Market Reports

ICO Executive Director José Sette on increased uncertainty in 2022

Each year GCR invites industry leaders to share their hopes, fears and expectations for the year ahead, in what is expected to be one of rejuvenation and unity for the global coffee market.

I was recently looking back at my predictions in last year’s edition of Global Coffee Report and saw that my closing words were: “Whatever happens, let’s hope that the upcoming year will not spring any more surprises like this one.” Famous last words, indeed.

While 2020 was marked by profound shocks to the demand side, 2021 was a stark reminder of the vulnerability of coffee production to supply-side shocks. On 20 July 2021, growers in Brazil were hit by a severe frost, the first in more than 20 years. The frost came after a long period of drought, which had already debilitated coffee trees and made them more susceptible to climatic instability.

As of the time of writing, the extent of the damage to future production in Brazil is still difficult to evaluate, although it will undoubtedly be substantial. The impact is also likely to last for a considerable time. With no other origins having the capacity to make up the shortfall in Brazilian in the short term, we must prepare ourselves for a prolonged period of restricted supply.

Meanwhile, demand for coffee is showing encouraging signs of recovery from the pandemic-induced drop, which especially affected out-of-home consumption.

As a result of the impending supply shortage, prices have risen sharply in recent months. Prices are now at their highest levels in the last 10 years, with no prospects for a significant decrease in sight. Bearing in mind that roasters have not yet passed on the increase in prices to consumers, we can expect even more uncertainty in 2022.

Meanwhile, I would like to inject a word of caution. Although current price levels are welcome news for coffee growers, who have suffered a long spell of low quotations, experience shows us also that coffee prices are subject to long-term cycles, so we must not fall into the trap of thinking that today’s high prices will persist indefinitely. Farmers must use the good times today to organise their operations and improve their productivity in order to prepare themselves for lower prices in the future.

This article was first published in the January/February 2022 edition of Global Coffee Report. Read more HERE.

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