Local coffee prices set to rise as drought hits bean supply

The price of a morning caffeine hit is set to become more costly, rising 10¢ to 60¢ a cup, as a drought on the other side of the world threatens global coffee supplies.

Arabica coffee bean prices have surged 76 per cent since the start of this year, and Australian roasters are now questioning how much of the increase they can absorb.

The market hit a two-year high last week, above $US2 ($2.20) a pound. Unseasonably dry weather during January and February in Brazil, the world's biggest coffee producer, triggered the rally.

Analysts have cut crop forecasts for the harvest in Brazil this year, with the world set for its first coffee deficit in five years.

Phillip Di Bella, who owns and runs one of Australia's biggest speciality coffee companies, supplying 1200 cafes across the country, said while his business was immune from the volatility because he locked in prices directly with farmers at the start of year, he expected a modest rise in the price of coffee.

''The cost increase to us might be $4 a kilo at worst. You're looking at an average of 60 cups a kilo … you're talking [an increase of] 10¢,'' he said.

Mr Di Bella said roasters would either pass that cost on to customers or switch to a lesser quality of coffee within the next month.

''The biggest problem for people here is they can't guarantee the quality of coffee they'll be drinking because of the brokers [who] will be affected straight away,'' he said.

''But there are other brands out there that won't drop the quality of their coffee. They'll keep it at a high standard. They'll pay more for it and absorb it or pass it on.''

Sensory Lab managing director Ross Quail, who runs a wholesale speciality roasting business and cafes in Melbourne and Sydney, said he would never alter the quality of his product but he was questioning how much of the price increase his company could absorb.

Mr Quail said he charged $4 for a cup of coffee and people could expect a price rise of 5 to 15 per cent, or 20¢ to 60¢. ''We will absorb as much as we can but it wouldn't be unreasonable to say that in the wholesale cafe market a price increase is inevitable,'' he said.

Mr Quail said the market needed to be re-educated about coffee prices and a price rise was natural.

''Since January, we've seen about a 65 per cent increase in the seed price. If you're saying to any business that you've seen a 65 per cent price increase in that base level price of your main product, you could expect price rises to follow in the market.''

Coffee growers in Brazil are expected to harvest 52 to 53 million bags this year compared with the previous forecast from December of 56 to 57 million bags. Some analysts say Brazil needs to produce at least 55 million bags to avoid a global shortage.