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Significant production slowdowns in Brazil and Vietnam, the world's
two largest coffee-producing nations, are the main reasons for the
spike in prices, analysts say. These slowdowns were already
producing higher prices for coffee, on grocery shelves and in trendy
coffee shops, long before Katrina stormed ashore.
Brazil has a far smaller-than-usual crop, while a prolonged drought
in Vietnam has impacted the harvest there. At a time when coffee
demand is rising, the world is producing less.
Fearing that Katrina would shrink the already-small coffee supply
even more, U.S. roasters have scrambled, in near-panic mode in the
last week, to buy up available supply. Judy Ganes, a coffee analyst
quoted by CNN this week, predicts Arabica coffee could increase in
price by 45 percent in the coming months.
While much of the coffee stored in New Orleans warehouses remains
viable, the warehouses themselves are cut off from supply routes by
the high water. Ganes says the uncertainty about its eventual
disposition is causing the market additional anxiety.
For example, a dozen coffee roasting facilities in New Orleans
employ about 1,000 people, according to figures compiled by the
economic development group Greater New Orleans Inc. Those employed
by both roasters and warehouses were displaced from their homes and
many can't commute due to continued standing floodwaters and
evacuation orders from local officials.
The physical condition of the coffee shipping, warehousing and
roasting facilities and the near-future availability of housing and
easy transportation for employees of the New Orleans coffee industry
will determine the extent of increases of gourmet coffee prices. It
could take several weeks to assess damage to warehouses and coffee
roaster facilities and months to return to normal activity as roads
and physical infrastructure are repaired.
It has not been determined how many of the green beans stored in New
Orleans warehouses are Robusta beans (used in instant coffee) and
how much is represented by the more desirable Arabica beans, which
are used in gourmet blends. Robusta beans are used in Proctor &
Gamble's Folgers brand and Kraft Foods' Maxwell House brand, while
Arabica beans are used in the more desirable gourmet coffees,
including those sold by Starbucks and premium coffee houses.
Both Kraft Foods and Procter & Gamble increased prices by 28 percent
in the first three months of the year. The increase marks a reversal
of several years of lower than usual prices.
Starbucks raised coffee prices last October, the first increase in
four years.
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