How high coffee prices are choking cash flow for roasters and traders

COFFEE prices have surged to unprecedented levels, yet for many in the industry, the biggest challenge is not simply the high cost of beans – it’s cash flow. 

Green coffee now costs more than twice as much as it did a year ago, throwing budgets and financial planning into turmoil. 

“The cost of coffee is always a financial challenge for the trade,” says William Hobby, founder and manager of Maverick Coffee Trading. “Not only is physical coffee now costing double – at a minimum – but the cost of managing our hedges is also crippling the financial capabilities, adding another layer of expense to the trade.”

Roasters and traders who once managed predictable cycles of purchasing and selling are suddenly scrambling to secure the capital needed to maintain operations. While higher retail prices will eventually compensate for the increased costs, businesses still need upfront capital to buy coffee at these inflated rates. 

“We all know the phrase ‘cash is king’ – referring to the importance of cash flow in the overall fiscal health of a company,” says Marilena Kouidou, President of IWCA Greece and Manager of Coteco Consulting SA. “At this very moment, this argument is being proven right.”

“In the face of the extreme price increases the sector is facing, the financial sustainability of roasting companies has more to do with the strategies companies will adopt to ensure adequate liquidity than with the ones relevant to their end of the year profit and loss statements.”

The problem is exacerbated by rising logistics, transport, and operational costs, stretching working capital to its limits. Freight rates have soared, import tariffs (also known as a customs duty on imports) in some key markets have increased, and warehousing costs are climbing as roasters struggle to hold on to expensive inventory for longer periods.

To cope, companies are seeking cheaper deals, alternative suppliers, or negotiating installment-based payments. But in a market where prices remain stubbornly high, these measures offer limited relief. 

“Both traders and roasters can alleviate some of this pressure by reducing the amount of stock they hold,” says William. 

“Warehouse availability and spot market volumes have dwindled in recent months as supply tightens. Some traders have lifted their hedges – buying back futures covering their stock – to ease mounting margin call pressures. Roasters, meanwhile, are extending payment terms, pushing the financial strain onto suppliers. Many are also avoiding long-term contracts, unwilling to lock in at these high prices, instead buying only for immediate needs in the hope that prices will fall.”

Many smaller traders and specialty roasters are finding themselves squeezed out, unable to finance the large purchases required to secure stock. 

Even larger firms are beginning to feel the pinch, prompting concerns that if the cash flow squeeze persists, supply chains could seize up altogether.

Banks and lending institutions are tightening their purse strings

The coffee sector has long relied on trade finance – short-term loans that enable businesses to buy beans, ship them, and sell at a later stage when contracts are fulfilled. 

According to the International Trade Centre’s Coffee Guide, “because so many factors contribute to uncertainty, commodity trade finance is a highly specialised activity, usually undertaken not by the average retail bank, but rather by corporate lending or commodity trade finance banks, which lend capitals for trade, not speculation.” 

Coffee sector stakeholders face inherent risks, regardless of where they are involved in the Global Value Chain. As coffee prices have risen, so have the risks associated with lending. Banks and financial institutions are tightening credit lines and enforcing stricter conditions, making it increasingly difficult for coffee traders and roasters to access the financing they need.

The reasoning is simple: higher prices mean bigger loans, and bigger loans mean greater risks. 

“Banks are tightening credit as soaring coffee prices deplete credit lines faster, without a proportional rise in client profitability – making each trade riskier,” says William. “A spike in industry defaults has further dampened risk appetite, making lenders increasingly cautious.”

If a trader defaults, the potential losses are now far larger than they were even a year ago. This has prompted lenders to raise interest rates, demand more collateral, and in some cases, withdraw financing entirely.

According to industry estimates from 2024, over 50% of small and medium-sized enterprises (SMEs) lacked access to credit globally, with SMEs making up approximately 90% of all businesses globally. This lending gap means that smaller coffee trading enterprises are facing an existential crisis, as they lack the financial muscle to withstand prolonged cash flow pressures.

In its largest single-period increase since its inception, the Asian Development Bank’s (ADB) 2023 Trade Finance Gaps, Growth, and Jobs Survey indicates that the trade finance gap back in 2022 rose to $2.5 trillion, up from $1.7 in 2020 and $1.5 trillion in 2018.

Today, roasters – many of whom rely on financing to cover large coffee purchases – are seeing their margins eroded as banks hesitate to extend credit. 

The irony is not lost on the industry: for years, producers have struggled to secure financing, but now traders and roasters find themselves in the same position.

What comes next – consolidation, innovation, or collapse?

With cash flow tightening across the coffee value chain, the industry faces a difficult question: does everything grind to a halt, or do the largest players consolidate power? 

The likeliest outcome appears to be a wave of mergers and acquisitions (M&A), as financially weaker companies are absorbed by those with greater access to capital. 

Major multinationals – Nestlé, JDE Peet’s, Starbucks – are well-positioned to weather the storm, thanks to their scale and ability to secure financing at better terms. This could lead to increased consolidation, with smaller specialty roasters and independent traders struggling to compete.

But there are also alternative financing solutions emerging. Venture capital, private equity, and crowdsourcing platforms are gaining traction as ways for coffee businesses to access capital outside traditional bank lending. Some firms are also turning to supply chain finance, where larger buyers step in to provide financing for their suppliers, ensuring continued operations.

Angel investors and impact-driven financing may also offer a path forward, particularly for sustainable and specialty coffee brands. Some forward-thinking companies are exploring tokenised assets and blockchain-based financing, allowing investors to back specific lots of coffee in exchange for future returns. 

“Supply chain finance has long been an option, though rarely cost-effective,” says William. “Smaller and mid-sized roasters may turn to asset-based financing to cover inventory until consumer price increases offset costs. Traders, meanwhile, are exploring alternative funding, with some shipping lines and warehouse companies offering secured finance solutions.” 

These solutions remain nascent, but they could play a growing role if traditional finance continues to retreat from the sector. 

“There is a clear need for alternative funding sources,” says Marilena. “Markets evolve, and so do the financial demands of businesses. Venture capital, with its higher risk tolerance, could provide a crucial lifeline – particularly for companies that balance financial viability with social sustainability. This type of investment offers a dual benefit, driving both business growth and broader societal impact.”

One thing is certain: if coffee prices remain high, the industry will not return to business as usual. 

The way coffee is traded, financed, and structured is shifting. Smaller players may struggle to survive, while those who can secure alternative capital streams could emerge stronger. As the cash flow crunch continues, the next few years will reshape the coffee industry as we know it.

February 21, 2025