SPECIAL REPORT

COUNTING BEANS

A DECLINE IN BRAZIL’S COFFEE PRODUCTION HAS POTENTIAL TO DISRUPT HOW THE WORLD SECURES AND CONSUMES THE BREWED BEVERAGE.

Brazil harvested nearly 40 per cent less arabica coffee in 2021 compared to the previous year. It was also the least amount since 2009 according to a crop forecast.

This loss, according to Bloomberg, is equivalent to about two thirds of US consumption.

A survey via a European coffee roaster found 37 per cent of coffee consumers have been drinking more coffee per week since the start of the Covid-19 pandemic, and 73 per cent of coffee drinkers report they have been making coffee at home more often since it began.

A drop in coffee production could lead to a shortage.

“There’s no line of trucks waiting to load coffee at the warehouses,” Regis Ricco, a Director at Minas Gerais-based RR Consultoria Rural, told Bloomberg. “Farmers send a truck with coffee to the warehouses, and a few hours later the truck is back, when normally it would take as long as a day. It is alarming.”

The Center for Advanced Studies on Applied Economics (CEPEA) surveys found that, until 6 August, harvesting activities had only reached 70 to 80 per cent of expected output.

Due to the dry weather, and the lower volume of coffee to be harvested, the harvest progressed favourably from July onwards. CEPEA stated that harvesting this year was late compared to previous years due to later crop flowering in 2020, which consequently delayed the crop’s development.

As a high volume of crops has already been harvested, CEPEA said that Brazilian coffee farmers have confirmed a crop failure for the 2021/22 season.

“Agents have reported harvests lower than expected in some areas, besides lower-grade beans,” said CEPEA. “On the other hand, this season has been marked by beans of higher quality beverage, favoured by the dry weather during the harvesting.”

On 13 August, the CEPEA/ESALQ index for Arabica coffee type six, which had been delivered to São Paulo city, closed at $196.25

USD per 60-kilogram bag, up 1.4 per cent from 30 July. This price, according to CEPEA, is due to increased concerns about Brazil’s drought.

The International Coffee Organization (ICO) has been tracking this market’s recovery and also projected expected shortages in Brazil.

It estimated 33 million 60kg 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.

The pandemic and resultant control measures severely constrained the growth of consumption of coffee in the coffee year 2019/20 according to ICO.

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. 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 US, the largest single-country consumer of coffee, consumption fell by 4.0 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.

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 1.0 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.

www.globaltrailermag.com

The coffee highway in Serra do Cadeado.