President Donald Trump\u2019s proposed 50% tariff on Brazilian imports is bad news for coffee drinkers.<\/p>\n
Brazil, the largest U.S. supplier of green coffee beans, accounts for about a third of the country\u2019s total supply, according to data from the U.S. Department of Agriculture.<\/p>\n
Coffee beans need to grow in a warm, tropical climate, making Hawaii and Puerto Rico the only suitable places in the United States to farm the crop. But, as the world\u2019s top consumer of coffee, the U.S. requires a massive supply to stay caffeinated. Mintel estimates that the U.S. coffee market reached $19.75 billion last year.<\/p>\n
The increase in trade duties could leave consumers with even higher costs after several years of soaring coffee prices. Inflation-weary consumers have seen prices for lattes and cold brew climb as droughts and frost hit the global coffee supply, particularly in Brazil. Earlier this year, coffee bean futures hit all-time highs. They rose 1% on Thursday, although still well below the record set in February.<\/p>\n
To be sure, there\u2019s still time for Brazil to strike a deal with the White House before the tariffs go into effect on Aug. 1. Plus, food and beverage makers are hoping that the Trump administration will grant exemptions for key commodities. U.S. Department of Agriculture Secretary Brooke Rollins said in an interview in late June that the White House is considering exemptions for produce that can\u2019t be grown in the U.S. \u2014 including coffee.<\/p>\n
But if that doesn\u2019t happen, coffee companies like Folgers owner J.M. Smucker, Keurig Dr Pepper, Starbucks and Dutch Bros will face much higher costs for the commodity. Giuseppe Lavazza, chair of Italian roaster Lavazza, said on Bloomberg TV on Thursday morning that the latest tariff could mean \u201ca lot of inflation\u201d for the coffee industry.<\/p>\n
Roasters will try to mitigate the impact of the higher tariff, but it won\u2019t be easy.<\/p>\n
\u201cEvery company is always trying to eke out the next efficiency, to dial into their operations or find the way to minimize inflationary pressures, but a 50% tariff on a commodity that fundamentally is not available in the U.S. \u2014 you can\u2019t really do much with that,\u201d Tom Madrecki, vice president of supply chain and logistics for the Consumer Brands Association, a trade group that represents the consumer packaged goods industry.<\/p>\n
One mitigation tactic could be to import beans from countries other than Brazil, but companies will likely still be paying more for the commodity.<\/p>\n
\u201cA characteristic of tariffs, especially when you have tariffs on multiple countries at once, is that not just the inbound cost rises. It allows the pricing floor to also rise,\u201d Madrecki said. \u201cIf you have cheaper coffee in a country different than Brazil, you\u2019re not inclined to sell it at a 30% lower cost. You\u2019re going to try to bump your coffee up a bit more, too.\u201d<\/p>\n
At-home coffee brands, like JM Smucker\u2019s Dunkin\u2019 and Kraft Heinz\u2019s Maxwell House, have already been hiking their prices this year in response to spiking commodity costs. More price increases could be on the way for consumers, although retailers may push back.<\/p>\n
Keurig Dr Pepper would consider additional price hikes in the latter half of the year to mitigate the impact of tariffs, CEO Tim Cofer said in late April, after Trump introduced his initial round of so-called reciprocal duties.<\/p>\n
And Smuckers warned investors on its quarterly conference call in early June that tariffs on coffee were weighing on its profits. Coffee accounts for roughly a third of the company\u2019s revenue.<\/p>\n
\u201cGreen coffee is an unavailable natural resource that cannot be grown in the continental United States due to its reliance on a tropical climate,\u201d Smuckers CEO Mark Smucker said. \u201cWe currently purchase approximately 500 million pounds of green coffee annually, with the majority coming from Brazil and Vietnam, the two largest coffee-producing countries.\u201d<\/p>\n
Vietnam, which announced a tentative trade deal with the White House earlier this month, supplies about 8% of the U.S.\u2019s green coffee beans. Under the agreement, the U.S. will impose a 20% duty on Vietnamese imports.<\/p>\n
Consumers who prefer a caramel macchiato from Starbucks for their caffeine hit will likely see a more muted impact on their wallets.<\/p>\n
After several quarters of sluggish U.S. sales, Starbucks CEO Brian Niccol said in late 2024 that the company wouldn\u2019t raise prices in 2025, in the hopes of winning back customers who had complained about how expensive its drinks had gotten. While it waits for its turnaround to take hold, Starbucks might choose to swallow the higher coffee costs.<\/p>\n
The coffee giant also benefits from its diversity \u2014 both in suppliers and the breadth of its menu, which now includes the popular Refreshers line. Starbucks imports its coffee from 30 different countries, and roughly 10% of its cost of goods sold in North America comes from coffee.<\/p>\n
The new trade duty could mean a 0.5% increase in Starbucks\u2019 North American cost of goods sold, assuming about 22% of its beans come from Brazil, TD Cowen analyst Andrew Charles wrote in a note to clients on Thursday. Starbucks\u2019 packaged drinks, which are distributed by Nestle, could see their cost of goods sold increase 3.5%. Altogether, that represents a 5-cent drag on annual earnings per share, according to Charles.<\/p>\n
For rival Dutch Bros, higher coffee costs also wouldn\u2019t hurt its bottom line much. Coffee accounts for less than a tenth of the drive-thru coffee chain\u2019s cost of goods sold. Assuming that Dutch Bros sources more than half of its coffee from Brazil, its cost of goods sold would rise just 1.3%, according to Charles\u2019 estimates.<\/p>\n<\/p>\n
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