Global coffee demand will keep rising at an average 2% a year as consumption gains in emerging markets and producing countries, according to Singapore-based raw materials trader Olam International.
Global coffee consumption has gained an average 2.3% a year over the past 10 years, according to the International Coffee Organization. Demand growth slowed to 1.3% to 139 million bags last year because of deteriorating economies and higher prices, data from the London-based group showed. During the global recession in 2009, usage slipped 0.4%.
“Consumption has done very well through the recession, so we shouldn’t get too pessimistic because, considering what happened with other commodities, consumption has maintained itself,” Neil Rosser, head of coffee research and statistics at the company, said in an interview in Geneva last week. “We see that southeast Asian and origin countries are growing much more strongly than the more developed coffee markets.”
Demand for robusta beans, used in instant coffee and espresso, is growing at a faster pace than the arabica variety, favored by Starbucks Corp., according to Luigi Lavazza SpA. Robusta will account for 46% of all coffee consumption in the 2012-13 season that started this month, up from 44% in 2011-12 and 40% in 2010-11, estimates Volcafe, the coffee unit of commodities trader ED&F Man Holdings.
“Structurally, the places where consumption is growing are more robusta-intensive,” Rosser said. “There is a huge increase in soluble consumption, which has led the way in new markets. It’s much easier to prepare,” he said, referring to the instant variety.
TOUGH TIMES
Robusta demand also gained a boost as consumers sought to save money by purchasing cheaper coffees, which usually contain more of the variety. Arabica prices, which reached a 14-year high of $3.086 pound in May last year, also curbed consumption and led some roasters to increase the share of robusta in blends. The price difference between arabica and robusta coffee reached $1.89 a pound last year, the highest since at least 2008.
“There is, considering where the arbitrage has been, a shift to more robusta given the macro-economic situation,” Rosser said. “The best blends are still the same. What has happened is that people have less money and they want to pick a blend that suits their pocket because times are tough.”
The quality and consistency of robusta coffee has improved over the years because of better preparation of the beans after harvesting, said Manish Dhawan, senior vice president of Olam’s coffee division in Singapore. Demand for steamed beans has also increased, according to Raja Saoud, who is also a senior vice president. Steaming is a process that helps reduce the bitterness of robusta beans.
COFFEE QUALITY
“Post-harvest practices are much better and therefore the raw coffee quality from producers on average has been improving,” Dhawan said. “You are now handling a product that is better than it was five years ago. It’s a lot better for the roasters.”
The robusta coffee crop in Vietnam, the world’s largest producer of the variety, is unlikely to fall significantly in 2012-13, Rosser said, declining to give a forecast. The southeast Asian country produced a record 27 million bags last season, according to estimates from Volcafe.
“The size of the robusta crop took people by surprise this year. People are still puzzling in their heads why it happened and I think people have to accept that there is new area,” Rosser said. “The weather has been reasonable and farmers are still making money. I don’t see any reason to see a huge drop in Vietnamese robusta production.”
BRAZILIAN HARVEST
Coffee trees in Brazil, the world’s largest producer, have started to flower before the 2013-14 season after rains reached producing regions. Farmers in the South American country are set to harvest less beans in 2013-14 as the country’s arabica trees enter the lower-yielding half of a two-year cycle.
“It’s a good start to the season, but you have to be careful,” Rosser said. “Come October the rain has to continue. The rains have been very timely.”
The coffee industry will face a “big challenge” to ensure that supplies are enough to meet growing demand because of competing crops, rising labor costs and the lack of workers as the young generation moves from the farm to the city, according to Olam. Production increases will have to come much more from yield improvement than area expansion.
“I don’t think we will run out of coffee, it will be a volatile ride. Price will ultimately dictate the increase of consumption and production,” Saoud said. “The market is not healthy with an oversupply of coffee, nor is it healthy with a shortage.”
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