Starbucks shares and those of other US coffee retailers may face increased costs following the Trump Administration’s proposal to impose a 50% tariff on imports coming from Brazil, the largest exporter of coffee in the world.
This policy is set to come into effect August 1, unless Brazil can negotiate an exemption. It threatens to increase input costs for giant beverage companies that heavily rely on Brazilian beans.
Andrew Charles of TD Cowen says that Starbucks’ exposure to Brazilian beans could result in a 0.5% rise in the cost-of-goods sold for North America.
Starbucks North American Coffee Beans – Brazil: 22% Approximately 2.2% of the total costs in this region are accounted for by Brazilian coffee beans.
Input costs would rise by 50%, and the company’s earnings could be reduced by an estimated 1,4%.
Starbucks Channel Development, which includes packaged coffee and ready-to drink beverages sold in grocery stores, could have a more significant impact.
Charles predicted a cost increase of 3.5% for this division. This would result in a 0.6% additional drag on earnings. The tariffs could result in a 5 cent reduction per share of earnings.
Prices may not rise for consumers, at least in the near future
Starbucks is not likely to immediately pass the increased costs on to its customers.
After a slow year in the US and rising customer dissatisfaction, Brian Niccol has committed to keeping prices at current levels through 2025.
Nevertheless, cost pressures could limit the pricing flexibility.
The announcement of the new tariffs has led to a 1% rise in coffee futures on Thursday, but they are still below their February record highs due to extreme weather conditions in Brazil.
Over the last two years, supply disruptions due to drought and frost has already driven global coffee prices higher.
Charles said that Starbucks global sourcing, which spans over 30 different countries and their increasingly diverse menu may help to soften any blow.
Refreshers, a popular non-coffee beverage that has been gaining in popularity over the past few years, is now a major contributor to North America’s revenue.
Dutch Bros. and other in the Line of Fire
Dutch Bros could face similar margin pressure, as it relies heavily on Brazilian coffee beans to supply over half of its coffee.
Charles believes that the tariff will cause a rise of 1.3% in Dutch Bros annual costs and a reduction of 0.5% in profit.
The sourcing cost of other companies such as JM Smucker, the maker of Folgers and Keurig Dr Pepper may also increase.
According to the US Department of Agriculture, Brazil provides about one-third of green coffee beans in the US.
Giuseppe Lavazza of Italian coffee roaster Lavazza said that in an interview on Thursday, the Trump tariff may trigger “a great deal of inflation” within the global coffee industry.
The majority of US coffee is imported, as only Hawaii and Puerto Rico have the ideal climate to grow beans.
Exemptions possible and timeframe
White House has still time to consider.
USDA Secretary Brooke Rollins stated in June that there are discussions underway regarding exemptions for imports essential to the US that cannot be grown, like coffee.
Coffee retailers will have an unpredictable summer until formal measures to this effect are implemented.
Starbucks’ stock has risen just 2.69 percent year to date.
The shares rose by 21% the day Niccol became CEO, in August 2024. However, his turnaround strategy has yet to be fully realized.
Sales have not yet recovered significantly and no financial targets have been announced.
Analysts say, however, that, in the event the tariff is implemented without any exemptions, the US coffee sector will be forced to absorb the higher costs of commodities or pass these on to consumers who are already suffering from inflation.
As new information becomes available, this post Trump’s tariff of 50% on Brazil imports will cause trouble for Dutch Bros and Starbucks may change.
