Tariffs on Coffee Are Fueling the Rise of the Energy Drink Market
America’s deep-rooted caffeine obsession is facing unprecedented challenges as sweeping tariffs on coffee imports lead to price increases and market disruption. Now, the beginning of each day with a sweet, fragrant cup of coffee brings with it a bitter reminder – the prices are rising due to Trump’s tariffs, and roasteries and coffee shops are no longer able to absorb the cost. The Consumer Price Index notes that coffee prices rose by 3.6% in August alone. This economic shift may create an opportune environment for the energy drink industry, which is well-positioned to capitalize on consumers seeking more affordable and accessible caffeine alternatives.
The coffee industry is facing some significant challenges: the Trump administration’s trade policies have imposed considerable tariffs on coffee imports from major producing nations; additionally, the supply of coffee beans is inherently limited by the fact that the plant can only grow in misty tropical climates in disease-free, rich soil, at an elevation, making the industry prone to climate-related disruptions; lastly, rising prices on coffee beans may affect any progress that has been made in driving up compensation for farmers producing the world’s favorite product in places like Peru, Nicaragua, Vietnam and Brazil, and may negatively influence global livelihoods.
On Tariffs:
First, the blanket 10% tariff imposed on all US trading partners in April made green bean coffee imports more expensive, which further amplified issues with the global coffee supply due to massive droughts in Vietnam and Brazil, some of the top suppliers of coffee beans. Brazil, the world’s largest supplier of Arabica beans (which constitute 57% of total coffee beans consumed worldwide), now faces an overwhelming 50% tariff on its goods, which came into effect August 1. Vietnam, the world’s largest producer of Robusta, a bean most commonly used in instant coffee, has seen its goods hit with tariffs, initially 46% and later adjusted to 20%, while India, another key exporter, faces a 25% tariff on tea and spices, as well as coffee. These tariffs are particularly unforgiving because coffee physically cannot be grown in the United States on a scale to meet domestic demand, meaning the tax burden falls directly on American companies and consumers.
| Country | Tariff Rate on Green Coffee Imports |
| Brazil | 50% |
| India | 25% |
| Vietnam | 20% |
| Indonesia | 19% |
| Myanmar | 40% |
| Mexico | 0% (exempt under USMCA) |
| Other countries | 10% |
The impact on coffee prices has been immediate and severe. Coffee prices surged by 14.5% in July year over year, with the average retail price for a pound of ground coffee reaching $8.41. Small businesses have seen bean prices jump 18% to 25% since January, forcing them to raise their own prices. The world’s largest coffee producer, Nestle, announced late in 2024 that they planned to shrink the size of their packages and raise coffee prices in 2025; Snickers (brands include Folgers and Dunkin’ Donuts) announced price increases in October of 2024 as well. This is intensified by pre-existing climate-fueled droughts in global coffee belts, which have already caused prices to hit an unprecedented high. Economists note that while demand for coffee is fairly inelastic, consumers are only willing to pay so much before demand begins to decline.
This scenario pushes consumers to reconsider their daily caffeine fix. Many view coffee primarily as a caffeine delivery system rather than a gourmet experience, particularly average households and younger demographics like Gen Z. As traditional coffee prices climb, consumers are likely to seek cheaper caffeinated beverage alternatives. This re-opens the door for sodas, energy drinks, green tea, and more, which are readily available and are often accompanied by aggressive marketing and cheaper entry points. Crucially, many of these alternatives, unlike coffee, can be made in the USA, rendering them immune to the current import tariffs.
The Energized Winner:
The energy drink industry is already recognized as a winner from tariffs on coffee beans. Companies like Celsius, based in Florida, are strategically positioned to benefit from this shift. Celsius has been actively expanding its portfolio and market reach through significant acquisitions and partnerships. It purchased Alani Nu for $1.8 billion, a brand that primarily targets a female demographic and recently acquired Rockstar Energy drink from PepsiCo for the U.S. and Canada markets. Rockstar, in turn, appeals to male consumers who favor traditional energy drink flavors. The core Celsius brand remains popular with consumers seeking healthier energy drinks.
Furthermore, Celsius has deepened its strategic partnership with PepsiCo through a $585 million deal that increased PepsiCo’s ownership stake to 11%. This partnership is vital for leveraging PepsiCo’s robust distribution system in the U.S. and Canada, allowing Celsius to boost efficiency, save money, and deepen the reach of its brands, particularly the newly integrated Alani Nu. By diversifying its product offerings and optimizing distribution, Celsius aims to achieve a diversified portfolio that will serve more customers and capture more than a 20% share in the energy drinks segment, expanding its portfolio from major brands to leading powerhouse brands.
In conclusion, the imposition of tariffs on coffee, combined with climate-related supply issues, is creating an environment of rising prices and consumer dissatisfaction in the coffee market. This economic pressure is likely to drive price-sensitive consumers towards more affordable caffeine alternatives, directly boosting sales for the energy drink industry. Companies like Celsius, with their expanding and diversified brand portfolios, strategic distribution partnerships, and targeted marketing, are well-prepared to capture this evolving consumer demand and solidify their dominance in the diverse and ever-growing energy drink market.
If your business is impacted by these changes, Peacock Tariff Consulting is here to help. Reach out today to start the conversation.
Author: Maria Pechurina, Director of International Trade