Volatile international markets have seen the price of green beans surge over the past year, yet the increase isn’t being reflected at cafés across Australia. Is it time for business owners to raise the price consumers pay for coffee?
The price of a cup of coffee in Australia has been a hot topic over the past few months. The debate has spilled over from inside the industry, seeping into national news and resulting in a series of alarming headlines, some suggesting that consumers might soon have to cough up $8 for a small coffee.
The widespread attention is the result of a surge in the coffee market in August 2024, which saw green bean prices spike to a 13-year high, with the average price of Arabica just under US$2.40 per pound. Unfortunately, this peak isn’t an anomaly but part of a steady rise that’s been creeping up since the start of the 2023/2024 coffee production year.
Dock No, Statistical Coordinator of the Statistics Section of the International Coffee Organization (ICO), says there are multiple contributing factors.
“The supply of Arabica around the world has been affected by a series of extreme weather events. The frosts experienced across Brazil in July 2021 have had a knock-on effect, while Colombia has experienced about 13 months of continuous rain and Ethiopia is going through five years of drought,” he says.
“The price of Robusta has also been affected by a reduced supply, partly due to an increase in the change of land use in Vietnam. The feedback we’ve received is that it’s not just one crop that coffee is being replaced with. However, the demand for durian fruit from China has increased greatly over the past 10 years and we’ve seen a lot of farmers uprooting their coffee trees and replacing them with durian.”
Dock says the combined effect of these weather events, farmers leaving the industry, and the rerouting of major shipping routes due to conflict in the Middle East means coffee demand now outstrips supply. As a result, the industry is more reliant on stocks that have built up, causing prices to increase.
Race to the bottom
Despite the steady rise in the cost of green beans over the past few years, the average price of a cup of coffee in Australia hasn’t seen much movement. Abdullah Ramay, CEO of Sydney-based roaster Pablo & Rusty’s, believes change is needed.
“For a long time, coffee prices haven’t moved in Australia and that’s not good for the industry,” he says.
“Putting aside the surge in green bean prices, inflation occurs every year, whether it’s 2 or 5 per cent. Each year wages, energy bills, and rents go up, but coffee prices aren’t budging and that’s a bad habit to be in.”
A report by Friendly Finance published in April 2024 stated the average price of a small flat white in Australian capital cities as AU$4.78. When compared to the average price of the same drink in countries with a comparable specialty coffee culture, Australia ranks as one of the cheapest. According to data from Pablo & Rusty’s, the average price of a small flat white in London is AU$6.96, in San Francisco AU$7.87, and in Basel AU$10.32.
“Prices are going up globally, but we’re not seeing that same pattern in Australia. In Sydney, for example, the price of a small flat white has stayed at around $4 to $4.50 for a long time,” he says.
“This has been a problem we’ve been talking about for years and the recent market prices have brought it into sharp focus. The current prices don’t add up when you’re considering a beverage that requires a barista to make it, using $40,000 worth of equipment, and sourcing high-quality specialty-grade beans. Compare this to something such as bubble teas, which cost around $6, and it simply doesn’t make sense.”
This comparison with other products is something Andrew Low stresses when asked how much cafés should be charging. As the CEO of Coffee Supreme, an international roaster operating out of Australia, New Zealand, and Japan, he strongly believes coffee is worth much more than the price of its ingredients.
“For almost any other food or drink product, it is selected based on the value of that product, the value of the brand, and how it makes the consumer feel. It is almost never chosen based on how much it costs to make,” he says.
“We scored an own goal in the coffee industry when we started talking about input costs and the price of green beans and now we’re attached to the commodity price.”
Andrew believes this focus on commodity pricing and reluctance to shift consumer prices is a threat to Australia’s coffee industry. He says rising costs across the board have seen profits for many café owners decreasing year-on-year, so much so that there’s often no margin left if anything goes wrong.
“We are at a critical juncture in the specialty coffee industry. If we want to support the diversity of small businesses and artisan roasters, we must increase prices,” he says.
“The alternative is decreasing quality, decreasing farmer conditions, and going back to chains because they do this better. It’s a choose door A or B moment.”
All rise
Both Abdullah and Andrew believe average coffee prices in Australia need to increase, but think some café owners are reluctant due to fear of losing customers or missing out to competitors.
“Café owners are afraid that they’ll lose customers, while consumers complain about the cost of their daily ritual, comparing it to making coffee at home,” says Andrew.
“Coffee isn’t just about the cost of green beans, milk, and labour. It’s about the service, craftsmanship, and sense of community. Yet, many café owners are stuck in a hand-to-mouth survival cycle, fearing that customers won’t pay more for better quality. This must change.”
Andrew suggests raising prices by 25c four times over the next 18 months, on the basis that small, incremental changes are received much better than one big increase.
Abdullah agrees that small, regular increases are the way forward. He reports that even an increase of $3 to $4 per kilogram of coffee results in around only 3c or 4c per cup for cafés, which is small compared to other costs.
“I think it’s healthy for us to use this as a time to say, ‘you know what? Cup prices should go up every year’. Costs are rising each year because of inflation, so café owners shouldn’t only raise their prices when a global event causes the market to surge,” he says.
“Adopting this method, like many other industries do, creates a much more mature coffee industry as a result.”
One of the anxiety-inducing elements of rising prices for some café owners is explaining the change to customers. Andrew stresses that messaging shouldn’t focus on the cost of ingredients but the experience of the product instead.
“It’s not about explaining the cost of farming or labour as people get bored and turn off. Comparison is a great tool because what something is worth is a relative thing. I like to use simple examples, such as why am I OK paying $5 for a bottle of water, which costs about 40c to make, but I’m upset paying $5 for a coffee that’s hand-picked, processed, roasted, and brewed in front of you? It defies logic,” he says.
Abdullah adds that café owners shouldn’t sell themselves short and should be confident about their products and the experience they offer. He also says they should be prepared to lose a few customers.
“If we asked consumers if they want good coffee at a slightly higher price or bad coffee at the same price, most customers would be happy to pay more. However, there will be some who favour value over quality and you have to accept that,” he says.
Theory in action
One café that has taken this advice is Praise Joe in Newcastle, New South Wales. Owner Phil Gameson recently raised his coffee prices by 50c due to increasing inputs across the board.
“The cost of coffee beans, dairy, proteins, kitchen staples, fresh produce, and more has continued to rise over the past six months. For a small, family-run business, we couldn’t continue to absorb those increases,” he says.
“At first, we were scared to raise our prices, but in reality we had to do it to continue running our two venues. We did this across our whole menu, not just coffee.”
With a loyal local customer base, Phil says 99 per cent of Praise Joe’s customers were supportive of the change.
“People are starting to understand the economic climate and that small businesses are doing it a bit tougher these days. I think the education coming from the media is a helpful tool that’s explaining why prices must rise to keep the doors open,” he says.
Another café owner who’s been carefully watching the market is Tim McCloud of You Galah in Dubbo, New South Wales. He acknowledges the market is generally difficult for café owners currently and that, despite rumblings of nationwide price increases over the past few years, there hasn’t been nearly as much movement as predicted.
“We haven’t increased our prices since we opened almost two years ago,” he says.
“However, when we started the business we were very confident we’d offer a high-quality product, therefore we set our prices to reflect that. Our coffee was the most expensive in Dubbo, and only recently have other local cafés started increasing their prices to similar levels.”
Tim admits it was a bold move to immediately go in as the most expensive in the city, but says he has long been conscious that coffee prices in Australia, especially in New South Wales, needed to rise.
“I knew it was going to be difficult to increase our prices after we opened, so thought it was best to start with something we were happy with, rather than getting six months to a year down the track and losing confidence from our community,” he says.
Since launching, he says only one or two customers have commented on his prices, which start at $5 for a small coffee, with an 80c surcharge for alternative milk.
“Because our community see the value of what we’re doing and the quality and care we put into their coffee, they see the value in what we charge,” he says.
“We’ve got no inclination at the moment to increase our prices, but we’ll see what happens in the future.”
Ultimately, the decision to increase prices is down to the individual café, its community, and its owner.
“Cafés are the backbone of Australian communities, but they are in dire need of support,” says Phil.
“Coffee is a great connector of people and we need to ensure we maintain our unique café culture.”
This article appears in the December 2024 edition of BeanScene. Subscribe HERE.
