Coffee prices perk up

Your morning wake-up at the local coffee bar may soon cost you a few extra shekels as commodity futures prices rose to a seven-year high this week.

August 24, 2006 06:40
2 minute read.

Your morning wake-up at the local coffee bar may soon cost you a few extra shekels as commodity futures prices rose to a seven-year high this week. "Coffee prices have been rising persistently over the past two years, but in the past two weeks we experienced a significant hike in the prices of raw materials," said Dalia Mandelman-Sonenfeld, general manager of Elite Coffee. "If price levels stay as today for a period of time, then Elite Coffee will have no other choice but to evaluate its coffee prices. Yisca Erez, an analyst at Clal Finance Batucha, confirmed that prices of raw materials including coffee have been rising for a long time but he noted that until now companies like Strauss-Elite were able to absorb costs, though at the expense of lower profitability, without raising consumer prices. "However, if prices continue to rise, the consumer may have to start to pay the price," Erez said. Food giant Strauss-Elite, which today will be report its second-quarter earnings, saw a 4.2 percent erosion in its gross margin in the first quarter mainly due an increase in the prices of raw materials including green coffee, sugar, nuts and almonds. Nestle said in its first-half earnings report on Wednesday that the company had increased prices to combat higher oil, packaging and commodity costs, though organic growth sweetened its profits. "The increase of coffee, as well as sugar prices, was particularly dramatic in January and February this year and will ultimately have an effect on a food company's profitability as well as its pricing," said Uri Waisbord, an analyst at Israel Brokerage Investment Ltd. This week, Robusta coffee futures for November delivery climbed $35, or 2.3%, to $1,570 a ton on Euronext.liffe, the highest closing price since March 1999, after heavy rainfall hit supplies from Vietnam, the largest producer of the robust bean. Arabica beans gained 1.855 cents to $1.128 a pound on the New York Board of Trade. In the past year the price of coffee has surged 55%, prompting some growers in Asia to hold back supplies in anticipation of further gains. "From 2004 until now the price of raw material, including coffee surged 100%, but we have not raised consumer prices," said Avi Shahar, deputy general manager of the Aroma coffee chain. "We are constantly expanding our business, adding 15 new Aroma coffee shops per year, and we need to offer competitive coffee prices for the consumer even if our profits are dented." Shahar noted that the company was expecting to pay higher prices for new coffee orders it had placed this week. Independent vendors are also trying to keep the increased costs away from the consumer. "I have not raised coffee prices in the shop for the past two years. Although suppliers have raised prices, they try to keep them stable," said Debbie Katz, owner of the Coffee Mill, a coffee shop on Emek Refaim in Jerusalem's German Colony, which sells a wide variety of coffee beans and also serves the beverage. "Demand for coffee in the Israeli market has been growing and prices are very competitive," she noted.

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