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The coffee industry’s paradox

The global coffee industry has been through a fairly tough time recently, with coffee prices plummeting and a leaf rust outbreak continuing to decimate production by some the world's leading exporters.

However, it would seem the industry has been presented with something of a paradox as of late – demand is higher than it has ever been before and yet prices do not seem to be reflecting this.

The fact is, for the latter half of last year, Arabica prices were trading near their lowest point for almost five years, despite the reality that over the last decade, overall demand for coffee has increased by a considerable 40 per cent. 

More and more people want to buy it, production has struggled in some parts of the world and yet the prices are devastatingly low.

As we move into 2014, while prices may have recovered ever so slightly from the slumps seen over the last 12 months, the general feeling is that there is more than enough coffee to go around and nobody is expecting a bull market any time soon.

In some regions, coffee prices have fallen below that of production, which has caused huge problems for those who rely on the crop for their livelihoods. It has even prompted protests by those who believe government subsidies should protect farmers from the crippling impact this can have.

Writing for Roast Magazine, Mexico City-based coffee expert Maja Wallengren explains: "As most of the picking of the world’s 2013-14 coffee harvest is coming to an end, the projections and forecasts for the new crop couldn't be further apart and, once again, uncertainty looms heavy over the market."

Considering the two different varieties Arabica and Robusta, it isn't believed to be down to one or the other. A rise in demand for specialty grades has promoted the need for Arabica beans, while emerging markets and the instant coffee industry have supported Robusta demand. 

However, in its forecasts for the 2013-14 year, the US Department of Agriculture predicted global declines of 2.8 million bags when compared to the previous year. This is because, while it be may be anticipating record output levels from Vietnam, this will not be enough to offset the devastating slump in output by the world's largest producer, Brazil, as well as Central America, Indonesia and Mexico.

Factors that have affected output by major coffee-producing regions include frost and dry conditions in Brazil, the leaf rust epidemic that has blighted production in Central America and Mexico, and dry weather (at the start of the season) and excessive rain (at the time when cherries were developing) in Indonesia.

"Coffee producers, roasters and other industry participants today find themselves stuck dealing with a market that, day by day, grows more complicated and confusing. And most are still scratching their heads when asked how to explain what is going on," Ms Wallengren went on to say.

What will happen over the next year or so? Time will tell, but one thing is for sure. With the market behaving the way it is, it is more important than ever that importers and buyers support sustainable practices to ensure that, whatever the market may be up to, the people at the source do not suffer the consequences.