Despite a steady increase in coffee consumption around the world, trade prices have fallen dramatically in the past three years.
Futures on arabica and robusta, the most widespread varieties of coffee, have fallen 40 per cent since 2017 and are now at historically low levels.
Futures on arabica and robusta, the most widespread varieties of coffee, have fallen 40 per cent since 2017 and are now at historically low levels.
This is largely because of bumper harvests in Brazil, the world’s main coffee producer.
But
at the same time, consumption has grown by an average of 2.1 per cent a
year for the past decade, according to the International Coffee
Organisation (ICO).
Two billion cups of coffee are
drunk every day, according to Fairtrade International, which works to
improve the lot of farmers through better pricing and conditions.
The
crisis in prices is beginning to create “real structural problems” for
producers, said Valeria Rodriguez, a manager at Fairtrade organisation
Max Havelaar France.
“The consequences are terrible -
they can no longer support themselves, invest in production or prepare
for the challenges of climate change,” she said.
Supplier woes
In central and south America, many smaller producers in Africa and Latin America are giving up in particular those who grow arabica, which is more difficult to produce than the robusta variety favoured in Asia, according to Jack Scoville, a futures markets analyst with Price Group.
In central and south America, many smaller producers in Africa and Latin America are giving up in particular those who grow arabica, which is more difficult to produce than the robusta variety favoured in Asia, according to Jack Scoville, a futures markets analyst with Price Group.
A similar
trend is observable in Africa for reasons ranging from high production
costs in Kenya to insecurity in significant producers like Cameroon.
Few
growers have the money to invest, and access to the kind of fertile
land they would need to switch to mechanised processes with economies of
scale is limited.
As a result, “origins with a higher
cost of production such as Colombia, Honduras and Guatemala are forecast
to produce less coffee for the 19/20 season”, said Geordie Wilkes, head
of research at Sucden Financial.
ICO figures published
last week illustrate the trend: South America will see production fall
3.2 per cent in the coming season, compared with 0.9 per cent worldwide.
At
the same time, “demand for high quality is very strong”, which protects
prices for certain varieties and in certain regions, said Carlos Mera,
analyst at Rabobank.
Max Havelaar France guarantees its
producers a minimum price of $3.10 per kilogramme of coffee, plus a
bonus if the coffee is organic.
Price fixing
But Fairtrade represents only a small section of the market, and the vast majority of producers are vulnerable to prices fixed by traders in London or New York.
But Fairtrade represents only a small section of the market, and the vast majority of producers are vulnerable to prices fixed by traders in London or New York.
However, the low prices they set “do not affect consumer prices”, said Paul Belchi, also from Max Havelaar France.
This
is because the supply chain is long, running from the plateaus of South
America to trendy coffee shops in the world’s big cities.
When
you take into account merchants such as giants Nestle and Lavazza,
transportation, real estate prices and staff, the trade price of coffee
is only about 10 per cent of what you pay at the counter.
Rarer
varieties like Jamaica Blue Mountain, Tarrazu Costa Rica or Bourbon
Pointu from Reunion have prices more akin to caviar, negotiated directly
between the producer and the merchants.
Some of these
varieties change hands at more than $110 per kilogramme, compared with
less than $2.20 that arabica fetched Friday November 8 on New York’s ICE
Futures US. For consumers, Bourbon Pointu is currently selling online
for $54 for 125 grams; $432 per kilogramme to be sure.
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