Extract B: The price of Arabica coffee beans

For consumers in middle- and high-income countries, Arabica coffee is a normal good. In 2021, the market price of Arabica coffee beans reached its highest level in seven years. Speculators rushed to buy futures contracts, anticipating that supply would remain severely constrained throughout the year after unusual frosts and prolonged drought severely reduced the harvest in key growing regions. (lines 1–5)

The price increased by nearly 45 per cent between May and September 2021 following reports of severe crop damage in Brazil. The Brazilian agricultural agency estimated that the country would produce 14 million fewer bags of coffee in 2021, roughly a fifth less than previous annual averages. Brazil is the world's largest producer of Arabica coffee, followed by Colombia, where heavy rains also disrupted shipping logistics. (lines 6–11)

CafePrima, one of the world's largest coffee distributors, passed on some of these rising raw material costs to retail customers, raising the price of its packaged ground coffee by 8 per cent. A spokesperson remarked, "With profit margins on retail coffee being so thin, we simply had to raise prices to cover our costs." (lines 12–14)

Global consumption of Arabica coffee also rose by 5.4 per cent in 2021 as economic activity and hospitality venues recovered, further driving up the market price. (lines 15–16)