The International Coffee Organization (ICO) has released the first issue of its new economic publication, the ICO: Coffee Break Series No 1. The report analyses the impact of COVID-19 on the demand side of the coffee sector.
“The COVID-19 pandemic is likely to have a profound impact on the global coffee sector, including production, consumption, and international trade,” the publication reads.
The ICO says in the short-term, out-of-home consumption is decreasing significantly as a growing number of countries are adopting a full or partial lockdown. On the other hand, retail- and supermarket-level data suggest that panic buying and stockpiling has led to increased consumer demand in some countries. However, the report says this is unlikely to have a sustained effect on consumption.
A more profound effect on global coffee demand, the ICO believes, can be expected as the result of a global recession triggered by the direct and indirect effects of the COVID-19 pandemic.
Reduced household incomes could translate into lower demand for coffee in volume terms. In addition, price-sensitive consumers may substitute higher-value coffee by lower-value blends or brands. However, the ICO says income elasticity of coffee demand is likely to be low, especially in high-income countries and traditional markets with high per-capita consumption rates.
The ICO conducted a quantitative analysis to identify the relationship between GDP growth and coffee consumption, providing an estimate of the demand-side shock resulting from the COVID-19 pandemic. The analysis is based on a sample of the top-20 coffee-consuming countries, which represent 71 per cent of global demand, covering the period 1990-2018.
The results show that a one percentage point drop in GDP growth is associated with a reduction in the growth of global demand for coffee of 0.95 per cent, or 1.6 million 60-kilogram bags.
The model predicts that a larger drop in GDP growth or a global recession would have a proportionally greater effect. As a result, coffee consumption levels could stagnate – or even decline – compared to pre-crisis years that were characterised by steadily increasing demand for coffee, at a rate of 2 to 3 per cent per annum.
Additional demand-side effects relate to the impact of social distancing measures on out-of-home consumption as large parts of the hospitality industry are under lockdown and workplaces are closed.
The ICO says further analysis, in particular of the supply-side effect of the COVID-19 pandemic, is necessary to understand the overall impact on the global coffee sector and all actors along the global value chain. These effects will be assessed in future issues in the ICO Coffee Break series.
To read ICO: Coffee Break Series No 1, click HERE.
