The global coffee market is bracing itself for continued high prices, particularly for the robusta variety, as a combination of hoarding behaviors and adverse weather conditions severely impacts supply from Vietnam, the world's leading producer. This situation is exacerbated by a weak harvest for the 2023 to 2024 season, pushing local prices to unprecedented levels and complicating the sourcing process for exporters.
Factors Driving Up Coffee Prices
Hoarding by Farmers and Middlemen: In Vietnam, both farmers and middlemen are holding onto their coffee beans, anticipating higher prices. This reluctance to sell has been fueled by the disappointing yields of the recent harvests. As Tran Thi Lan Anh, deputy director of Vinh Hiep, a major Vietnamese exporter, explains, "Local prices have rallied to an all-time high this year as farmers and middlemen continue to hold onto beans so they do not miss out on better deals after a weak 2023 to 2024 harvest".
Adverse Weather Conditions: The situation is further complicated by increasingly erratic weather patterns, likely driven by climate change. Vietnam has experienced unusually hot and dry conditions, which are not only detrimental to coffee crop yields but also threaten the quality of the beans. This has led to a significant reduction in supply, with Vietnam accounting for about a third of the world’s robusta beans, which are primarily used in instant coffee and espresso. Global Market Impact: The shortfall in Vietnam's coffee supply has had a ripple effect on global markets, with benchmark futures in London seeing a 50% increase this year, reaching the highest level in at least 16 years. The CEO of Tata Consumer Products noted that robusta prices are expected to remain volatile "for some time," indicating that the current price surge may not stabilize soon.
Economic and Consumer Impact
The soaring cost of robusta beans is gradually filtering through to the retail level, affecting everything from the price of a simple cup of coffee to the cost of coffee-based products. While smaller gains in the cost of arabica beans have somewhat cushioned the blow for consumers, the overall trend remains upward. This economic strain is not only felt by consumers but also by coffee farmers in Vietnam, some of whom have had to rely on alternative sources of income, such as selling fruit, to manage their living expenses and maintain coffee production.
Long-term Outlook
The coffee industry is at a critical juncture. With no immediate relief in sight from the supply constraints and adverse weather conditions, both consumers and businesses need to prepare for a new normal where high coffee prices are a persistent reality. The ongoing volatility in coffee prices underscores the need for increased investment in sustainable farming practices and perhaps a reevaluation of the supply chain to mitigate future disruptions.
