FAO Report Cites Climate as Driver of Price Volatility, Calls for Transparency

Daily Coffee News photo by Nick Brown.

A new report by the United Nations Food and Agriculture Organization (FAO) highlights how climate change is exacerbating price volatility, while calling for increased transparency and information-sharing among market participants.

The FAO analysis comes against the backdrop of a period of record-high prices (not adjusted for inflation) for green arabica and robusta coffees. Yet it also comes a few short years after prices were at multi-year lows, dipping below $1 per pound and threatening the livelihoods of millions of the world’s smallholder coffee farmers.

Climate Shocks and Volatility

While noting myriad factors that affect prices, the FAO report singles out production-affecting climate shocks as a primary driver. The group also repeatedly cites increased shipping costs as contributing to this most recent price increase cycle.

The report does not explicitly use the term “climate change,” but it details how weather extremes have become a critical factor driving coffee production shortfalls in recent years. Additionally, the report suggests that market speculation resulting from weather events — particularly in key coffee-producing countries such as Brazil, Vietnam and Indonesia — contributes to coffee’s ongoing price volatility.

Prices Passed Down to Consumers

Notably, the report also offers some of the first available data regarding how green coffee prices may be affecting prices at the retail (consumer) level. Early data suggest that, by December 2024, consumer coffee prices in the United States and the European Union were up by 6.6% and 3.8%, respectively, compared to a year earlier, according to the report.

“FAO preliminary analysis suggests that in the European Union, a 1 percent increase in the international coffee prices (captured using the ICO Composite Indicator Price) causes a 0.24 percent increase in the retail price after 19 months, with the shock persisting for several years (at least four),” the report states. “Likewise, in the U.S., a 1 percent rise in the ICO Composite Indicator Price translates into a 0.20 percent increase in the retail price after 13 months, with the shock reverting to zero after approximately two years.”

In Support of Transparency and Free Trade

Regarding the other side of the supply stream, the report notes that coffee growers — while potentially benefitting from high prices in the short term — are generally negatively affected by price volatility over time.

“Improving market transparency is crucial for mitigating the impacts of the price fluctuations and ensuring that all market participants have access to reliable, up-to-date information,” the report states. “This involves sharing comprehensive market intelligence, including short- and medium-term forecasts for production, consumption and trade. Transparent markets help producers make informed decisions, plan their production activities effectively, and reduce the risks associated with shocks and market volatility.”

Daily Coffee News photo by Nick Brown.

The report, which is designed in part to appeal to policy makers as well as the private sector, also voices support for free trade of coffee and coffee products.

“Developing value-added coffee products at origin and reducing or eliminating tariffs on processed coffee products can help mitigate the impact of low and volatile raw coffee prices,” the report states. “Overall, fostering market cooperation and transparency, with the active participation of both exporting and importing countries, will ensure the sustainable growth and stability of the global coffee market while safeguarding the livelihoods of millions of smallholder producers worldwide.”

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