Last time we have written for you on this subject in 2021. At that time, frosts in Brazil and a pandemic-induced global logistics crisis pushed the price of coffee to long unseen levels. At the time, we hoped the issue was temporary. Frosts in Brazil happen once every few decades, the pandemic will end at some point. Unfortunately, the unfavourable circumstances continue to pile up. In December, the price of coffee on the world's stock exchanges reached a historic peak, with a jump of more than 80% for the whole of 2024.
For us, this is a daily concern. We are not sports betting enthusiasts, nor do we play the stock market. Nonetheless, we recently start each day by checking the price quotations of coffee on the New York Stock Exchange and actually experience disappointment every day, because it usually goes up.
Below we describe for you the reasons for this phenomenon.
In recent years, the world's two largest coffee producers, Brazil and Vietnam, have been experiencing very adverse weather conditions. When the fruit is ripening and could use some rain, there is a drought. When it is time to harvest and rain can ruin the work, it rains more than usual.
It started back in 2023 in Vietnam. Fatal weather resulted in an extremely low harvest. The country produces mainly robusta. From October 2023 onwards, its price began to soar until it was almost on a par with the classic arabicas from Brazil. This in itself is an extraordinary phenomenon, robusta has always been treated by the market as a lower quality product. Roasters around the world found it difficult to stock robusta and began to replace it with arabicas. Demand rose disproportionately to supply - the first brick in the price surge was laid.
In 2024, Brazil - the world's largest arabica producer - also struggled with dire weather conditions. Drought has resulted in a lower harvest. In addition, the production of the largest size of beans has fallen significantly, an additional and somewhat side-effect, resulting in lower volumes of top-quality coffee on the market. On the other hand, floods occurred in many places during the harvest, making harvesting difficult, sometimes impossible. The supply of Brazilian arabica has dropped significantly this year, the outlook for next year is unclear, but pessimism prevails.
The same is true in many other places in the world - we don't want to do a long review of all coffee-producing countries here, but we are getting news from all sides that the climate is not conducive to coffee production.
During the pandemic, there was a shortage of space on ships, as many of them sailed with electronics from China to the United States. Ports were blocked because there was a shortage of workers due to COVID, and sanitary requirements further reduced their efficiency.
We thought that these problems would disappear with the pandemic. However, it turned out that many of them persist to this day. The rise in popularity of e-commerce is a continuing trend. Likewise, the attractiveness of offers from Chinese sales portals. The powerful stream of electronics from China to countries in Europe and North America continues to flow. Ports are understaffed and port infrastructure is often unable to keep up with the growing cargo traffic.
As a result, in recent months some 5% of the world's coffee production - about 8 million 60-kg bags of coffee - has been stuck in traffic jams at destination ports. The coffee is there, but it cannot be allowed into the market. And once it is accepted at the port, more is queued up.
The second problem is the lack of containers. There are two main phenomena. Containers are being taken out of circulation due to wear and tear faster than new ones are being produced. Secondly, the imbalance of logistical exchanges worldwide persists. Containers do not flow empty. If they bring electronics from China to the USA, they only flow back when they are filled with goods. A lot of containers simply stand empty in the countries of the global North. The result? In Brazil alone, another million bags of coffee are waiting for containers at the ports at the moment.
As if that were not enough, there is major disruption to trade routes around the world. The main one is, of course, the Suez Canal. Due to the activities of Yemeni 'pirates', this sea route is virtually inaccessible. Ships have to go around Africa - by a longer and more expensive route. 30% of the world's cargo passes through the canal in normal times. It is easy to imagine what its de facto blockade results in.
Meanwhile, things are no better at other key points in global transport. There is a growing crisis surrounding the Panama Canal. Donald Trump is threatening its takeover by the US, and in the background we have rising tolls on this sea route and its under-occupancy due to ageing infrastructure.
Well, unfortunately - the answer to that question is - definitely not.
Since the outbreak of the war between Russia and Ukraine, fertilisers have become more expensive on world markets. Russia is one of the largest producers of fertilisers. Expensive fertilisers mean more expensive coffee.
Rising energy prices affect farmers, increase the costs of transport and storage and, finally, the final production - the coffee roaster, us.
In 2024 we were - and still are - faced with an uncertain regulatory environment. The EU has adopted the Deforestation Regulation (EUDR), which significantly changes the conditions for coffee trade and, indirectly, production. The industry is not yet completely prepared for this change, nor are all the details of its implementation known, resulting in uncertainty and exemplifying price increases.
Ha, we would like to know ourselves. Our list of problems in the global coffee market is not complete anyway. Each of these factors has the potential to deteriorate further and lead to worsening problems.
Certainly, the industry is seeing changing climatic conditions. Producers are looking for ways to adapt to them, both in terms of breeding new, more robust arabica varieties and adapting the production process to the new, more difficult conditions. All of these, however, are not actions that will produce results right away. One must be patient and hope not so much that they will reduce the price of coffee to its former level, but rather that they will dismiss the grim vision of the end of coffee in 2050. As for the former - we have no doubt that coffee will remain expensive. As for the second - we are optimistic. We will be roasting coffee for a long time to come, and you will be drinking it.
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