German Cartel Office Raids Coffee Roasters

On Thursday July 3, the German Federal Cartel Office raided the offices of several German coffee roasters as part of a probe into suspicions of fixing the price of coffee. The raids were the culmination of a slow escalation of prices and suspicions that started as early as last September. The raids shouldn’t have been a surprise to the coffee roasters in general, considering that the Cartel Office hinted some time ago that they were looking into the circumstances of an earlier coffee price increase.

Coffee roasters involved in the probe include Alois Dallmayr, Tchibo and Melitta. Kraft Foods, whose holdings include the coffee brands Jacobs, Onko and Coffee Hage, was not affected by the probe. Dallmayr and Tchibo spokespeople both affirmed that they were cooperating with authorities to disprove any allegations of price fixing, while Melitta simply confirmed that their offices had been raided.

A spokeswoman for Dallmayr noted that German retail prices for coffee are at a very low level.
The Cartel Office earlier said it raided the offices of several German coffee makers throughout the country on suspicion of illegal price-fixing that started in 2004 or earlier.

This is the first time the the coffee industry is at the center of a Cartel Office probe in Germany.

However, Munich-based coffee roaster Dallmayr said it had been visited by agency investigators.

“Yes, there has been a search of our offices as has taken place at all large roasters,” a Dallmayr spokeswoman said. “We are working fully and totally with the authorities to clear up the allegations.”

She added that German retail prices for coffee were at a very low level. This is especially true in a year that has seen the coffee roasters hit with rising costs thanks to the rising cost of energy and unusually high coffee prices in the futures and commodities markets. In fact, the industry had warned consumers to expect price rises after the London prices for robusta coffee made a dramatic leap earlier this year. Arabica coffee prices have remained relatively stable, but most supermarket brands rely on the generally lower priced robusta bean for the bulk of their blends.

Coffee is the single most popular beverage in Germany, with sales surpassing even water and beer. The average German drinks 146 liters of coffee annually, and those numbers have been increasing as the younger generation absorbs the Starbucks message that drinking coffee is trendy. The increased coffee sales, however, have not been enough to compensate for the increased production costs caused by the increase in energy and transportation costs, increases that have hit every segment of the food market.

The increases in price and commodity futures is so large, stated one coffee executive, that it’s not possible for roasters to compensation through cost savings in the longer term. With London robusta coffee futures at their highest level in over 12 years, and New York prices for Arabica futures around a 10 year high, the only solution to higher purchasing costs is to pass the costs on to the end consumer.

Prices were raised by German coffee roasters in late December 2007. At that time, the decision by several large roasters to raise prices almost simultaneously sparked investigation by German competition authorities. Another round of price increases in March sparked further concern, and the latest warnings that prices were set to rise again may have been the final trigger for the raids.

The coffee roasters can at least console themselves that they are in good company. Other industries that have been investigated recently by the German Cartel Office include the chocolate industry and the dairy industry. Mocha Choca-latte, anyone?

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