your daily coffee ritual is getting more expensive.

If you walk into an American cafe right now

your average coffee drink is going to run you around $4.50.

Five years ago, it would have cost you just $3.85.

Nearly a 17% rise in prices.

That's compared to inflation, which has grown

around 10% during the same period.

That rise is driven by a myriad of economic forces

that help determine the cost of your morning cup.

And now experts say that due to a major crop loss in 2020

in a matter of months, prices could go up even more.

We'll explain.

The price of coffee is driven in part

by a complex global supply chain

which shapes a more than $460 billion market.

Most coffee beans are produced

in Brazil, Vietnam, and Columbia.

They're then loaded on ships like these

and then transported around the world.

This well-oiled system moves the beans

to importing countries like the US, where they're then sold

to coffee traders who sell them to roasteries.

The roasted coffee is then sold to distributors

such as grocery stores and cafes.

Max Copestake is a Coffee Futures Broker.

- The trade operates on paper-thin margin

it's extremely competitive business now.

Things like shipping costs are massive.

- [Narrator] During the pandemic,

the industry has faced a number of shipping disruptions.

A shipping container shortage in Southeast Asia

has driven up the price

of many commodities, including coffee.

- Everything is taking longer to get

from one place to the other,

containers are piling up in places where they shouldn't be.

- [Narrator] Jose Sette is the Executive Director of the ICO

a leading inter-governmental organization for coffee.

- It's not just Southeast Asia, all over the world

we have problems finding sufficient containers.

So that means that freight rates tend to rise

and increase the prices.

- [Narrator] Coffee exports are also affected by storms.

In Nicaragua and Honduras communities were devastated

by hurricanes last year.

- They caused a lot of damage to infrastructure,

washed out bridges, landslides that block roads.

- [Narrator] The destroyed roads block trade routes.

And this meant the supply being imported into countries

like the US was diminished.

The concern over a lack of supply help drive up the price

of coffee futures and experts say this could continue.

- As temperature increases

this affects the viability of growing coffee

especially Arabica coffee.

Robusta as its name indicates is robust, is strong

and is harder to be affected by climatic phenomenon.

It's very resistant.

But Arabica coffee is more delicate.

It grows within quite a narrow temperature range.

- [Narrator] Over the past year,

the world's largest coffee producer Brazil,

faced a drought that devastated crops.

The International Coffee Organization says that around 30%

of the country's Arabica crop may have been lost.

This year's coffee yields will also be lower

because Brazil is in an off-cycle harvest

which happens every other year.

- The off-cycle is small, and we know that anyway

but this year is extra small.

And this has got people really spooked

'cause all of a sudden everyone's like,

"Hang on.

We need this huge country

because we've become so reliant on you."

- [Narrator] Marex Spectron estimates

that the global coffee market

will produce millions fewer bags

than the previous crop year.

You can see these factors are pushing

up the price of coffee futures, but overall

the effects of the drought haven't yet been felt

in your local cafe or grocery store.

With weather becoming more extreme around the world

due to climate change experts say risk

to coffee production will continue.

- As temperatures increase,

you would expect to find that areas

that currently produce Arabica will become too hot.

And we have to think about ways to mitigate this,

whether by different farming techniques or whether

and this is a more difficult process, migrating production.

- [Narrator] And as volatile weather increasingly leads

to fluctuations in the supply of coffee,

demand tends to stay pretty steady.

This is because coffee is relatively inelastic,

meaning that even when the economy fluctuates,

people keep buying beans.

- It doesn't change much if prices go up or down.

Let me try and explain this in simple terms.

If prices double in your supermarket next week,

you are likely to change your habits to some extent.

You will maybe switch over to a cheaper brand.

You may not drink as much coffee outside the home

where it is more expensive.

- But it's unlikely you'll stop drinking coffee altogether.

When the pandemic took hold in March, 2020,

people were forced to stay home.

Demand for out of home coffee plunged,

but demand for in-home coffee rose

making up some of the difference in consumption.

And as the pandemic continued, another pressure

on coffee pricing was playing out in global currencies.

Coffee future prices are tied

to the US dollar and Brazilian real.

The dollar is a global safe haven

in times of economic trouble.

So during the pandemic coffee farmers were incentivized

to take advantage of the strong exchange rate

and sell off their beans.

The result less stored coffee will be available next harvest

when crop yields are expected to be unusually low,

this is causing an imbalance

between the lower supply of coffee

and the expected rise in demand.

And this is why experts say coffee prices

are currently lower than they should be.

They say that this expected rise in prices

will affect the entire supply chain.

And in six to nine months

it could drive up the price of your morning cup, even more.

(upbeat music)