Plenty of coffee, too few drinkers
A third of the world’s coffee is grown in Brazil. Along with other countries that mainly cultivate the tastier and pricier arabica-bean variety, it faces two problems. First, the traditional markets for their wares are saturated. Growth in Europe, America and Japan, which between them glug over half the world’s coffee, is flat. Second, in places like China, Indonesia and Brazil itself, where coffee is an affordable luxury for the middle class, the market is growing by around 5% a year. But these drinkers are filling their pots with cheaper robusta beans—what Kona Haque of Macquarie dubs the “emerging-market coffee”.
Nor is the supply of arabica beans likely to fall. In response to the high prices of 2011 Brazilian farmers invested heavily in new acreage and improved yields with better husbandry and more fertiliser. High prices also convinced Colombian farmers to replant many coffee plantations with more productive bushes. What’s more, the bumper harvest of 2012, an “on” year for Brazilian coffee bushes, should be followed by an “off” year as the bushes’ yields naturally fall after their exertions. Yet good weather means that even this year’s “off” crop is a bumper one, with the prospect of another “on” year to come.
Low arabica prices are accompanied by rising costs. Coffee is a labour-intensive crop; picking is still largely done by hand. Wages in Brazil and Colombia are rising fast and production costs are above prices. Planting other sorts of crops, the usual response to agricultural boom and bust, is not an option. Prices for sugar cane, a potential alternative, are low. Coffee is mainly grown on small plots by farmers who have known nothing else.
Consumers ought to benefit from low prices, but discerning drinkers will still be disappointed. Demand for the fanciest arabica beans is healthy, as the global proliferation of coffee chains shows. Much of the finest coffee is grown in Central America in places such as Guatemala, Nicaragua and El Salvador. That region has been hit by leaf rust, a fungal disease, which could destroy 30% of the crop this year. Cutting back plants to deal with it is set to hit production next year, too. For the tastiest coffee, there is no chance of a cheap shot.