Image: Folgers
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Folgers is a brand of Procter & Gamble Co.
msnbc.com news services
updated 3/11/2005 2:39:19 PM ET 2005-03-11T19:39:19

What's that delicious smell? It could be the aroma of pricier coffee after industry leader Folgers said Friday it was raising the suggested list price of its whole beans and ground coffee by 12 percent, just three months after a 14 percent increase.

Folgers, the popular brand of Procter & Gamble Co. and an industry trend-setter, raised its list price for ground coffee by 28 cents to $2.56 per 11.5-ounce and 13-ounce equivalent. Similar price hikes were announced for whole bean coffee.

Analysts expected other coffee marketers to follow suit.

The company said the move was in line with surging prices for arabica beans on commodity markets.

Folgers spokeswoman Susanne Dusing said the standard coffee contract has risen about $1.23 a pound in recent weeks from 95 cents when the company last raised prices Dec. 9.

Other coffee marketers did not immediately return calls seeking comments, but given the activity on futures markets, they seemed likely to follow suit.

In December Kraft Foods Inc., which makes Maxwell House, and Sara Lee Corp., with Chock full o’Nuts, followed Folgers withing days.

“The green coffee costs have just been rising. This is certainly an opportunity for P&G, with price increases, trying to offset its costs,” said Jason Gere, an analyst with A.G. Edwards & Sons Inc. in New York. “They announced this and I’m sure their competitors will do the same. They’re taking the pricing just to cover their costs.”

Indeed, prices have been hovering at levels not seen in more than five years, before the coffee market plunged into a four-year crisis with oversupply and low prices, forcing thousands of farmers in developing countries out of work.

The rise in the futures market has been largely fueled by industry expectations of a global supply deficit this year.

The International Coffee Organization expects world consumption of between 114 million and 115 million 60-kilogram bags, which would exceed projected output by 7 million to 8 million bags.

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Other roasters to follow
“We’ve had a very large run-up in wholesale prices and that is always going to be passed on to the retail customer,” said James Cordier, president of Liberty Trading Group, a commodities brokerage.

“Folgers is usually the leader and we will see the other brands follow the lead either today or Monday,” he predicted.

“Every roaster that we deal with, big and small, was waiting for someone to take the first step to lift prices,” said Ray Keane, a coffee trader at Balzac Brothers & Co. Inc., a green coffee importer.

Green or unroasted coffee, which comes in many varieties from high-quality arabica to robusta. A roaster buys the green beans, roasts them, then packages the coffee as ground or whole bean in tin cans or plastic containers or foil packets.

“Once that did happen, there were quite a few happy roasters this morning. And now they are all looking for the next raise,” Keane added.

Judy Ganes, a commodities analyst with J Ganes Consulting, agreed. “It’s only to be expected. The market has come up significantly from the last time they raised prices. I’m actually surprised it took as long as it did.”

The New York Board of Trade’s benchmark arabica contract for May delivery peaked just shy of $1.40 a lb on Friday. In stark contrast, benchmark coffee contracts traded between 40 cents and 60 cents a lb from May 2001 to September 2002.

Reuters and The Associated Press contributed to this report.

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