Coffee chains including Starbucks, Tim Hortons and Luckin Coffee all raised prices of some coffee drinks in China due to the higher costs of coffee beans and operations. The prices are likely to increase again in the future as the cost of coffee beans will remain high, industry sources said.

US coffee chain Starbucks increased prices of different kinds of coffee drinks last week by 1 yuan (16 cents) to 2 yuan. The company said the decision was made based on a comprehensive consideration of many factors such as operational costs.

Starbucks entered the Chinese market in 1999. It now operates about 5,500 stores in over 200 cities nationwide, the company said.

Domestic chain Luckin Coffee raised prices by about 3 yuan in December for some of its coffee drinks due to higher operational costs of rents, labor and raw materials, the company said. It runs more than 5,300 direct-sale stores in China.

Canadian chain Tim Hortons, which entered the China market in early 2019, raised prices of a few products, given current operating conditions. The chain has opened more than 340 stores in 20 cities in the country, it said.

"Since 2018, China's coffee market entered a booming period and competition became fiercer, as more premium domestic brands and new retail business models that integrated with the internet emerged. The trend has created certain operational pressures on international coffee chains like Starbucks," said Zhu Danpeng, a food and beverage industry analyst.

Prices of coffee made with arabica beans, which are used often by chains like Starbucks, hit a 10-year peak at $2.56 a pound in New York. The main catalyst for the surge in prices is inventory levels, which stand at their lowest in 20 years, the ICE Exchange said. Climate and logistics issues in top producer Brazil contributed to the rally.

The volume of coffee beans exported from Brazil accounted for more than 30 percent of global coffee trade. Last year, Brazil experienced extreme weather conditions of drought and frost at a time when coffee beans got harvested. This has led to a decline in the output of coffee beans by nearly 20 percent year-on-year, said Brazilian food supply and statistics agency Conab.

From January 2021 to January this year, the price of coffee powder jumped 56.8 percent, the highest among all goods in Brazil. In January, the price increased 4.75 percent in a month, according to the Brazilian Institute of Geography and Statistics.

As coffee powder can be used to make instant coffee easily, since the COVID-19 pandemic, consumers have shown higher demand to make coffee by themselves, and it has led to a price increase of coffee powder, industry reports found.

In Ethiopia, one of the world's largest producers of arabica coffee, beans were in short supply because of civil conflicts, and this impacted the exportation of coffee beans.

In Colombia, output of coffee beans declined 19.7 percent year-on-year to 868,000 60-kg bags in January due to unfavorable weather conditions, said the National Federation of Coffee Growers of Colombia.

http://www.china.org.cn/business/2022-02/22/content_78064141.htm

1. Using the demand and supply model for coffee beans to explain and illustrate, why the price of coffee has increased? Hint: Make sure you discuss the equilibrating process, and clearly outline the assumptions in discussing the factors causing the change in price and quantity.

Answer: Decrease in the supply due to operation cost and cost of coffee beans.

Decrease in Supply O LE