Annual Origin Focus 2023 - DRWakefield

15 January 2024

It feels like only a year ago that I sat down to write the end-of-year origin focus for 2022. Back then I could scarcely believe that December 2021 and December 2022 were only a year apart. For the former, I had been isolating in my flat with a bad case of covid (if you remember what that is), but in December 2022 I was watching World Cup games in a crowded pub! For better and for worse, the differences between 2022 and 2023 aren’t as stark. International conflict continues to dominate the headlines, and political divide seems both more present and persistent the world over. Still, it’s no longer novel to be able to go down to the pub and enjoy a drink without having to purchase a ~~scotch egg~~ substantial meal, so grab a pint of your favourite warm British ale and let’s get stuck in with our annual end-of-year origin focus – 2023 edition.

January

January in the UK kicked off much that same as any other – that is cold, wet, and miserable. I, however, was on my way to Heathrow to catch a flight to the much more amicably temperate Honduras. While there we had the opportunity to talk to producers and exporters about the challenges faced the previous year and how they might address them going forward. Fertiliser costs, fuelled by the Russo-Ukrainian conflict, as well as other overheads such as picker’s wages contributed to spiralling production costs that we were told to be unsustainable with the market levels at the time. You can read our annual coffee market report for a bit of context, but to summarise: the coffee market was incredibly low in January 2023 [1]. Thankfully for producers and exporters, it has rebounded since then bringing some much-needed relief, but it does raise the question – what market level is sustainable for producers, exporter, and importers? Many of the cooperatives we work with in Honduras are Fairtrade, and a major topic of discussion at the time was the Fairtrade minimum price coming into effect later in 2023 to reflect inflation and rising overheads.

For those of you unaware Fairtrade stipulate a minimum price to be paid for coffee regardless of the market. If the coffee market price is higher than the minimum, the producer will receive that price; but it guarantees they won’t be paid less. The main concern with producers we spoke to was that this minimum did not reflect the cost of overheads as of January 2023, and therefore was not actually a fair trade. The Fairtrade minimum price increase was one of the biggest conversations in coffee in 2023 so we will be touching on it again throughout this article.

I can’t round off January 2023 origin news without mentioning the storming of Congress in Brazil following the swearing in of President Lula [2]. Brasília and other areas saw widespread disorder as Bolsonaro supporters refused to accept Lula’s presidency. Many media outlets were quick to draw parallels with the United States’ Capitol riots 2 years earlier almost to the day [3].

Omar, Henry and James at Capucas

February

In February we covered the unrest in Peru that followed the ousting of President Pedro Castillo in December 2022 [4]. After Castillo’s failed attempt to dissolve Congress through a self-coup, the First Vice President of Peru, Dina Boluarte, was sworn in. Political unrest followed with calls for now President Boluarte to step down and for fresh general elections to be held. The protests lacked any centralised leadership and were mainly organised by an array of left-wing and indigenous organisations. The demonstrations lasted from December 2022 through to March 2023 and affected all areas of the country.

What does this have to do with coffee? Well, among many other things, politics can and does have a large effect on coffee exports. Protests and blockades led to the port of Callao in southern Peru being closed, affecting shipments leaving the country. The political unrest also weakened the Peruvian Sol which can affect coffee prices too. While the situation affected the macro-outlook for Peru, coffee farmers were relatively unaffected with production around 15% higher than 2022 [5].

March

In March Jack and MT visited El Salvador, the first time DRWakefield had been back post-pandemic [6], I’d encourage a read of their trip report as it goes into more detail than I can afford here. In 2023 El Salvador hosted the Producer Roaster Forum (PRF), at the time the only country to host it twice, displaying the country’s commitment to coffee quality and willingness to engage with the supply chain. By all accounts, it was a huge success drawing in over 2500 attendees per day from all parts of the world.

The harvest season was good for the 22/23 harvest season. Predictable weather patterns led to more uniform drying, which in turn increased the quality and consistency of the coffee this year. Jack and MT were even lucky enough to witness some healthy flowering of the lower elevation coffees during their visit, this is often used as an indicator of the strength of the next crop.

MT, Enrique, Rene and Jack at El Ingenio

April

Every time I sit down to write this end of year origin focus, I have to cheat slightly. It is hard to fill all 12 months with distinct origins once you’ve ticked off the main coffee growers. So, you’ll have to forgive me for turning my attention in April not to an origin, but to an event which people from all origins attend – SCA. Hannah, Henry, MT, and Simon flew out to Portland last year to attend the Specialty Coffee Association Expo and met with no fewer than 30 different suppliers from the world over.

Being able to meet with so many people from different origins gives a great opportunity to see the larger picture in coffee. Industry wide issues such as the European Union Deforestation Regulations [7], and the Fairtrade minimum price increase [8] were some of the main talking points at the show. At the time, neither had come into effect, but as with any large changes in the industry, we must be well prepared for the consequences. Will exporters stockpile Fairtrade coffee until the minimum price increase comes into effect to obtain a better price, or will there be a flurry of buying just before? How will these eventualities affect the market or the supply of coffee? All these discussions were being had individually, but if a post covid world has taught us anything, there is no substitute for these sorts of shows where we can have many face-to-face meetings and get a good gauge of the industry.

May

In May Hannah travelled to Rwanda to visit our partners Kinini and Twongerekawa [9]. The history of coffee in Rwanda is interesting, with the NAEB (National Agricultural Export Board) dictating how and what varietals to grow for the most part. This may sound controlling, but similar measures are in place in a lot of coffee growing origins to ensure the quality and consistency of export. The NAEB have traditionally been among the more restrictive national boards, supplying cooperatives in the country only with Red Bourbon to establish a distinctive national cup profile. Having achieved success in this, they have recently loosened restrictions, allowing other NAEB approved varietals to be grown to understand how well they can grow.

One of our partners, Kinini, has been experimenting with RABC15, a genetically modified Bourbon which is resistant to rust and coffee borer. 2023 marks the first yield from this new varietal, and pending profile, could be more widely rolled out among their farmers. Similar experimentation is happening among many cooperatives in Rwanda, but we are unlikely to see these varietals hitting our shelves for a couple of years at least. Developing and testing varietals is a long process. Coffee trees take roughly two years to bear fruit, which then needs to cupped and analysed before being selected for larger trials, after which we may finally see some end consumer results. If successful we may see some interesting results both in crop yield (if the disease-resistant trees cup as well as the traditional Red Bourbon) and quality (with higher-scoring varietals) in the coming years.

Hannah, Jacquie and Aissa at Kinini

June

June marked the first round of voting in the Guatemalan general election. With no clear majority for the presidential election, the voting was then extended to a runoff in August which was won by Bernardo Arévalo. The Guatemalan Quetzal, however, remained consistent throughout the year, sticking between 7.8 and 7.9 GTQ to the dollar. Bernardo Arévalo will assume power in January 2024 where he is expected to bring in several policy changes to tackle corruption in the country.

The total hectares of planted coffee have remained steady in Guatemala at around 305,000 Ha. This is forecast to shrink slightly in the coming year as more profitable crops replace coffee in the short term. The barrier to entry for growing coffee is high currently, with increased fertiliser and labour costs resulting in a 60% increase in production costs compared to a few years ago. As a result, this year’s yield was slightly less than 2021/2022 harvest and predictions are that the next harvest will either maintain or reduce this amount.

July

For July we’re turning our attention towards the El Niño/La Niña phenomenon which dominates weather patterns in the Pacific. I’ll have to point you to the article on our website for a more in depth analysis [10], but to summarise – they are both part of the same natural weather cycle, with episodes of El Niño/La Niña occurring every 2-7 years, and typically lasting for 9-12 months each. El Niño is characterised by weakened trade winds which leaves warmer waters in the Americas, while La Niña sees trade winds increase which pushes the warm waters towards Asia. Both are deviations from the norm, when the regular trade winds keep a balance between the two. It is worth noting that these weather phenomena are independent of global warming, although there have been links made between the increasing frequency and climate change [11].

Picture courtesy of National Oceanic and Atmospheric Administration (NOAA).

What does this have to do with coffee? Well, as you may have noticed, most of the coffee growing origins either directly border the Pacific or are in close enough vicinity to be affected by the weather. Curiously, the phenomena can affect countries on the same continent differently. In Brazil, El Niño is likely to lead to warmer and wetter summers, which can increase risk of disease in coffee growing regions, while Colombia and Central America, often experience drier periods at the same time. Much of the weather in these regions in 2023 was dominated by El Niño, which made headlines around the world and has been blamed in part for making 2023 the hottest year on record [12]. We have already seen the continued effects of this with Brazil’s scorching heatwave [13], and with predictions that El Niño could drive 2024 to be hotter than 2023 it remains to be seen how this will affect coffee in South America and beyond.

August

On Tuesday 1st August 2023 the Fairtrade minimum price came into effect, meaning that any contracts between exporters and importers made after this date had to adhere to these rules. There was backlash from some buyers concerning the increase, but the last price increase was way back in 2011. Since then, the overhead costs for farmers have increased drastically, an issue only compounded by inflation. In recent years the market has meant that Fairtrade coffee prices have tracked non-Fairtrade (excluding the premium). The minimum price increase was decided after six months of review to bring us in line with actual production costs and provide financial stability for farmers. A good deal of information, including published figures from their consultation on coffee price, can be found on their website [14].

September

Another major talking point in the coffee industry has been the European Union Deforestation Regulations (EUDR). Passed in December 2022 and affecting more than just coffee, these regulations are put in place to avoid importing goods into the EU which may have come from sources linked with deforestation. The enforcement of these principles is an interesting read in itself [15], but the main takeaway is that the onus now rests with the ‘operator’, the coffee importer in our case. This means companies like DRWakefield bear responsibility for observing EUDR. This is a major shake-up for the coffee industry, with producers, exporters and importers all racing to ensure they comply with the regulations. Although passed by the EU in December 2022, the clock really started ticking on 29th June 2023. At the time of writing, we are in an 18-month transitionary period with EUDR coming into full effect for large companies on 29th December 2024. Small to medium enterprises are afforded an extra 6 months to comply fully.

While the tone surrounding EUDR may remain stark, it is only for fear of change. Few people can deny the intentions of the EU are good, and will hopefully catalyse our slow progress to a world with less deforestation. Arguably unrelated other than by deforestation theme, I’d like to end this section on a positive note and highlight that deforestation in Brazil is reported to have fallen by over 60% compared to the year before [16].

October

Hurricane Otis made landfall in Mexico on the 25th of October, shocking the meteorological society with its rapid growth. Mere days after the National Hurricane Centre noted an area of low pressure in the Pacific, Otis both formed and swelled to a category 5 hurricane. On October 22nd it was classified as a Tropical Depression, and only six hours later it had to be reclassified as a Tropical storm at which point it was Christened Otis. It was recorded as the strongest landfalling Pacific hurricane on record. The powerful winds battered Acapulco in southwest Mexico, leaving flooding and landslides in its wake. Fortunately, the hurricane subsided almost as quickly as it swelled and quickly dropped to a category 1, dissipating less than 18 hours after landfall. Although Otis didn’t damage too many coffee growing regions, infrastructure has been affected in the region leading to some shipping delays.

In other Mexican coffee related news, Nestle recently opened the largest instant coffee processing plant in the world in Veracruz, Mexico [17]. This is widely seen as an investment in Brazilian Conilon (Robusta), and a diversification from using Vietnam Robusta. The location of the plant also allows quicker export to the North American market. Nestle aim to source most of their coffee for this plant from Brazil and Mexico. Currently Mexican coffee production is dominated by Arabica, but this may see a turn as demand for the new plant grows.

November

In November, Phil and I made a flying visit to Ethiopia, catching up with suppliers in Addis as well as visiting the southern coffee growing regions in Sidama, Yirgacheffe and Guji. While there we witnessed heavy rains which hampered a fair amount of our farm visits! Opinion was divided on if the rains were unseasonable or not, but there was consensus that severe weather events were becoming more frequent in recent years. Outside of coffee, Ethiopia is still embroiled in conflict in the northern regions of Tigray. A ceasefire at the end of 2022 was hailed as a breakthrough, with hopes that sanctions on the country would be lifted. Since then, the fighting has mostly halted, but remains dangerous and international sanctions remain in place. This has made imports to the country difficult without foreign currency with which to purchase them. Many importers are using coffee to acquire USD to support the more profitable importing side of the business. This may change in 2024 with foreign banks being allowed to operate in the country which may bring foreign currencies with them.

To round off November, Mercon, one of the largest multinational coffee companies in the world, filed for bankruptcy at the end of the month [18]. Mercon has operations in all major coffee producing origins, but the situation is most worrying in Nicaragua. Here, Mercon hold a large portion of the total exports and although they have promised to honour all open contracts, Nicaragua’s coffee exports remain uncertain in a post-Mercon world.

December

December marked a challenging month in the shipping world, which by extension means a challenging time in industry across the globe, as I am sure we have all felt the effects in some sense. The main shipping news on everyone’s lips is, of course, the Red Sea attacks. The Houthi rebels from Yemen began attacking container ships in the Red Sea in December. They claim to only be targeting ships bound for Israel in what is supposedly an act of support for Palestine. However, because of this, the world’s major shipping lines have decided to reroute all ships that were headed for the Red Sea and the Suez Canal. This is no mean feat, as a staggering 20,000 cargo ships with a value estimated at $3 billion pass through the Canal every year. The Suez Canal connects the Red Sea with the Mediterranean and is the main shipping route from Asia and East Africa to Europe. With the passage out of action, ships are being rerouted around the Cape of Good Hope, the southern tip of the African continent which takes 2-3 weeks longer and is getting more expensive by the day. For coffee, this means that shipments from Asia and East Africa are delayed in arriving in the UK and Europe and will be more expensive when they arrive.

The Suez is not the only Canal to make the news this month. The situation in the Panama Canal has also been raising concerns for shipping [19]. The Panama Canal connects the Pacific and Atlantic Oceans and means ships that pass through it avoid an additional 13,000 km journey around the whole of South America. In 2022 more than 14,000 container ships passed through the canal. However, the canal operates through a series of locks which a ship must pass through, first rising 26masl to the freshwater lake Gatun, before descending through the locks on the other side back out to sea, and it relies completely on an unlimited supply of water from Lake Gatun. Each ship takes an estimated 200 million litres of water to cross the canal. Normally this is no issue as Panama experiences some of the heaviest rainfall in the world, but in 2023 the water levels hit near historic lows. The rainfall deficit has also been exacerbated by the effects of El Nino. What’s more, Lake Gatun also provides fresh water to more than half the country’s population. As a result, the number of ships passing through the canal had been restricted. 36 ships use the canal per day, but by February it’s estimated that only 18 will be able to. This is causing a backlog of ships to build up and delays in shipping times. For coffee, this means shipments from the west coast of South America e.g. Peru, some Colombian ports, Ecuador, may be delayed.

Port of Santos

And that’s a wrap! Thanks all for tuning in to our origin focus throughout the year. If you’ve made it this far, I assume you’re an avid reader of our reports, and we have an exciting announcement about their format going forwards. Following on from our refresh of the market report in 2023, we decided it’s time that the origin focus got the same treatment.

We have decided that from next month we will be focusing on one origin per month. This will provide us more time to go in-depth and conduct interviews with producers which, in turn, will help us produce better content for our readers. We will then supplement this more in-depth focus with any major updates from other origins during that month. We hope this will cover all bases; an in-depth profile of one origin supplemented with a general overview of events across all coffee growing origins that month. We look forward to going live with this in February and hope you will enjoy reading them as much as we have enjoyed writing them!