Since 2015, the International Coffee Organization (ICO) set October 1st apart as the International Coffee day. The main reason for was to help the world realize how their high consumption of coffee related products was not yielding the same returns for coffee producers, their businesses, and their families. For a drink that receives at least 2 billion patrons every day, one would think this plant would have been appreciated much earlier and for much different reasons.
Indeed, the highly volatile coffee markets that has been relatively ‘stable’ over the last few years has experienced this stability at the expense of the small-scale farmers who make up 95% of the coffee production force.
However, due to recent events, the U.S. Bureau of Labor Statistics reveal a global coffee price are predicted to hit $4.44 a kilogram revealing an 8.1% price surge from a year earlier and the highest level since 2015.
According to Jonathan Morris Professor of History, University of Hertfordshire, in the past 12 months, the C price – the benchmark price for commodity-grade Arabica coffee on the New York International Commodity Exchange – has risen from US$1.07 (£0.80) per pound (454g) to around US$1.95. Back in July, it touched US$2.08.
The Bitter-Sweet Tale of the World’s Favorite Beverage
Brazil the world’s largest producer of coffee responsible for 35% of total global output has been the victim of very sore climate events that have resulted in the poorest yields in 12 years.
Brazil experienced severe frost late July this year as freezing temperatures struck spreading across coffee trees in the Cerrado Mineiro region of Minas Gerais state, which was thought to be a safer ground for coffee cultivation after the Paraná incident 40 years ago.
Coffee is a tropical crop and as such cannot survive in low temperatures, worse still subzero temperatures that cause the plants leaves to burn.
Brazil who has also been experiencing signs drought including abnormal rain patterns in the last 20 years faces the possibility of a full-blown drought now that rising temperatures can lower both humidity and rainfall.
According to coffee merchant and Brazilian expat Andre Selga, many farmers have lost their livelihood due to these intense climate changes while many more have been left not knowing what to do. The atmosphere of the entire industry as of the moment is ‘tense’.
Also, like many other products, much of the price surge is a result of inflation from a slowing recovering post-COVID economy.
Coffee is transported to other parts of the world in containers, however due tot eh effects of the pandemic on supply chains this year, the cost of shipping containers has tripled, moving from $3,300 to $10,000.
Shipping docks filled to stagnation, spiked prices in carbon fuel and increased demand has contributed greatly to spike in prices. Thiago Cazarini, a coffee broker in Brazil’s Minas Gerais state, explains securing a container for shipment is much harder than now.
“It is almost not economical to use this route right now. The ports in the U.S. are full, shipping companies do not want to take more cargoes to there, so they charge more. Prices are more than three times higher than they were before the pandemic,” Carlos Santana, coffee head trader for Eisa Interagricola, a unit of ECOM Trading said as he explained some of the challenges being faced in shipping Coffee.
Vietnam, who is the second largest producer of coffee responsible for 18% of total global production seems to be the next arm to fall into, however, due to severe COVID restrictions, much difficulty has been faced with transporting goods to shipping docks, hence reduced output.
The Short-Long Term Consequence
The off the counter price of coffee might be affected immediately, but the prices from restaurants might not necessarily change yet because many of these companies store coffee in bulk many months down the line as Nestle Chief Executive Mark Schneider said during a recent conference call
Nonetheless, the long-term difficulties that lie ahead may be inevitable. The coffee plant takes at least 5 years to mature and so the destruction of plant not only affects the livelihood of the farmer but also the scale of production which is eventually slow to catch up with demand. In other words, our Coffee crises is a problem whose true repercussions lie in the years ahead.
After the July Frosts, the Associação Brasileira da Indústria de Café, ABIC estimated that green coffee prices for roasters in Brazil increased around 80% from December to late July as the roasters adjusted prices to preserve their businesses.
This bitter-sweet tale concludes at the irony that the International Coffee Day was celebrated, many coffee farmers received hope of more profitable sales in the face of destroyed farms and locked docks.