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Brexit hangover

There’s been lots of talk recently about Brexit, but what does it mean for coffee?

Price, nobody likes it when prices go up (apart from the person who benefits), but what if no one is benefiting?

Normally there’s a winner somewhere, coffee producers raising the money they charge, roasters wanting to make more money, costs rising so some other sector is getting more money (packaging, shipping, fertilisers etc). But this time, it’s the result of a vote 4 months ago that we’re now having to react to.

After the crazy party of a referendum we all woke up with a bit of a political hangover and to a new world, I think something that was missed is the new face of consumerism. On Friday, June 24th we saw what the markets thought of our decision, the stock markets and the currency markets both plummeted. The stock markets quickly recovered and we’re seeing record highs in the FTSE 100 and other measurements, but currency remains at record lows. When I first started to understand buying coffee in dollars I remember the £ being worth around $2 as my mental marker. Easy conversion times. Even before Brexit we had seen big changes in this, and previous visits to $1.35 to £1.00 were scary and horrible. Today the mid-price for the $-£ sits at 1.2276 (the new most opened app on my phone is XE) and record lows are reported every day, and just when you think it’s bottomed out ($1.29 was my guess) you see more and more drops.

What does this mean? Well, all our coffee is bought in USD/$. Part of my job as a green buyer is also to hedge against the dollar (this means buying dollars when I think the price is good or to protect from huge market swings). Before Brexit, I spent a couple of days reading about what the outcomes might be from different votes (yes my life is this interesting) and worked out some scenarios. I think it’s fair to say that no one really knew what might happen, as there is no precedent for such a huge vote, but you can take a stab in the dark. If we take ourselves back to Wednesday, June 22nd the day before the vote, all things pointed to a remain vote being most likely. The forecasted reaction to this would be a small jump up to $1.50 to £-ish and some stability back in the UK markets. The case for leave meant some uncertainty and a drop, but a drop some people had at $1.10 – $1.20 others more $1.30 – $ 1.40. I had to make a decision that day to buy some $ and think we might leave and protect myself from this change, or ride it out expect a remain vote and see a chance to sell some dollars at a slightly higher price.

My decision was to do nothing, sit tight, didn’t have anything arriving for the next 4-6 weeks and see what happened. Well, what happened was well documented (I think we will all know where we were when we heard the result), and was the biggest loss on currency and some of the lowest exchange rates on record. What also has happened is that I’ve become a currency junkie, constantly checking for small changes in the $-£.

On that morning some importers who had already bought coffee raised their prices because of the swing, I even heard of some roasters doing the same. To me, this seems crazy for coffee that’s in store and had already been paid for at the older (much juicier) exchange rate, and also a little opportunistic. We didn’t, we sat and we waited and we watched, and that’s been the last 4 months, waiting and watching.

In that four months we had to buy some dollars, some big purchases, some smaller hedging ones to try and buy when I thought the market was good, and selling when I could see an upward swing. But since Brexit I’ve bought around $400,000.00 of currency to buy coffee. $400,000.00 today will cost you around £325,865.58 but back on June 22nd that same $400,000.00 would have cost £268,456.38, a difference of £57,409.20.

Let me take a moment to say that figure again, £57,409.20. That’s £57,409.20 that didn’t go to the farmer, £57,409.20 that didn’t go into my pocket, it just disappeared in currency exchange. It’s sad, really really sad.

What does this mean for Has Bean? Well, it means that our prices are going to have to go up. Not right now, but on new coffees as they come in, you will see some of our prices rising, and as we start to use these coffees in blends, their prices will rise too. This will also have a knock-on effect on subscriptions too, it’s something we’re going to have to address, but we’re riding it for as long as we can, waiting for the market to settle, and seeing what we can do to offset it as much as possible.

Don’t think coffee is the only thing that’s going to get more expensive. Many things are bought in dollars, oil typically bought in $ will increases at the pump, a low barrel price is keeping this under control for now, but pre-Brexit this would have been much cheaper at the pump and prices we’re seeing now are 15-20% higher than we would have expected at previous currency rates. Currency effects so much of what we consume, the scary one on the news this morning was wine from Australia.

So, what’s the future? Well, I wish I knew. Good trading results and unexpected news post-Brexit are making the pound actually better than it could have been. The UK economy has not taken the dive that many predicted so maybe we should be happy at $1.22.

But the market remains volatile. Something as simple as a speech can have an effect on market confidence. In the recent conservative conference every time our prime minister spoke, the £ plunged with talk of hard Brexit and dates of March being set for invoking article 50 to leave the European Union. This isn’t a political statement by me, more a sign of the fragility of the market and the confidence it has in a post-EU world, and something we will have to prepare for.

I wanted to warn you about what was coming, and let you know that this is not a roaster getting greedy, or a farmer making deserved coin, but we will be looking at our pricing as we go, and keeping it under constant review. We won’t be the only ones doing this so expect coffee to get more expensive, but sadly not for the right reasons. We live in uncertain times, but one thing remains, life is too short for bad coffee.

7 Comments

  1. Prettygreenparrot 21 October, 2016 at 6:02 pm

    Thanks for a well-reasoned and explained blog on the effects of currency exchange Steve. And thanks for being honest about the effects and principled with your actions.

  2. Thank you for this, Steve. No real political stance from you… but it does indicate what are serious possibilities for the next few years.
    I’m privileged to be able to take anything but a truly offensive price rise in order to continue enjoying your fabulous products (my State Pension kicks in at the end of this month!)
    I too will reserve my political judgement until such time as young voters and those who weren’t old enough to vote begin to regularly suffer through no fault of their own. I’m selfish enough to want to live long enough to have a moan in a couple of decades and say, “I told you so”! 😉

  3. great piece and very informative. Thank you.

  4. Hi Steve,

    A well thought-out and well-reasoned piece. More expensive coffee (and more expensive lots of other things) is something we will have to get used to in the coming years I fear.

    Thanks,
    Brian.

  5. Thanks for taking the time to write this Steve. It’s reasoning like this that makes me a loyal Has Bean customer and likely to continue that way as the prices inevitably go up.

  6. Steve, everybody who buys from you, trusts you. If you put your prices up, it’s because you’re a business and you have to, to make a fair profit. I have no problem with that.

  7. Your transparency and explanation for a price increase is something other businesses should model and take notes. It’s tough raising prices but even more challenging when no one benefits from it.

    “On that morning some importers who had already bought coffee raised their prices…” That drives me crazy when companies do that. Thanks for not do that.

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