Coffee brand Lavazza: The sky-high prices of coffee beans are driven by hedge funds

Italian coffee giant Lavazza claims that hedge funds and other financial speculators should bear 80% of the responsibility for the surge in coffee prices, which they have driven to levels that are "completely unsustainable" for the industry and consumers.

The global benchmark price for London Robusta coffee futures soared to a historic high of over $5,700 per ton in January this year. Although prices have since fallen to around $3,500 this week, they remain well above the historical average of $1,700.

On July 10, media reports indicated that Giuseppe Lavazza, chairman of the Lavazza Group, stated that 80% of the significant rise in coffee prices over the past four years was due to speculative activities, particularly the operations of hedge funds. This volatility and uncertainty have had an "incredible" impact on roasters, traders, and even producers.

Due to high prices, global coffee consumption has declined by 3.5% over the past two years. Although Giuseppe Lavazza indicated that consumer coffee prices are "expected" to have peaked, new regulations and Trump's trade policies could drive prices up again.

Limited Futures Market Amplifies Speculative Effects

According to reports, Giuseppe Lavazza stated that while factors such as poor harvests have affected coffee bean prices, "hedge funds have truly played a decisive role." He remarked:

"Coffee is a large market, but the futures market is a small market. So with a small amount of capital, you can create a massive tsunami."

He pointed out that speculators like hedge funds have long been blamed for driving significant fluctuations in commodity prices, especially those commodities that follow strong upward or downward trends as dictated by commodity trading advisors.

While fund managers claim they provide liquidity to the market, Lavazza believes that liquidity issues and soaring margin requirements have pushed some companies in the industry to the brink of bankruptcy.

One of the world's largest coffee traders, the Netherlands-based Mercon Coffee Group, filed for bankruptcy at the end of 2023 when this round of price increases began, becoming one of the victims of market volatility.

The Lavazza Group is also under immense pressure. The Turin-based company has been forced to significantly increase its working capital, with coffee procurement expenses reaching €1.6 billion last year, nearly doubling from €600 million in 2018.

Regulatory and Trade Policies Present New Challenges

Prices may rise again due to new regulations proposed by the EU and the U.S. as well as Trump's tariff plans.

Regarding President Trump's tariff plans, Lavazza warned that tariffs between the U.S. and coffee-producing countries like Brazil and Vietnam will be more challenging and will raise prices for American consumers.

A greater challenge comes from the EU's proposed new deforestation regulations. This law, set to take effect at the end of this year, will prohibit the sale in the EU market of seven commodities, including coffee, that are grown on land where forests have been cleared.

Lavazza stated, "This is very harsh because it indeed sets very strict limits on European roasters importing high-quality coffee." He added that the lawmakers promoting the regulation "completely do not understand how our business operates." The regulation has faced criticism from 18 member countries, including Italy, as well as chocolate companies such as Mondelez, the parent company of Cadbury