffee chains like Starbucks, and niche cafes is on the rise.

According to Statista, South Africa’s at-home coffee market revenue, which comes from sources such as supermarkets and convenience stores, is projected to reach $366.50 million (R6.62 billion) in 2024.

In comparison, out-of-home revenue, which includes sales from restaurants and bars, is expected to amount to $435.50 million (R7.86 billion) in 2024.

Overall, the combined revenue for coffee in South Africa is estimated to be $800 million (R14.45 billion) for 2024, with projections indicating it will grow to $1.05 billion (R18.96 billion) by 2029.