Welcome to the October 2021 edition of DRWakefield’s Monthly Coffee Origin Focus.
There was good news for sports fans in September as it was a great month for the British. They claimed overall second place behind China at the Tokyo Paralympics, and Emma Raducanu became the first qualifier to win a Grand Slam. Several other achievements came from this feat, including now being ranked the UK No.1.
There was bad news for wine drinkers as Europe has forecast a drop of around 18% in its largest wine-producing countries; France, Italy and Spain have all been subjected to less than desirable climatic conditions meaning grape yields are down. Spring frosts disrupted around 30% of the cultivations in France and Italy, and drought and disease have further damaged harvests. Sometimes it can be good to remember that other crops go through the same trials and tribulations as coffee.
Sterling fell sharply during the middle of September from 1.385 to 1.362 but managed to retake some ground before the end of the month.
Coffee Origin Focus
The story still dominating news from India is the farmers’ protest. Now entering its second year, and showing no signs of ceasing, thousands of farmers of this coffee origin remain on strike. The farmers are protesting agricultural legislation brought in back in August 2020, which they feel puts smallholder farmers at risk. They are demanding a statutorily guaranteed minimum support price for agricultural produce, which would offer them a degree of stability. The outcome of the protest remains uncertain but is expected to continue.
The monsoon rains are yet to end in India this year. Usually, they begin to taper off in August, however, they are still going strong. The Southwest and Northeast Monsoons are expected to converge in coffee-producing regions, as they have done for the last three years, meaning heavy rainfall in the area. Pre-monsoon crop volume estimates are looking positive, about a 10% increase from the previous year. Although once the monsoon season finishes, more accurate figures will become available. However, there have been some reports of nutrient deficiencies expected post-monsoon and a lack of fertiliser available, with Urea in particularly short supply. If availability does not ease soon, there are some concerns it will have a negative impact on the 2023 crop.
Coffee prices have increased, a trend which is expected to continue for the new crop. As most of the current crop has already been sold, prices need to remain high through January to March 2022 for the farmers to see the benefit of the next crop. The Rupee has weakened against the US dollar in the last fortnight, with the exchange rate currently standing at 74 Rupees to 1 USD, marginally favouring exporters.
Domestic demand and consumption are good and growing but remains significantly lower than export volumes.
In Ethiopia, the incumbent prime minister, Dr Abiy Ahmed, has been sworn in for a second term (on 4th October), with a strong mandate to continue leading the country through a turbulent time. The conflict and military intervention in the Tigray region in northern Ethiopia, which began 11 months ago, continues. The USA is pushing for a ceasefire and hope to aid negotiations in resolving the conflict, but to no success.
The state highly regulates the coffee industry in Ethiopia. In part, this requires small coffee farmers in this coffee origin to sell their coffee to the Ethiopian Commodity Exchange (ECX) instead of exporters. The prices of the ECX are set by the National Bank of Ethiopia (NBE), as is the birr/USD exchange rate, which is currently set at 49 birr to 1 USD. Larger farmers can bypass the ECX and enjoy the freedom of exporting directly but are still subject to the NBE-set exchange rate. The is birr continuing its long-term trend of losing value against the US dollar. For context, the exchange rate is currently 49 birr to 1 USD, but one year ago (October 2020) was 37 birr to 1 USD. Political instability, regional war and lack of foreign investment have all contributed to the mounting pressure on the value of the birr.
However, it is not all bad news. Whilst extreme and unexpected weather has affected many coffee-producing countries, Ethiopia has managed to avoid any negative weather. It has been raining heavily across the main coffee-growing regions in the country for the last three months, meaning the coffee trees are looking in excellent shape for the upcoming crop! Production is up on last year, with an expected increase of 15% volume on the previous crop.
In September, Ho Chi Minh City eased some of the stringent social distancing rules that had been in place for weeks. Restrictions have slowed down both the traffic of people and cargo, creating a very dire situation for the supply chain with labour shortages and port congestion. Vietnam receives vaccine aid from other countries, and the government has said that Ho Chi Minh City has been allocated enough vaccines to be able to give the first dose to all people aged 18 years and over. It is hoped that vaccination progress will ease the current difficulties.
According to preliminary data, Vietnam’s coffee exports in the first half of September reached 51,018 tons, up 8% compared to the first half of August, and increased by 15% over the same period last year. However, the total amount of coffee exports until September 15th, 2021, was 1,134,022 tons, down nearly 5% over the same period last year.
After a period of dry weather in June and July 2021, Vietnam has seen good rain in August and September across coffee-growing regions. Heavy rains were recorded in some areas in September associated with tropical storm Conson. However, no damage has been reported so far to the coffee farms in the Central Highlands. The harvest season is about to start in 6-7 weeks.
The Vietnamese Dong is one of the few currencies in the region that has appreciated against the USD since the beginning of the year. At the beginning of September, the USD price dropped to 22,760 – 22,770 VND. Even at the session on September 16th, the interbank rate closed at 22,756 VND/USD, the lowest level in many years.
With the increase of coffee future price on ICE, farm gate price jumps up to 41,200 VND/kg in September, which is 10,000VND higher than the same period last year. The differential for Vietnam Robusta grade 2 is under high pressure, falling from -150/-160 to below -200/-210 for the current crop delivered until December 2021.
Big multinational coffee exporters with high economic potential have been flexible, and able to adapt to the difficulties caused by the epidemic, with well-maintained business and export activities. Coffee exports in the first half of September by major exporters have increased slightly.
Our thanks to Duong Anh Tuan, Elements and Heleph Coffee for their input in this month’s Coffee Origin Focus.
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