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How’s your coffee?

Posted by Jeff (ILoveCapitalism) at 4:54 pm - January 9, 2013.
Filed under: Economy,Food,Free Enterprise

Like most things that people need to live, coffee has gone up these last few years. Even after a big decline in the last 18 months, the commodity still costs about three times what it did ten years ago.

If you read Zero Hedge, you may have seen a recent item from Daily Finance on declining coffee quality. It seems that the brand producers have lately been swapping in the cheaper Robusta beans for the better-tasting Arabica.

“Why should I care?”, you ask. Because this is a good little example of inflation at work. Many things have gone up a lot, in the last 10 years. But the coffee makers don’t want to ask people to pay (much) more. They figure, people will settle for Robusta, a worse taste.

So, retail coffee prices rise don’t rise (as much as the commodity has). Then the government elves who compile the consumer inflation statistics say: Look, the consumer price isn’t rising! Whee, no inflation! If you say “But Robusta isn’t as good”, they say: It’s a change in consumer preferences! Not inflation!

Except… it was inflation. Declining quality – the substitution of inferior goods, for roughly the same money – means a lower living standard. That’s one form of inflation; especially if it keeps happening.

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10 Comments

  1. This is what happens when the Left pushes for “fair” prices and higher standards of living in the Third World; 3rd world commodity costs go up to support them.

    Tea. Cocoa. Coffee. All gathered and picked by hand by barefoot peasants.

    Comment by Ted B. (Charging Rhino) — January 9, 2013 @ 5:47 pm - January 9, 2013

  2. Same thing with many other commodities – either quality falls or quantity shrinks. I’ve seen numerous examples (coffee among them) where the 16oz container has fallen to 15 or 14 ounces; where the bar of soap shrinks; where fewer pills are in the bottle.

    Comment by SoCalRobert — January 9, 2013 @ 6:01 pm - January 9, 2013

  3. If you’ve got a Big Lots out there try them I recently got a 2Lb. can of coffee for 8 dollars they also often have interesting deals on other things. And no I don’t work for them or get paid by them.

    Comment by Catseye — January 9, 2013 @ 7:01 pm - January 9, 2013

  4. As always, Amazon to the rescue. I’ve been buying in 15 pound quantities for the last two years, from Amazon, look for Coffee Beans Direct (believe it or not, they are out of New Jersey). I end up paying (using Prime for free delivery) a little over $7/pound for some really good quality roast expresso beans. Yeah, I use a French press and actually get a great buzz from my first cup every day. Great beans, great coffee for us addicts

    Comment by Formerly John In Dublin Now in Palm Springs — January 9, 2013 @ 8:26 pm - January 9, 2013

  5. “This is what happens when the Left pushes for “fair” prices and higher standards of living in the Third World; 3rd world commodity costs go up to support them.”

    Not sure about this. I think this is what happens when we take down trade barriers. We should be cheering that the producer’s standard of living is increasing as its an example of how free trade works – now the challenge is to ensure that the producing countries lower their barriers to allow for US products to freely enter their marketplace.

    Comment by mike — January 9, 2013 @ 8:43 pm - January 9, 2013

  6. Cereal is another grocery item where the price hasn’t soared so much as the package has gotten smaller.

    I also have noticed produce has gotten a lot more expensive.

    Comment by Just Me — January 9, 2013 @ 10:05 pm - January 9, 2013

  7. That and the dollar buys less with the influx of currency. Gold hasn’t gone up in value (nor has coffee), the dollar has gone down. With that in mind, the third world producers are getting less, too, than they would without inflation.

    Comment by Paul — January 10, 2013 @ 2:12 am - January 10, 2013

  8. Part of the coffee equation is taste inflation. Many of us are now accustomed to a better product and are willing to pay higher prices. This willingness creates a certain buffer for producers and vendors, particularly in the case of coffee (caffeine, flavor, ritual, cachet — even some medicinal benefits, or so they say). I have to laugh remembering the woman who was filling up her SUV in front of my car, complaining about the price of fuel while clutching her Starbucks venti.

    Comment by Ignatius — January 10, 2013 @ 1:00 pm - January 10, 2013

  9. “… if it keeps happening.”

    [2011]: “The price of a cup of coffee is likely to go up further as coffee prices have topped $3 a pound for the first time in more than 34 years. Poor harvests of high-grade arabica coffee beans and a growing taste for gourmet coffee among burgeoning middle classes in China, Brazil, Indonesia and India are behind the sharp rise.”

    2012 (5 year): Arabica
    2012 (5 year): Robusta

    Comment by Passing By — January 10, 2013 @ 1:17 pm - January 10, 2013

  10. PB: You did notice where I acknowledged a large price decline in the last 18 months, right? The fact remains that, even after the decline (caused largely by higher production), both commodities are about 2.5 to 3 times their level of ten years ago.

    Widening the view to the 30-year charts shows you previous cyclical spikes and that muddies the picture, but it does not really alter the conclusion. You say demand for coffee is higher; well, supply (production) certainly is higher: http://www.unctad.info/en/Infocomm/Beverages/Coffee-French-version-only/Market/Production/ – So it’s not as if coffee is in short supply; certainly not today as opposed to 18 months ago. Priced in terms of (say) oil or gold, coffee keeps crashing to new lows, just as one would expect under a supply-expansion trend.

    Yet in dollars, the 30-year chart for Arabica (the better stuff, that people would prefer) shows a pattern of “higher highs and higher lows”. In other words, if you plot a trend line over the last 30 years (to capture several cycles), the line points up, in spite of coffee’s growing production and declines in relative (or I would say, real) price. That’s a weakening dollar.

    The point is the substitution effect (consumer companies swapping in more of the cheaper stuff where they can), which is not captured in the CPI, but which illustrates the declining purchasing power of the U.S. dollar nonetheless.

    Kudos to you for taking a look at the charts.

    Comment by ILoveCapitalism — January 10, 2013 @ 2:01 pm - January 10, 2013

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