Weather Shocks, Structural Weaknesses Fuel Volatility in Coffee, Cocoa, Tea Prices, Says FAO

International prices of coffee, cocoa, and tea have experienced sharp fluctuations due to structural vulnerabilities, with weather-related shocks remaining the main driver of such spikes, according to a new report by the Food and Agriculture Organisation (FAO). The report, titled Price Dynamics in Global Beverage Market: Trends, Drivers and Consequences, finds that short-term real price movements are driven predominantly by changes in supply and demand conditions, which account for more than 90% of observed price dynamics.

Key Drivers of Volatility

According to Boubaker Ben-Belhassen, Director of FAO’s Markets and Trade Division, "In recent years, global beverage commodity prices have risen much faster than those of other agricultural commodities. The combination of concentrated supply and growing global consumption creates fertile ground for large swings in their international prices. Weather-related shocks — droughts, frosts, and excessive rainfall — remain the primary triggers of price spikes. Plant diseases, rising input and labour costs, geopolitical tensions, and shipping delays have added further pressures."

The report notes that production is highly concentrated in a small number of low- and middle-income countries and largely undertaken by smallholder farmers, while most output is exported in raw form to high-income and emerging economies for processing and distribution. The long distances between producers and consumers increase exposure to market disruptions and transport costs, amplifying the effects of global shocks on domestic markets.

Uneven Price Transmission Across the Value Chain

A key finding of the FAO report is that price changes are not transmitted evenly across the value chain. Producers tend to be more directly exposed to global price shocks, whereas the impact on consumer prices is generally more muted. This asymmetry is because raw coffee, cocoa, and tea account for only a small share of final product costs. The extent of price transmission varies across countries, reflecting differences in market structure, domestic and trade policies, and transaction costs.

The report warns that these patterns suggest price transmission is shaped by the structure of global value chains, where multiple stages separate farmers from final consumers and where a significant share of value is generated in processing, distribution, and retail. As a result, global price changes are not transmitted one-for-one along the chain. Increases do not fully translate into higher prices for farmers, and price declines, especially at the consumer level, are only partially transmitted, as illustrated by the case of chocolate.

Implications for Market Stability and Livelihoods

With coffee, cocoa, and tea sustaining the livelihoods of millions of farmers worldwide, the FAO report highlights the need to strengthen production systems, improve market transparency, and support a more balanced distribution of value across the value chain. The findings further suggest that broader macroeconomic conditions play a comparatively limited role in explaining short-term price fluctuations for these products. Expectations about future market conditions can shape market participants’ behavior, at times reinforcing price movements even before underlying supply or demand shifts fully materialize.

For traders and procurement teams, the report underscores that supply-side shocks—especially weather events—remain the dominant source of price risk in these beverage markets. The structural concentration of production and the lag in transmission to consumer prices create both opportunities and challenges for hedging and sourcing strategies. The FAO’s analysis provides a framework for understanding why price spikes can be severe for producers while retail prices remain relatively stable, a dynamic that will continue to shape global beverage markets.

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