Success in industry depends on knowing what’s happening at every point between supply and demand. In an industry like ours, where that chain stretches across continents, challenges are bound to arise. Our coffee trader Will Hobby highlights the most pressing issues in the coffee world as we move towards 2016.
Rain stops play
The harvesting and processing of coffee beans is a precarious business, and there are numerous obstacles to overcome before the beans have even left their countries of origin. From climate challenges to labour shortages, lack of skills and training, coffee traders have a lot on their hands.
First up there’s the issue of weather. A certain amount of rain is needed to help coffee beans grow, so droughts – like the one Brazil experienced last year, which is attributed to climate change and deforestation – are extremely detrimental to crops. Brazil is relatively fortunate, too, according to Will. He explains: “Size matters. In Brazil, for example, many of the larger coffee estates of a commercial nature are able to irrigate and artificially feed their trees, but the vast majority of origins and producers are at the mercy of Mother Nature, and there’s very little they can do to alleviate the problem of a lack of water.”
Heavy rain can present problems too. Rain during harvest is problematic for farmers who rely on the sun to dry their beans. And too much rain throughout the growth stages can leave trees susceptible to mould and fungus growth. Temperature is a factor too – while coffee needs the heat of the Bean Belt countries to grow at all, there’s a finite margin between enough and too much. Cross that line and leaves wilt or become scorched, plants die, and there’s no harvest to be had.
Pests and diseases
Even if the climate’s right, disease and infestations are always hovering. The coffee bean borer, a tiny beetle which lays its eggs in coffee beans, costs Brazil $300 million a year in lost harvests. There’s also roya fungus, giving rise to a condition called coffee leaf rust, which withers away the infected foliage and prevents the cherries which contain the beans from forming – and roya spread to around 30% of Central America’s coffee crops in 2013. While there are fungicides available to help to prevent the fungus from spreading, Will points out that “if you’re an organic producer and can’t use herbicides and pesticides, pests and diseases cause serious problems: some estates report up to a 70 percent loss in crop.”
Ways to overcome such problems include better education regarding agronomy – teaching farmers that planting crops further apart can reduce the spread of disease. Coffee institutes and their laboratories are also working to develop methods to prevent leaf rust. The two concepts come together in Colombia, where the Coffee Growers’ Federation has spent $1.4 billion on a regeneration scheme involving new disease-resistant plants replacing old ones and training farmers in new fertilisation methods to reduce infestation.
Climate change and pests and diseases are just the beginning when considering the challenges affecting the coffee industry. Macro economic forces and market manipulation create distortions in the New York terminal market (the home of arabica futures – the basis from which all coffee prices are derived). Unfortunately, coffee is a tradable commodity no different to oil or copper, and as such is susceptible to opportunistic market forces. However, unlike other commodities, these often sizeable price fluctuations have a greater impact on producers’ livelihoods.
With a 3.5 million bag coffee shortage expected for the 2015-16 season, these price fluctuations would seem to be here to stay. As Will explains, “although the market was designed to protect against price fluctuations, it now is the primary cause of them, meaning that depending on what day of the week it is, coffee growers can get a significantly different price for their produce, which seems somewhat unfair.” Securing a fair deal for coffee farmers is, of course, at the heart of DRW’s buying philosophy, but it’s not the only thing that the coffee-buying nations need to ensure.
Investment and infrastructure
Lack of investment – both in terms of finance and education – is also causing problems for the coffee industry, as in some growing regions, the agricultural land has been passed down through several generations, with trees nearing 80-90 years old and in need of regeneration. “If every tree produced to its full potential, we could probably double or even triple the global volume produced,” Will calculates.
Greater education regarding how best to use the land and regenerate crops may help to boost coffee production in the future, but that wouldn’t come for free, and it’s running against other priorities across the Bean Belt. Across Central America and Africa, towns and cities are expanding rapidly, adding pressure to producers to relinquish their land for development. Financial incentives from developers to sell their land offer producers a lump sum substantially larger than producing coffee ever could.
While this may be good news for the producers, it does raise concerns that some of the world’s best coffee-growing land is being sold off and redeveloped, leading to uncertainties regarding the industry’s future. That’s why DR Wakefield works with coffee growers directly, helping them build a sustainable future that brings up the income from doing what they do best. What we get from that is a long-term relationship with growers, and a guarantee that we’re investing and reinvesting in the range of beans we import. We think it works. Try our coffees and tell us what you think.