The net effect of this is a reduction in available supply of coffee for export and accordingly a steady and continuous rise in green bean coffee prices. In July 2019 the traded price for arabica green beans was USD$2.99 per kg, this had increased to USD$5.84 by February 2022. For those of us in the coffee importing countries, this is a significant price increase which makes us look at our own businesses and decide what we need to do to stay competitive while offering our customers an attractive proposition.

But before we blame climate change and covid for our woes, it’s worth looking at this from the coffee producing nations’ perspective. Up until 2019, there was an oversupply of green bean coffee (primarily from Brazil).  As a result, the price of coffee was steadily falling; in economic terms, coffee is considered to have ‘inelastic demand’ (as the price of green bean coffee drops this does not lead to similar increases in demand) but the price is hugely influenced by the amount of supply.  The reasons for the steady price decrease occurred due to the rapid rise in production capacity (in Brazil), slower growth in coffee consumption (most people don’t drink more coffee because it’s cheaper), excess power by the major coffee roasters and a depreciation of the Brazilian Real against the US Dollar.

The net effect of this was calamitous for smaller producing countries (Kenya, Uganda, Rwanda, Honduras, Columbia etc) who are almost always in the developing world and are hugely dependent on exporting green bean coffee to fund the basic running of their countries.  For the farmers themselves, this resulted in communities adopting ‘coping strategies’ that include reducing the maintenance on coffee plants, reduced expenditure on health, education and so on.  The governments of coffee producing countries did try and club together to set up minimum price per kg but these have largely been unsuccessful due to the temptation to break ranks.

So in May 2020, the Brazilian coffee crop has a fright, the challenge of Covid put pressure on previously efficient supply channels and the western coffee drinking world had to stop and rethink their strategy.  Smaller coffee producing counties come back into focus as the prices look reasonable. At Watermark we are no different, we launched our Tibradden single origin blend from Kenya at the beginning of the year and the coffee has been a great addition to our Woodland Coffee range.

Who knows what will happen over the next few years but what has happened recently to the price of coffee probably reflects an inherent fairness. The price increases seen of recent times merely reflects a more equitable situation whereby growers are getting a better deal.

Damage to the Brazilian coffee crop

Brazil is the largest producer of greenbean coffee amounting to 44% of the worldwide supply (and equates to 22,400 60kg bags).  Rainfall in Brazil has been significantly less during the year causing drought which weakens coffee trees and reduces their productivity in terms of quantity and quality.  In addition to drought, there were a series of late frosts during the summer which caused additional damage to the growing trees as temperatures were on average half what they should have been.  Many farmers were left with a damaged crop as well as the need to ‘stump’ their trees or replant them altogether. Yet another timely reminder of the fragility of our ecosystem and the impact that small changes in weather can have on food production.

Pandemic supply chain bottlenecks

A global confusion in container freight is adding the difficulty in getting supply from coffee producers in Vietnam to foreign markets.   Vietnam predominately produces robusta coffee which is not used for our speciality grade coffee but a shortage of supply from one market tends to push up demand for other suppliers and hence more upward price pressure.  Hopefully as the global supply chain return to normal over the coming months this particular challenge will dissipate.

Coffee Consumption

In case you didn’t know it already, we’re drinking more coffee.  Coffee consumption has increased year on year and this year it’s expected that demand will outstrip supply by 1.4m tonnes.  The effect of steady increasing demand with the uncertainty around the Brazilian coffee crop in 2022 and 2023 its sending upward pressure on the coffee futures price