In our two most recent Origin Focus features, this intro has begun with the declaration of a new Prime Minister. November has seen a level of relative normality return to the UK on a political level with Rishi Sunak still holding the keys to number 10. This stability has helped calm FX markets, with the GBP making steady gains against the USD. At time of writing, we sit at the lofty high of 1.22. It was just a few weeks ago that we were contemplating parity.
Alas, the news is not all rosy. The Confederation of Business Industry (CBI) said today that they see Britain entering a year-long recession in 2023 amid high inflation and falling business investment. The CBIs forecast marks a sharp downgrade from its last forecast in June, when it predicted growth of 1.0% for 2023. There is little expectation that GDP will return to its pre-COVID level before mid-2024.
Coffee Origin Focus
The political climate in Bolivia is more stable than recent years, with current disruption limited to local social conflicts. The exchange rate from BOB to USD also continues the long-term trend of stability.
The 2022 harvest in Bolivia saw increased quality with differentials strengthening above the NYC. There were multiple reasons for this: 2022 saw ~ 70% of the production exported to Belgian customers, a significant increase into the European market compared to previous years. There is an increased demand for coffee in the local market, with national roasters growing in stature. Bolivia has a consistent and consolidated market for US customers. Finally, there remains strong demand from neighbouring Peru.
Broadly speaking, harvest volumes have been improving year on year across Bolivia, although coffee production for 2023 is complicated. Coffee plantations are currently in full bloom and the plants are set well. However, there has been a lack of rainfall in recent weeks that is raising drought concerns that could in turn hamper crop production in 2023. This is yet another example of the effects of climate change across central and South American coffee production.
Reports, economic indices, and monetary analysis of Latin America agree that the Guatemalan quetzal is one of the most stable currencies in Latin America, and it is the currency that in the last 22 years has shown the smallest devaluation variations. The COVID-19 pandemic ended three decades of economic growth in Guatemala. However, the country experienced one of the smallest GDP contractions in LAC during the pandemic. The government’s rapid fiscal stimulus focused on protecting the poor and vulnerable. This response has proved beneficial to long term economic efforts, including the local coffee industry specifically.
Historically, production volumes in Guatemala mimics the currency, with fluctuations remaining relatively low. 21/22 harvest saw a 10% decrease from 20/21 in both volume and export. However, despite this fall in crop volumes, the average price of exported coffee increased by 30%. This trend looks set to continue based on initial 22/23 figures with diffs remaining firm.
Despite relatively steady harvest figures, climate change is affecting agricultural practices in Guatemala and remains a key topic of conversation in coffee. The National Coffee Association, ANACAFÉ, has created an environmental policy which encourages adaptation and mitigation of the impact of climate change on the coffee industry. These efforts are still in their infancy and there are no clear statistics when it comes to implementation. High illiteracy rates amongst small producers and attachment to producing coffee with traditional methods are obvious initial barriers. This is compounded by Guatemala’s almost exclusive reliance on smallholder producers.
The biggest news in Ethiopia this month has been the signing of a peace deal between the Government and the Tigray People’s Liberation Front (TPLF) on the 2nd of November. Humanitarian aid has been allowed into the Tigray region since the 12th of November, with the government claiming over 32,000 MT of food deliveries since then.
The coffee harvest in Ethiopian begun over a month ago in most regions, but a dramatic drop in the futures market combined with an increase in overhead costs and inflation, many producers and exporters are struggling. Transporting coffee has been particularly difficult as fuel prices have sky-rocketed lately, leading to a cost increase of up to 50% on last year for trucks to collect the harvested cherries. The harvest so far has thankfully exceeded last years’, with above average rainfall leading to higher crop estimations.
Local coffee prices have been affected by rising costs, reaching over 50 Birr per kg this year. Coupled with a weaker Birr, this has led to an increase in the cost of Ethiopian coffees this harvest. Last year, the Birr was trading at 1 USD: 47 ETB, this has increased 53 ETB but our partners in Ethiopia reported that local rates are roughly double. In one instance it was reported the dollar was fetching as much as 120 Birr.
Thanks to our partners Dayebensa in Ethiopia, Hope Coffee in Guatemala and Femenino & Caranavi Coops in Bolivia.