Market Reports

Arabica and Robusta production divide in 2013

In times of economic crisis, the world is drinking more coffee than ever. It’s a development that took many by s undefined

urprise, that consumer demand has proven to be so resilient to negative growth.

At the retail level, however, roasters have struggled to keep prices at bay, fully aware of reduced household incomes, especially in the Euro zone across southern Europe. One way of coping has been looking out for cheaper beans, and for many the answer has come in the form of Robusta.

“In Italy it’s all been about Robusta for years, but until about four years ago we still maintained a balance of 55 per cent Arabica to 45 per cent Robusta. Today, it’s moved to between 55 and 60 per cent Robusta and 40 to 45 per cent Arabica,” says Elio Vercelli, Sales Representative for Green Elite Coffee, which imports some 750,000 60-kilogram bags of green coffee a year.

The impact of the economic crisis on the coffee market has mostly unfolded in two stages. The first was the United States’ sub-prime mortgage crisis in late-2008, that helped plunged the US into recession, followed by the Euro zone debt crisis spiralling out of control. While average household incomes are still recovering from the crisis, the coffee industry met another challenge as the production crisis in Colombia started to surface in early 2009. This led to a steep increase in the premiums paid in addition to the New York Arabica prices for top quality beans, which is when the Arabica-Robusta balance really started to shift. 

“We were forced to drastically reduce our imports from Central America and Colombia, because the purchasing prices we had to pay at the import level reached as high as US$3.80 per pound and we just couldn’t pay these levels,” Vercelli tells Global Coffee Review. With the prospect of raising retail prices out of the question, due to the state of the economy, roasters were forced to look for alternative blends.

“It was impossible to add to the retail price, not just in Italy but also in France. As an industry as a whole we were obliged to change our blends and start using more Robusta coffee,” Vercelli says.

Changing consumer trends, and shifts from Arabica to cheaper Robusta, is nothing new to the coffee industry. The first major shift away from Arabica to Robusta came in May 1997, when New York Arabica prices rallied to near historic highs of US$3.19 per pound. Just as today, roasters looked to Robusta to keep retail prices in checks. Of total world production of 103.8 million bags in the 1996-97 cycle, Robusta represented 36 per cent, or 37.2 million bags. 

By the end of the 2011-12 cycle there was no indication the latest rise in demand for Robusta beans had softened, with production rising as a result.
The most recent report by the International Coffee Organization (ICO) said that  world production of Robusta coffee in 2011-12 reached a historic record of 53.3 million bags.

The ICO noted that the most significant change in exports was observed in Robustas, which grew by 13.2 per cent to reach 41.8 million bags, representing 38.8 per cent of the world total.

In the new 2012-13 harvest, the ICO projects these figures will support a boom in Robusta production, in a crop year forecast to produce a record total of 146 million bags. Robusta output is forecast to rise 5.1 per cent to just over 56 million bags – or 38.4 per cent of the total market – while Arabica production is expected to rise 10.6 per cent to 89.9 million bags, thanks primarily to the on-cycle in the world’s largest grower Brazil.

Consumption, meanwhile, continues to enjoy the prospects of solid demand, and was estimated to be at least 139 million bags by the end of 2011, according to the ICO. The strong growth seen in the past 10 years is expected to continue for at least another 5 to 10 years in most markets, according to the US Department of Agriculture, ICO and independent analysts. The most conservative projections say that demand will grow by at least 1.5 per cent. At these rates, world consumption could reach 141 million bags by the end of 2012 and approach between 143 million and 144 million bags by the end of 2013.

More generous estimates put growth figures at 2.5 per cent a year, matching those seen in the past decade. This would put total demand by the end of 2013 at over 146 million bags. At these rates, the world supply-demand balance will continue into a sixth year of deficit.

History has proven that when it comes to coffee forecasts, there’s a long way to go until the final harvest is picked, processed and shipped. This will ring true with the current crop, perhaps more than ever, with climate change making weather patterns highly unpredictable.

“There are a lot of ‘ifs’ going around,” says Somkuan Priyawat, Managing Director of Thai coffee traders Rung Rueng Kaset Charoen Co. “If Brazil has a great flowering, if Colombia has no more weather upsets, if Vietnam produces another bumper crop, if we have perfect weather… quite frankly, the truth is that we don’t know yet. The end of the harvest is still a long way away and a lot of things can go wrong or change.”

Many industry officials echo these sentiments, that hanging climate patterns have increasingly played the wild card in world coffee forecasting during the past five years, with the most likely scenario predicting crop damage down the road. Depending on how these forecasts pan out, in the 2012-13 cycle, new Robusta consumers may face a deficit as high as 6 million bags.

The growing demand for Robusta isn’t being welcomed with open arms by all. A number of traders and analysts have voiced concerns as to how this shift could impact the quality equation. “We have already seen the same thing happening in 1997 when higher retail prices led to a dramatic drop in the quality used in blends, as roasters switched from Arabica to Robusta. This in turn resulted in weaker consumer demand for several years until producers started to improve quality,” says one US trader from the New York green coffee market.

Other roasters and importers disagree, saying not just Arabica producers but Robusta growers too have lifted their game in the quality equation. “We buy about 1 million bags from Vietnam in Italy but these are good Robustas, Grade 1 and polished Robusta. Consumers have found the taste difference is not so bad after all; they have been happy to sacrifice a little on the quality to be able to continue to drink as much coffee as they did before the crisis,” Vercelli says. “At the end of the day, coffee is still cheap, you can get a coffee or a shot of espresso for 1 Euro but a Coke or other soft drinks will cost you 2 Euros.”

Export figures from Vietnam confirm that the share of coffee exports certified as Grade 1 beans accounted for around 30 per cent of shipments in the last crop, compared to between 10 – 20 per cent 10 years ago. That was at a time when the overall export volume was significantly lower than today.
Brazil’s second largest producing state of Espirito Santo is another region that has contributed a large share of the new Robusta to the market. The region is gaining increased recognition for producing much more mild and neutral Robustas.

“In the past, much lower qualities were blended, like black and green beans. But conillons, that is Robusta beans, can be more neutral than, for example, fermented beans. In the past few years, the quality of the conillons has improved dramatically,” says one veteran trader with Brazil’s Santos-based exporters Comexim.

Cheap prices and improvements in the quality of Robusta aren’t the only factors in increasing demand for this varietal. The growth of consumption in emerging markets, with a large share of instant, has also helped boost up this varietal, according to Raymond Neogh, General Director of FES Vietnam Co Ltd, a leading manufacturer of soluble coffee in Vietnam.

“World demand for instant coffee has doubled in the last seven years, and even in the Vietnamese market this segment is expected to grow 6.9 per cent a year,” says Neogh. “The growing demand in emerging market is by and large fuelled by instant coffee.”

Perhaps the most encouraging news is that roasters across the world are increasingly learning to mix blends according to availability. This helps keep retail prices down as international economies show little sign of picking up.

One factor to consider going into 2013, is that the price gap between Arabica and Robusta narrowed considerably in the last quarter of 2012. Combine this with the possibility of Brazil’s strong off-cycle in the next 2013-14 harvest, and some of the Robusta deficit “could be offset with Brazil naturals and allow for a quality switch back into Arabica”, according to Alex Gruber, Director of the coffee division for Singapore-based green coffee traders Tong Teik Pte Ltd.

Whether the coffee that comes in is Arabica or Robusta, for many the most important concern is that roasters can meet overall demand.
“We are not really that concerned,” says Toyohide Nishino, Executive Director of the Japan Coffee Association. “Because our roasters need both Robusta and Arabica coffee in order to maintain their blends.” GCR

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