September marked a number of changes for us in the UK: a change in Monarch, Prime Minister and in the weather. The news cycle was mainly dominated by the death of Her Majesty the Queen, and later in the month by the mini budget announced from the new leadership.
At the beginning of September Sterling was sitting at 1 GBP to 1.15 USD, which fell to record lows of 1.03 USD briefly before rebounding to 1.12 USD by the end of the month. The exchange rate has severely affected any commodity in the UK which is traded in USD, including coffee. Hopefully, Sterling has stabilised now and can continue to claw back some of its strength going forward.
In this report we will delve deeper into Vietnam, Rwanda and Colombia.
Coffee Origin Focus
The new crop officially starts in October, and the market has been slow for the previous month since farmers had run out of beans and traders were waiting for new supply. Demand for Robusta is growing, but the supply from Vietnam is currently limited. Meanwhile, a stronger dollar, greater freight expenses, and higher production costs are just a few of the factors likely to affect this harvest.
That being said 2022-23 is expected to be another good crop, but not bigger than the yield for 2021-22. One of the major concerns for the 22-23 crop is the escalating cost of fertilizers and plant production products. Importing fertilizers is challenging because of the conflict between Russia and Ukraine, as well as the Covid-19 pandemic-related lockdown in China. Coffee farmers have said the cost of fertilizers has climbed by almost 70% since last year. As a result, many are trying to use less fertilizer or switch to organic alternatives such as manure. Some farmers have also switched to other crops like durian or avocado – the effects of which may be felt in the following crop.
The Central Highlands coffee regions of Vietnam will suffer from flooding risks in early October. According to weather forecasts, the coffee belt may receive rains during harvest months from late October to January that could impact the cherry-picking process and bean quality. As a result, output might be slightly lower than the previous season – but it’s still too early to call.
This year’s crop in Rwanda is bucking the trend as their volumes are up! Typically harvesting happens between March and November, with volumes in March being very low. However, this year seems to be a bumper crop! At our partner in Kinini, harvesting began in full force in February and is expected to continue until the end of the year, perhaps even later. The reason for this increase is thought to be that the trees were heavily pruned last year. This combined with ideal weather conditions has meant that the coffee trees have in some instances doubled their yield of cherries! Even those trees at higher altitudes usually have a relatively low yield.
Covid regulations, which were throwing up some challenges in Rwanda, have now been largely relaxed or revoked by the government and masks are no longer required. However, the government has been introducing a slew of new taxes on business and exporters which are proving difficult for many in the coffee industry. High taxes on exports means the price of Rwandan coffee may well increase on the whole. Some producers and exporters have had to close their doors as they were no longer able to pay the increased rates.
Earlier this year a new government came into power, creating uncertainty which drove down the value of Colombian Peso. Combined with inflation, the runaway cost of fertilizer and increased operational expenses; producing coffee has become much more costly. Hopefully, inflation and currency will stabilise in the coming months which will help farmers and exporters alike. Differentials in Colombia over the last few months have been sky high, but we have begun to see a slight easing in the last weeks, and potentially we have already seen the peak of prices. However, whether we will see a reduction in cost in real terms with Sterling so weak remains to be seen.
The affects of climate change on Colombia’s coffee harvests are becoming more apparent. Despite adjusting to try and compensate, some farmers have seen up to 10% reductions in yield compared to last year. Meanwhile, rains have proved problematic to the harvest so far, an issue that may continue in the coming months.
Thank you to our partners Simexco, Café Granja La Esperanza and Kinini.