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International Coffee Organization report: market recovery after years of low prices

International Coffee Organization report

The International Coffee Organization on the market’s gradual recovery after years of low prices.

Coffee prices have received a much-needed jolt since October 2020, after numerous fits and starts in the previous year. 

In the first half of coffee year 2020/21, the ICO composite indicator (Figure 1) averaged 114.27 US cents per pound. In April 2021, the monthly average of the indicator surged to 122.03 US cents per pound, its highest level in more than three and a half years. This trend continued into May 2021, with the daily indicator breaching 140 US cents per pound for the first time in more than four years. 

Prices have rallied on signals of tightening supplies in the near future, as well as expectations of a post-COVID-19 recovery in key consuming markets in 2021. These trends will combine for a widely anticipated global deficit in coffee year 2021/22. Shipping container shortages caused by the pandemic, resulting in soaring freight rates, have also had an impact on international prices. While coffee prices have risen across the board, the increase has been more pronounced in certain groups (Figure 2).

Brazilian Naturals race ahead on expected shortages
The ICO’s estimate of 33 million 60-kilogram bags is under two-thirds of the previous year’s level. Not only is 2021/22 an off-year in Brazil’s biennial Arabica crop cycle, but the prolonged drought in Brazil – now reported to be the worst dry spell in the country in nearly a century – will drastically reduce the size of the harvest. Prices could be pushed higher if buyers’ fears about widespread defaults from Brazilian farmers, as reported by Reuters, come to pass.

In May 2021, the daily indicator breached 140 US cents per pound for the first time in over four years.

Prices of Colombian Milds have also increased substantially in coffee year 2020/21, rising 38 per cent by the end of May 2021. Production in Colombia is expected to rise by 2.8 per cent to 14.5 million bags in the current season. Between October 2020 and April 2021, exports grew by 8.6 per cent in comparison to the same period in the previous year. Shipments for the month of May were however stalled due to anti-government protests, lending some support to international prices.

Driven by the high international prices and a relatively weak Colombian peso, prices paid to growers in Colombia also reached a historic peak of almost 1.21 million pesos per load of 125-kilogram dry parchment (equivalent to 149.97 US cents per pound of green beans) in April 2021. 

Prices of Other Milds increased by 29.9 per cent over the first eight months of the current season. In Honduras, the largest producer and exporter of Other Mild Arabicas, production had fallen by 17.1 per cent to 5.9 million bags in the 2019/20 harvest. Falling prices and climate change, as well as the impact of a prolonged drought and ongoing outbreaks of coffee leaf rust, had led many producers to abandon their farms and migrate northwards in the past few years. While production may recover slightly, the risk of coffee leaf rust, which was exacerbated following hurricanes Eta and Iota, could affect the size of the crop in the current and forthcoming season.

While coffee prices have risen across the board, the increase has been more pronounced in certain groups.

Robusta prices increased by the smallest proportion of 22 per cent at the end of May 2021. Total exports of coffee from Vietnam, the largest producer and exporter of Robusta coffee, had fallen by 14.3 per cent to 14.8 million bags in the first seven months of coffee year 2020/21. Robusta production for the year is estimated at 27.6 million bags in Vietnam, down 4.9 per cent. The decreased production has led to tight supplies of Robusta, and there are also reports of farmers holding on to their produce in anticipation of higher prices. Shipments of Robusta beans from the next three biggest exporters – Brazil, Indonesia, and Uganda – have however risen substantially in October 2020 to May 2021, by 26.4 per cent, 29.3 per cent, and 27.5 per cent, respectively. These increases have nevertheless been insufficient to counter the fall in exports from Vietnam. As a result, global exports of Robusta beans in the period are lower by 3.5 per cent compared to the previous year.

Demand may rebound to near pre-pandemic levels, but recovery remains fragile
The COVID-19 pandemic and resultant control measures severely constrained the growth of consumption of coffee in the coffee year 2019/20. The year closed with a fall in demand of 2.4 per cent, reflecting in large part the impact of the measures imposed to contain the virus, as well as the fallout from the global economic downturn. While the start of the pandemic was marked by an increase in demand – a result of widespread stockpiling when lockdowns were announced – there was a normalisation and reduced panic-buying by the close of the year.

The biggest drops in consumption in coffee year 2019/20, in absolute terms, were recorded in Europe and North America (Figure 3). The European Union, which is by far the largest consumer globally, saw its consumption of coffee fall by 4.8 per cent to 39.8 million bags in 2019/20. As lockdowns in the region relax, consumption is expected to gradually recover by 1.8 per cent to an estimated 40.5 million bags in 2020/21. This is, however, still lower than its pre-pandemic consumption of 41.8 million bags in 2018/19.

In the United States, the largest single-country consumer of coffee, consumption fell by 4 per cent to 26.7 million bags in 2019/20 as a result of the pandemic. On the back of a strong economic recovery projected by the International Monetary Fund, the ICO estimates a 3.9 per cent increase in demand to 27.7 million bags in the year ending September 2021. 

The biggest drops in consumption in coffee year 2019/20, in absolute terms, were recorded in Europe and North America.

Supporting the projection are signs of improved consumer sentiment in the country, with a February 2021 survey by McKinsey suggesting that more than half of the consumers in the country expect to spend extra by splurging, with some starting immediately and some waiting for the pandemic to subside. Data from the National Coffee Association USA, however, suggests some key changes in consumer habits, with 85 per cent of coffee drinkers having at least one cup at home, setting a record for at-home consumption. 

On the whole, demand in coffee year 2020/21 is expected to rise by 2.3 per cent to 117.1 million bags in coffee-consuming countries, and by 1 per cent to 50.5 million bags in coffee-producing countries. Over the year, the recovery is expected to stem from a release of pent-up demand, as lockdowns ease and vaccine coverage improves. It should, however, be noted that many emerging markets are struggling with containing the pandemic, and uncertainty about the new variants makes consumption difficult to predict. 

The scale and pace of recovery, especially in countries where coffee is considered a luxury good, is uncertain. Some pandemic-driven changes in consumer patterns, such as a preference for at-home consumption, may become a mainstay in the sector. 

Nevertheless, the outlook based on currently available information is one of demand growth in the ongoing season.

This article was authored by Nikita Sisaudia. 

Nikita Sisaudia is a Statistician with the International Coffee Organization (ICO). Prior to joining the ICO, Nikita was an Urban Data Researcher at The Economist Intelligence Unit. She has previously worked with the Social and Human Sciences Sector at UNESCO, as well as with the Faculty of Management Studies at the University of Delhi. Nikita received her Masters degree from Tata Institute of Social Sciences, Mumbai and holds a Bachelor’s degree in Economics from the University of Warwick.
The ICO is the main intergovernmental organisation for coffee, bringing together exporting and importing governments to tackle the challenges facing the world coffee sector through international cooperation. Its Member Governments represent 98 per cent of world coffee production and 67 per cent of world consumption.

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This article appeared in the July/August 2021 edition of Global Coffee Report, read more HERE

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