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Coffee price soars 84%, eroding first homebuyer savings

  • Coffee as a commodity saw its price skyrocket by 84% in 2021.
  • Climate change, COVID-19, and an impending civil war are part of a confluence of factors.
  • Rising cost of the staple product is just one more extra cost making it difficult to save for a house.

Your morning smashed avocado on toast with coffee really is preventing you from buying your first home.

The price of coffee, as a commodity, was a standout in 2021, skyrocketing 84%.

That means, the price of your next cuppa at the local coffee shop, or the beans you buy at the supermarket, should they still have any on the shelf, is likely going to hit your hip pocket.

In February last year, the coffee price was US$1.21 per pound and by December it had reached US$2.52/lb. As of today (January 14), it is trading just under US$2.37/lb.

There’s a confluence of factors driving up the price of coffee – the four Cs – climate change, COVID-19, civil war, and costs (from freight and shipping).

Climate change is wreaking havoc on crops from drought and frost in major producing countries such a Brazil; there are soaring COVID-19 cases in Vietnam and in particular in Papua New Guinea, which is a major supplier of beans to Australia; and market uncertainty is stemming from exporter Ethiopia, which is on the brink of a civil war.

And on top of all that, Aussie wholesalers continue to face disruption to global supply chains, resulting in steep rises in freight and shipping costs.

When you consider that the median house price in Australia is almost $1 million, and wannabe homeowners need savings of about 20% for a deposit, that’s $200,000 that needs to be saved.

With the price of coffee almost doubling, foregoing the morning brew may be a necessary sacrifice to save for a deposit. 

According to Realestate.com.au, the average age of first home buyers jumped from 27 in the early 1990s to 31 in 2017. In Sydney, the average is estimated to be closer to 38, meaning you will need 18 years of full-time employment before you could enter the market.

Starbucks (NASDAQ:SBUX), which is the world’s largest coffee retailer, recently suggested that it won’t need to raise its prices as the company has 14 months of supply.

However, The Local Brew Café across from your office owned by Mr and Mrs Bean can’t stock so much and will be forced to pass on the costs. That means, every coffee you drink is pushing that dream home ever further away. 

In the 1990s, house prices were about 2.5x household disposable incomes, whereas now, the same metric tracks about 5.5x.

Analysts expect the tightness in the coffee market will continue all the way into 2023.

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