Attention latte lovers, Folgers fanatics and espresso enthusiasts, your favorite cold weather beverage is getting cheaper. Coffee prices are near historic lows. Great news, right? Turns out, it’s not. To learn why, I headed to a large waterfront warehouse in Brooklyn’s Red Hook neighborhood to talk with Ed Kaufmann, director of roasting for Joe, a chain of specialty coffee shops.
He started me off by showing me his coffee roaster, which resembles a large, stainless steel washing machine. Through a small window, you can see cream-colored beans from Mexico being roasted to a deep brown.
"The beans we use are seasonal. We have coffees from Central America and Ethopia and now we’re transitioning into Papua New Guinea, Peru and Colombia, " he says.
Coffee is the second most traded commodity in the world after oil and the price of coffee beans has been on a wild ride: In 2011, coffee hit $3 dollars a pound, a 14 year high. Since then, the price has dropped to less than half that, near historic lows. But that doesn't mean coffee shops like Joe change the price of your morning macchiato every month. "We can’t really fluctuate our prices with the fluctuation of the market," says Kaufmann. "Coffee drinkers are very sensitive to increases in prices."
So, when prices rise, Joe tightens its belt, cutting travel and staffing. When coffee prices drop, staffing and travel get beefed up and Joe uses fancier beans.
But when the prices drop as much as they have recently, it only sets us up for another spike. "Coffee prices are now at such a low level that farmers are losing money," says Ross Colbert, a global beverage strategist at Rabobank. "The risk here is that farmers will replace coffee with other crops."
That could create a shortage of coffee and cause prices to rise. Add speculators and an increasingly global market to the mix and the price fluctuations for commodities like coffee become even more extreme. "The price of a crop rises, so the farmers say, 'I want to plant more of that crop.'" says Andrew Burns, economist at the World Bank. "Supply increases substantially and rather than the price falling to that equilibrium position, it actually falls way past it."
To cope with these wild swings, Joe’s Ed Kaufmann is working on drawing up contracts with growers. "We’re hopefully going to be able to lock in prices and work outside of the fluctuating market," he says. Kaufmann hopes the contracts will mean the price is right for him to get the quality beans he needs and for farmers to earn enough to keep our cups full.
A little over three years ago, a Tunisian street vendor set himself on fire and sparked the Arab Spring. A big part of the revolution had its root in economic instability. This weekend was a milestone for Tunisia. The North African country adopted a new constitution.
The lead-up to the new constitution was characterized by political instability that no doubt hurt the economy. Tourism, which makes up 12 percent of GDP, was especially hard hit. But the adoption of the new constitution could assure foreign investors and tourists that it's safe to come to Tunisia. "This is also going to reassure and give confidence to local companies and the local economy," says Riccardo Fabiana, the lead North Africa analyst with the Eurasia Group. "However", he adds, "this is probably not going to be enough."
One of Tunisia's biggest problems prior to the revolution was corruption and cronyism. The good news is that many of those corrupt officials have been removed from power. "Now these cronies are gone. But the barriers and the regulation are still there and are still somewhat of a structural problem for the private sector," says World Bank economist Jean-Luc Bernasconi. Bernasconi believes the new government will have to create policy reforms to solve these larger structural problems.
But Tunisia's slow economic growth is also the result of weak European economies, something the new government cannot control.
Yes, they did come together. The two surviving Beatles performed Sunday at the Grammys. They're due to be together again for a Feb. 9 CBS-TV special celebrating the Beatles' first appearance, 50 years ago, on The Ed Sullivan Show.