Hedge funds to blame for coffee price surge, says Lavazza boss

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Hedge funds and other financial speculators were to blame for “80 per cent” of the surge in coffee prices that created “unbelievable” volatility and uncertainty in the market, the head of the Lavazza coffee company said.

Giuseppe Lavazza, chair of Lavazza Group, which owns the eponymous brand, hit out at the “big investment funds” that had driven prices to levels that were “totally unsustainable for the industry, totally unsustainable even for the consumer”.

London robusta futures, the global benchmark, soared to a record high of more than $5,700 per tonne in January. Prices have eased since on hopes of improved harvests to about $3,500 per tonne this week. But the benchmark is still well above the historical average of $1,700.

“Coffee, over the last four years, where coffee prices rose so much, 80 per cent is speculation, especially hedge funds,” Lavazza told a gathering of journalists on the sidelines of the Wimbledon tennis tournament.

Factors such as bad harvests had contributed but the “hedge funds really made a difference”.

“Coffee is a big market, but the futures market is a small one. So with [a small amount of] money, you can create a big, big tsunami,” said Lavazza, the fourth generation of his family to lead the company. “This is not a big risk, but if they win the race, they can gain a lot of money.”

He continued: “The volatility and uncertainty that put into the market, it’s really unbelievable . . . for roasters, for traders and even for producers.”

Coffee consumption had fallen 3.5 per cent over the past two years due to the high prices, he said.

Hedge funds and other speculators have long been blamed for huge moves in commodity prices, with so-called commodity trading advisers — funds that typically latch on to strong upward or downward price trends — viewed as particularly culpable.

Fund managers say they provide liquidity to markets and are only active in areas that already exist.

Yet Lavazza said liquidity issues and soaring margins calls — the additional capital traders are required to put up to maintain futures market positions — had tipped some in the industry over the edge. 

Netherlands-based Mercon Coffee Group, one of the world’s largest coffee traders, filed for bankruptcy in late 2023 at the start of the current rally.

Lavazza had been forced to dramatically increase its working capital, with the Turin-based company spending €1.6bn to buy coffee last year, up from €600mn in 2018.  

The Italian executive, who has complained that the £4 cost of an espresso in London was too high, said consumer coffee prices had “hopefully” now peaked.

However prices could rise again due to new deforestation regulations proposed by the EU and US President Donald Trump’s tariffs plans. 

Lavazza said Trump’s levy on EU goods was “fine” but warned that tariffs between the US and coffee-producing countries such as Brazil and Vietnam would be more challenging and push up prices for American consumers.

But this was “manageable” compared with the proposed EU law to ban imports of a group of seven commodities, including coffee, from being sold on the bloc’s market if they were grown on deforested land. 

The proposed regulation that is due to come into force at the end of the year has been criticised by 18 member states including Italy, as well as chocolate companies such as Cadbury owner Mondelez.

“It’s very tough, because it really puts some very strong limits for European roasters to import good coffee,” Lavazza said. The legislators pushing it “don’t have any idea how our business works”, he added.