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Consumers face price hikes of about 20% in next weeks

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Roasters reeling as raw bean prices double

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After 21% hike, Brazil's 3 Coracoes raises prices by 14% -

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Supermarkets pushing back against hikes as shop shelves

emptying

By May Angel, Marcelo Teixeira and Jessica DiNapoli

LONDON/NEW YORK, March 27 (Reuters) - If your favourite

coffee beans have vanished from the shelves, don't worry - they

will return soon. The bad news is they will be up to 25% more

expensive.

Roasters such as Lavazza, Illy, Nestle and Douwe

Egberts maker JDE Peet's are currently in talks with

retailers about passing on costs from a near doubling of arabica

coffee prices over the past year, according to eight industry

sources.

Raw arabica prices have spiked due to four successive

seasons of deficit as adverse weather makes it harder to grow

enough of the delicate beans to meet consumer demand.

As roasters press for price hikes, grocery stores and

supermarkets push back, postponing signing new supply deals to

the point where some have run out of coffee stock.

In one such example Dutch supermarket chain Albert Heijn,

the country's largest, ran out of coffee products like Douwe

Egberts and Senseo.

The products returned to the shelves on March 20, albeit at

higher prices, a spokesperson for Albert Heijn said after the

firm concluded talks with JDE Peet's, one of the world's top

coffee roasters.

"JDE's purchase prices have increased significantly. We will

absorb part of this price increase to keep the products

affordable," the Albert Heijn spokesperson said.

JDE Peet's, which has warned of a profit decline this year

due to surging coffee costs, said the stand-off with buyers in

the Netherlands and Germany resulted in some of its products

missing from the shelves. It added, however, that it has since

concluded 90% of its price negotiations globally.

Global prices for arabica, typically used in roast

and ground blends, have gained more than 20% this year after

soaring 70% last year as Brazil - producer of nearly half the

world's arabica - suffered one of its worst droughts on record.

On average, the raw beans account for about 40% of the

wholesale cost of a bag of roast and ground coffee.

That means that if last year's raw bean price jump was

passed through in full this year, it would equate to a 28% price

rise to the consumer, said Reg Watson, director of equity

research at Dutch Bank ING.

Watson believes prices will rise 15%-25% and that in some

markets consumers may feel the hike in one shot.

RATIONING

Even steeper rises are taking place in countries whose

currencies have weakened significantly against the dollar. These

include Brazil, the world's second largest consumer of

the beverage as well as the top grower.

According to documents sent to clients and seen by Reuters,

3 Coracoes, a large Brazilian roaster, raised roast and ground

prices by 14.3% on March 1, having previously hiked them by 11%

in January and 10% in December.

3 Coracoes did not respond to requests for comment.

Brazilian coffee roasters association ABIC said price rises

in the country are steep because in local currency terms, raw

bean prices rose 170% in Brazil last year.

In response, Brazilian shop shelf prices have surged 40%,

with more increases coming as early as this month, said ABIC.

"People are already rationing, changing their habits. If

before they used to make a big thermos at home for the family,

sometimes throwing what was left down the sink, now they cut the

waste," ABIC President Pavel Cardoso told Reuters.

Data prepared for Reuters by market research firm Nielsen

shows the volume of roast and ground coffee sold in North

America and Europe, by far the world's biggest consuming

regions, fell 3.8% last year as prices rose 4.6%.

With price rises this year expected to be far steeper, the

decline in sales volumes should widen.

Folgers coffee maker J M Smucker ( SJM ), which sells to

U.S. retailers such as Walmart ( WMT ) and Target ( TGT ),

expects a decline in volumes in its fiscal year starting in May

as it raises prices again, its chief financial officer Tucker

Marshall said at a conference call earlier this month.

The firm, which also sells Dunkin and Cafe Bustelo coffee,

already raised prices last June and October.

LIVING HAND TO MOUTH

Of equal concern for roasters is the fact that cash strapped

consumers are pushing back against higher priced goods by

bargain hunting or trading down to supermarket brands like

Tesco's ( TSCDF ) finest.

These brands, which the industry calls "private label",

include many products beyond coffee and are produced in-house by

supermarkets in order to cut on costs and provide consumers with

cheaper alternatives.

Data prepared for Reuters by Chicago-based market research

firm Circana shows that in terms of volumes sold, U.S. private

label coffee's share of the total market grew by 13% between

2021 and 2024, from 20.51% of the total market to 23.12%.

Roasters are, as such, in a bind. They can absorb some cost

increases and hope consumers keep buying, or they can raise

their prices so that their profit margins don't fall.

Either way the result is a hit to overall profits that

hasn't even spared coffee house chains such as Starbucks ( SBUX )

- far less exposed than the likes of JDE Peet's as raw

beans account for less than 2% of the cost of a cup of coffee in

a cafe.

Roasters and traders are meanwhile buying as little coffee

as possible as they struggle to pass on costs to supermarkets.

An executive at a large storage sector firm said coffee depots

close to U.S. ports currently have half their normal volumes.