Current Trends in the Coffee Market Worldwide

An international coffee tradeshow was held last week, in Bogota, Colombia, as part of ExpoEspeciales. In attendance were different players in the worldwide coffee supply chain. Additionally, various conferences were held regarding the current situation of the coffee market worldwide. This article summarizes the key points presented by Neil Rosser, head of coffee research at Armajaro Research.

Current Trends in the Coffee Market Worldwide

Mr. Rosser explained the global trade trends of coffee since the early 2000s. In general, demand for coffee has been on the rise. However, over the past couple of years there has been a deficit of coffee supply worldwide. There are challenges to be overcome, such as, changing weather conditions, increasing wages, and volatile exchange rates. Overall, the coffee industry has been growing, but there is still a lot to do in order to ensure sustainable practices worldwide.

“With a 2% growth rate in demand, producers need to do better.” – Mr. Rosser

Over the last ten years, coffee consumption increased by 2% yearly and, in the United States, demand has increased by 600,000 bags yearly since 2010. Throughout the US, imports went from 20.8 million bags in 2010 to 24.5 million bags in 2015, due to an increase in demand for specialty coffee. However, during the 2014-2015 crop year there was a worldwide deficit of 3.9 million bags. As of today, it is estimated there will be a deficit of 4.4 million bags for the 2016-2017 crop year. Certainly, suppliers worldwide need to start implementing better practices to increase yields of production for the bean. Furthermore, they need to take advantage of the increase in demand before it is too late and prices skyrocket. For example, in 2015, Starbucks alone used an estimated 4 billion bags to keep up with its increasing demand.

“We need more coffee and we depend too much on Brazilian coffee. We need to invest more or we could face a disaster.” – Mr. Rosser

This has been a tough year for Brazilian farmers. In short, coffee prices worldwide were low since the beginning of 2015. They remained low throughout the year and had a very slow recovery. Additionally, the country had been facing a drought since 2014. As Mr. Rosser mentioned, “nobody expected a dry season like this in rainy Brazil”. The drought led to low levels of Conilon (Robusta) production across the country and was one of the reasons for the deficit of coffee worldwide. Rainfall has increased in the past months leading to increased yields in Arabica production across the nation. Demand for Brazilian coffee has been on the rise across the world due to its high quality and consistency. Especially in North America, where consumers are shifting from mild coffee to Brazilian coffee. Brazil, like many other countries, also suffered as a result of the oil crisis. Usually, high oil prices lead to a weaker US dollar, which leads to more money in emerging markets. Sadly, for the economy of Brazil, the case has been the complete opposite. Low oil prices and a stronger US dollar make it harder for Brazilian producers to thrive.

“Vietnam and Brazil have been able to invest in technology, now Central America needs to follow this path.” – Mr. Rosser

Vietnam was able to increase their market share of Robusta from 33% to 46% since the beginning of 2000. This was achieved thanks to a systematic replanting with high quality materials. Vietnam saw an increase in their yields of production to 100 bags per hectare. On the other hand, Brazil had an increase in the market share of Arabica from 37.9% to 46.9% since 2000. Overall, the country is an efficient producer of coffee. Low costs of production, efficiency, and high product quality are key aspects of the Brazilian coffee market. These aspects increase competition and lead small inefficient producers to exit the market.

Central America and developing regions need to be able to keep up with high-yield, high-quality markets like Brazil. However, markets like that of Costa Rica and El Salvador have a hard time competing since they do not have enough resources to invest. Additionally, the cost of labor has been on the rise in Central America and other countries like Colombia, which leads to higher production costs. In turn, this leaves the farmers with a smaller share of revenue. Nonetheless, currency devaluation, in countries with floating currencies, helps mitigate the impact of rising labor costs.

“Volatile exchange rates pose a challenge to achieve sustainable coffee production.” – Mr. Rosser

In short, currencies that are not pegged to a major currency and float freely help boost exports originating in the country; such is the case of Brazil. Devaluing the Real against the dollar boosts exports and helps keep prices stable. On the other hand, currencies that are tied to the dollar cannot devaluate; therefore, countries cannot boost exports as needed. Since January of 2014, Vietnam’s economy suffered because the exchange rate is fixed to the dollar. As a result, exchange rate volatility and speculation are a concern to the global market. As Mr. Rosser mentioned “information, knowledge, and competition are most important to producers.” In a globalized world, it is imperative that producers have enough knowledge of the markets and of best practices to increase their yields of production. This will lead to healthier competition, fairer markets, and, possibly, to more stability in the world economy.

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