A respected local coffee brand SALADA Foods Jamaica Limited complained of Jamaica coffee price increases.
The increases slashed its gross margins by more than one-quarter, the company stated. It’s the latest processor to complain about the over 30 per cent price hike in one year, and 250 per cent hike over two years, towards $11,000 per box of coffee cherry. However the price rise is due to a severe supply shortage based on drought, disease, farm decay and now fire. Concurrently, large overseas buyers are demanding more coffee from Jamaica. On the micro-level farmers are demanding more per box due to the impact of currency depreciation on farm costs, and also the cost to protect the coffee against disease and theft. Two years ago processors paid roughly $3,000 for a box of coffee cherry to farmers.
“Profits continue to be adversely affected by the increases in price of coffee beans realised in the first quarter and the performance of its subsidiaries Mountain Peak Food Processors Ltd and Pimora Company Ltd,” stated Salada in a notice prefacing the financials signed jointly by Chairman Patrick Williams and Director Aubyn Hill. “The gross margin for the six months was 27.5 per cent, a reduction of 27 per cent when compared with the same period in the prior year. This resulted from the higher cost of coffee bean now being processed.”
Salada made $37-million profit before tax in the March quarter 2015 on $220 million in revenues, or 184 per cent higher profit year-on-year.
Just this week, large coffee processor Mavis Bank Coffee Factory Ltd makers of Jablum indicated that fire damaged at least $200 million worth of farms thus far. Last week US-based Marley Coffee cautioned its investors that the supply shortage of Jamaica Blue Mountain coffee could affect its sales going forward.
In recent times, Salada has faced increased local coffee competition in both the instant and brewed markets. Salada in its previous quarter hinted that it would seek to launch new coffee products this year. However, its latest March financials failed to add information on product development.
Last year, large coffee company Mavis Bank Coffee Factory Ltd launched True Brew, an instant coffee. It also launched Jablum Caribbean Blend, a mixture of beans from Jamaica and the Caribbean. In 2012, it also launched a high-end product called Jablum Gold.
Demand and supply actually turned coffee farmers into rock stars for the ensuing crop. Last year no one wanted to farm now younger folk are jumping on their grandparents land to til the soil for coffee production.
–“There is a security guard at [large supermarket], I now see him up in the hills at his family farm…I haven’t seen him in years,” said a key coffee source in conversation with Jamaicamocha.
This year experts–literally in the field–predict a 30 per cent dip in coffee production in the luxurious soils of the Blue Mountains. Of course good old economics indicates that whenever supply is reduced and demand remains price will rise.
–“Coffee farmers are getting the best rates ever. But the crop is down to nothing,” said an operations manager at one of the largest processors in the island.
Coffee farmers are getting flocked by processors begging to sell them beans and will pay up front and at inflated prices. We recon at least 20 per cent above market in order to at compensate for local currency depreciation year on year.
Its significant remember that total coffee exports dropped from US$30 million annually before the Western Financial crisis to some US$14 million in 2012 (latest figures indicate). During that period farmers were getting roughly the same per box of cherry at about US25. However inflation and depreciation cut that away to about US$15 a box over five years.
–“Him beg me to sell him coffee,” said a respected farmer who opted for anonymity in reference to a large processor trying to secure future supply from his crop.
–“You want peaberries. You better take what you get because we not sure if there will be any coffee soon,” a major distributor told me via a purchase.
The coffee farmer has a hoe for a guitar and is flocked by businessmen. Now he finally has the financial incentive to make the best legal drug in the world.