The challenges facing coffee producers and what it means for your business.

Following the news that Starbucks has been hit by supply shortages in the US, with customers complaining across social media that they are unable to get their daily staples, our experienced coffee team sheds some light on the current challenges facing the coffee industry.

 

Coffee drinking during the pandemic and coffee market trends.

With coffee shops closed for months, the demand for at-home coffee products has soared during the pandemic, with a study suggesting 22% of UK coffee drinkers increased their coffee intake as a result. Nestlé saw their biggest quarterly sales rise in a decade, with sales of pods for Nespresso coffee machines up 17% in the first three months of 2021. It looks like the increased global appetite for coffee is here to stay, but is there enough to go around?

 

Are we facing a coffee shortage?

According to the Wall Street Journal ‘global coffee consumption is set to exceed production this year’. The United States Department of Agriculture forecasts that consumers are set to increase consumption by 1.8 million bags to 165 million 60kg bags in 2021, versus the previous year, yet global coffee production is expected to decline to 164.8 million bags this year.

 

What is happening on the coffee producing ground?

Brazil is in the middle of one of the worst droughts in living memory. Brazilian coffee farmer’s crops are cyclical one year to the next, and after a strong harvest in 2020 despite a prolonged drought, 2021 was always expected to be a lower yield, but the farmers are concerned and therefore so are the markets. A frost in July caused further damage to trees, which is yet to be fully quantified but is estimated to reduce next year’s Brazil harvest by between 2 and 8 million bags. Rainfall in Brazil continues to be well below the historic average and the full impact will not be known for another few weeks.

One of the largest brokers is forecasting a harvest shortage this year of 23 million 60kg bags, or 1,380,000 tons. Farmers say their stockpiles left over from last year’s bumper crop are dwindling and they are worried that they could run out before next year’s harvest begins. Some agricultural analysts are projecting the drought could impact crop yields until 2023.

Colombia has experienced export delays as a result of anti-government protestors blocking highways and ports since April. Existing supply chain issues caused by the pandemic have been exacerbated. The crisis continues to affect coffee farmers, who despite the current high price of coffee are unable to sell their harvest. This could have serious financial consequences for their families and their wider communities.

Vietnam, along with major exporters in Thailand, China, and India, has experienced a shortage of shipping containers and rocketing freight costs have hit Vietnamese farmers, who produce more than a third of the world’s supply of robusta. This crisis is not just affecting food distribution with CNBC reporting Ikea's Singapore operations calling it a "global transport crisis" estimating 850 of its 8,500 products are affected by shipment delays.

Compounding an already challenging trading environment in Vietnam, are tough coronavirus travel restrictions being imposed to tackle the spread of the aggressive Delta variant of Covid-19. Strict lockdown measures have been implemented in the port of Ho Chi Minh City, as well as additional restrictions in coffee-growing areas.

 

Are coffee prices rising?

Earlier this month a headline in the Financial Times warned that a ‘Jump in coffee bean prices set to filter through to your morning brew’. Coffee prices have been moving up sharply since late 2020, with the July 2021 frost in Brazil causing the market to rally above $2.00 for the first time since 2015. 

According to Mintec, providers of independent commodity market intelligence and global food pricing data, it is unlikely that consumers will notice any immediate increase in the cost of a cup of coffee, as most coffee supplier contracts are locked in for six months. There will be a clearer picture once the result of Brazil’s harvest is known, and when there is more certainty regarding Vietnam’s Covid outbreak.

To find out more and to discuss how to mitigate the risk of raw coffee product price increases for your business please contact our experienced team.