High prices roast coffee companies

Growth 'unsustainable' as coffee futures increase 20% in four days.

BONDOWOSO, EAST JAVA, INDONESIA - AUGUST 11:  An employee handles the coffee which is the result of civet dung during the production of Civet coffee, the world's most expensive coffee in Bondowoso on August 11, 2009 in East Java, near Surabaya, Indonesia. The coffee, also known as Kopi Luwak, is produced by the civet (a small squirrel-like arboreal mammal) which eats the coffee berries or red coffee cherries, the beans inside which pass through its digestive tract, expelling them undigested as faeces. The faeces are then cleaned, dried and lightly roasted to make the coffee. Coffee from Indonesian civets is considered to have the best aroma, and it is the unique enzymes in the civet's stomach which give coffee its bitter taste. It retails for USD100 to USD600 per pound but only around 1000 pounds make it to market each year and supply is very limited. A small coffee house (Heritage Tea Rooms) near Townsville sells the coffee for AUD50 per cup, alongside limited international stores such as Selfridges in London.  (Photo by Ulet Ifansasti/Getty Images) *** Local Caption ***  GYI0058090230.jpg

Hussein Awada, the owner of Lebanese Roastery in Abu Dhabi, used to give cardamom to his clients free. Those days are gone, for now anyway. The price for the cardamom that Mr Awada imports from Guatemala has rocketed, up to Dh120 (US$32.67) a kilogram from Dh20 a kg a year ago. Similarly, the cost of his arabic coffee, which is 100 per cent arabica, has jumped 10 per cent, from Dh40 to Dh44 a kg.

In the bigger picture, Mr Awada is fortunate: heightened demand globally combined with market forces has pushed up coffee futures by more than 20 per cent in the past four days. The cause is a combination of poor harvests in Central America over consecutive years and speculation by several large fund managers who bet prices would fall and had to cover their positions this week. Arabica futures rose another 1.7 per cent yesterday, to $186 per 60kg bag.

Mr Awada said he refused to raise prices to ensure he retained customers who had been coming to his shops - one on Defence Road and one in Khaldiya - for years. But the increased costs are eating into his margins, which were about 20 per cent last year. This year they are much lower. "It's a chain reaction where everyone is being affected," he said. Still, Mr Awada has managed to curb the effects of the recent peak in prices because he bought in advance after his supplier, with whom he has been dealing for 30 years, provided a report last November, which stated that prices were on the rise.

Others in the coffee business are suffering more severely. "We are not doing any purchasing," said Khalid Mohammed, the manager at Kahrban Dubai Trading, a coffee supply company. "With the business as bad as it is, we have cut back coffee imports. We don't do imports anymore unless we have a confirmed order." Mr Mohammed said his business was down 50 per cent from a year ago, through a combination of higher prices and the broader economic downturn.

Doug Whitehead, a soft-commodities analyst at Rabobank in London, does not believe prices are sustainable at these levels for long. "Although this has caused a fair bit of pain for the roasters, as their margins get squeezed, the majority hold enough inventory that they would be able to pass the price shock relatively well," Mr Whitehead said. Mr Awada hopes he is right and so do his customers. @Email:halsayegh@thenational.ae * Additional reporting by Sarmad Khan

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