Welcome to DR Wakefield’s Monthly Origin Focus.
June proved to be a popular month with sports fans as a whole host of tournaments and games kicked off, including Wimbledon, the Lions’ rugby tour and Euro 2020. England remains the last hope amongst the home nations so let’s see how far they can go!
The proposed ‘Freedom Day’ on 21st June when restrictions are completely lifted was pushed back to 19th July in order to try and vaccinate a larger proportion of the adult population.
The New York Market has remained somewhat stable throughout June peaking about 160 cts/Ib and not dropping below 150 cts/Ib. The Pound lost value against the Dollar touching below 1.38.
This month we delve deeper into El Salvador, Tanzania and Thailand.
El Salvador is the smallest country in Central America which, in terms of post-harvesting efficiency, gives it valuable benefits. For instance, wet milling can be achieved soon after coffee is harvested. Most of the farms are located 45 minutes and no more than 2 hours away from the coffee mill, avoiding any risk of issues with over-fermentation.
El Salvador has a legacy in coffee, with production dated back over 200 years. The country has 23 volcanoes, 6 of which are active, making the soil very fertile. The country is committed to producing shade-grown coffee and, traditionally, has planted among the world’s best high-quality varietals, such as Bourbon and Pacamara (which is a mix of Pacas and Maragogype).
Production volume in El Salvador has reduced significantly since 2018/19. In 2019/20 the country produced 680 thousand quintales (45kg bags each). This year is not much better as the country continues to struggle with low international coffee prices and a lack of investment. Banks are not keen on handing out loans for something that’s likely to return little. This makes the financing of the necessary pre-harvest care and maintenance difficult.
In addition, the 2020 hurricanes have brought back the leaf rust issues which has a significant impact on production, keeping in mind that most of the coffee trees on these plantations are on average 80 years old. This does not necessarily mean quality is bad, but renewal (pruning and stumping) and re-planting are necessary.
Looking forward the focus for El Salvador will move towards the export specialty industry. There is enough experimenting going on like honey processing and soaking. Speaking of experiments, in June the government of El Salvador was the first to adopt the use of Bitcoin as a currency by law and legal tender. The Dollarization (adoption of USD by some Latin American countries) in 2001 caused a loss of purchasing power, so feelings among the locals are mixed. For now, there will be an even playing field for dollars and crypto and president Bukele has said to be guaranteeing convertibility to dollars through a $150 million trust fund. Let’s see what happens.
Political news: The former president passed away in February, allowing the vice president, Samia Suhulu Hassan, to take his position as the head of government. Change is on the horizon, with intention of stimulating the economy by improving the business environment.
The government are actively trying to stimulate the coffee industry, which exporters find encouraging, as they are engaged to boost production and quality. Regulators have once again allowed private players to reenter the market, buying cherry and parchment directly from the farmers, and basically overturning the ban that was imposed 2 years ago. There are also some rumours that the regional auctions will be cancelled and revert to one central auction at Moshi.
Production: a slight increase is expected after last year’s lower harvest. However, the industry is still actively seeking to boost yields. Tanzanian smallholders are struggling, but with a lot of good initiatives being explored. The current expectation is an ambitious 70,000 tons (over 1 million bags), increasing from the last season’s total of 51,000 tons (850,000 bags).
Weather: Tanzania has experienced 2 years of good rains. This will boost estate coffee quality and volumes. However, smallholders will remain relatively flat in terms of quality and volume.
Local prices: Smallholder prices have improved in line with NYC. Farmgate prices are currently just over 2 USD per kg of parchment.
Exporters: Positioning is difficult to tell as auctions only begin in July. Regarding the estate coffees, there is a lot of early demand for premium and specialty coffees with early orders coming in well ahead of the crop being ready and forward contracts being made. There should be enough availability, however, due to the above-average rainfall received.
Once serving as productive grounds for massive opium production, tribes in Thailand have turned to grow Arabica coffee plants as an alternative crop since the 1990s. The United Nations and Thai government supported a great deal in this and helped to diminish narcotics.
Bordering Laos and Myanmar, the mountainous areas in North Thailand form part of the notorious Golden Triangle region and serve well for producing high-quality organic Arabica. Arabica coffee grows mainly in the northern areas, such as Chiang Rai, Chiang Mai and Mae Hong Son with their ideal growing altitudes and temperatures. During the past 5 years, the cultivation area in the North has increased to 37,500 acres in 2020, a 7.6 % increase from the previous year, with coffee production totalling 11,200 MTs. Unfortunately for us, there is little available for export (only 300 tons in 2020) as local demand remains high, even during the pandemic. However, there is still room for growing areas to spread and farming practices to improve, which will increase yields. Therefore, we have good hope of continuing development with Thailand and including it in our Southeast Asian origins.
Robusta coffee is grown mainly in the southern provinces such as Chumphon, Ranong, Surat Thani and Prachuap Khiri Khan. The 2020/21 Robusta crop increased nearly 14% to about 12.500 MT, profiting from appropriate rainfall and some new farmers stepping in. This is all used for soluble production for factories that also import beans from abroad.
Our thanks to Rene Urrita, Neel Scurlock and Chai at Doing Chang for their help this month.