• Print

This year coffee will be in short supply

An unprecedented drop in coffee collection in Brazil may affect the cost of a coffee drink. Stock prices have already skyrocketed to five-year highs. Not immediately, but the monopolists of the coffee business - Switzerland and Italy - will shift all these costs onto the shoulders of ordinary buyers, because the demand for coffee continues to grow, no matter what.

World prices for Arabica coffee rose in June to their highest level since 2016. So, futures contracts for the supply of Arabica coffee on the stock exchange in New York for three months rose by 18% - up to $ 1.51 per pound (0.454 kg). In London, Robusta coffee gained 30% in three months and peaked in two years at $ 1,749 per metric ton, The Wall Street Journal reported.

The largest producer and supplier of Arabica in the world is Brazil. However, the country is facing a severe drought, which the publication calls one of the most severe in nearly a century. After a bumper crop in 2020, an already weaker crop was expected this year. But now it is clear that the situation is much worse than initially seen. Local planters are preparing for the worst drop in production in nearly 20 years due to a severe drought. Brazilian coffee harvest is expected to fall to 2003 levels. The USDA projects that this year's harvest will be 15 million less standard sacks weighing 132 pounds (roughly 60 kg) compared to 2020. However, some brokers are expecting a drop of 17 million or even 23 million bags.

Brazil is the largest coffee producer, but not the only one. However, its two competitors, Colombia and Vietnam, have their own problems. In Colombia, protesters blocked roads and ports, leaving coffee stuck in storage facilities. And the Vietnamese are faced with a shortage of containers and an increase in the cost of shipping.

The problem is that there are more and more coffee “adepts” in the world than tea “adepts”. The USDA expects coffee consumption to exceed production this year for the first time since 2017.
Consumption will rise by 8.1 million sacks to 165 million sacks, while production will drop to 164.8 million sacks.

Although globally, everything does not look so scary. “Stock prices for coffee appear to be high compared to last year, but they are not that high by historical standards. In 2014, they reached $ 2.25 a pound against $ 1.5 today. In 2011, the price of a pound generally exceeded three dollars. ”

It is curious that the coffee business is organized like the oil business. Coffee is produced mainly in three developing countries. However, in Brazil, Colombia and Vietnam, coffee itself is only grown and exported as a raw material mainly to developed countries. And now the developed countries make the final product from the grains for sale. Monopolists in this market can be considered Switzerland, Italy and Germany.

“As for the laws of the coffee market functioning, the general principles of globalization work here. Developing countries, which do not have the ability to deeply process products and create competitive goods, sell raw materials. And developed countries make goods of high added value from purchased raw materials and sell them to the same countries - exporters of raw materials ”.

So, Brazil on the export of coffee as a raw material earns a little less than $ 10 billion a year, which is about 3.5% of the country's GDP. And Switzerland, which buys this raw material, earns more than 2 billion francs a year from coffee production (its share in GDP is 4%).

Switzerland is located in the center of Europe and has a favorable tax system, so many large traders work here, not only in the coffee trade, but also in oil and gold.

Switzerland even has a strategic supply of coffee for three months in case of war or other disasters. When the country's authorities several years ago tried to cancel the preservation of such stocks of coffee, because it is not a strategic food with zero calories, the people of the country strongly opposed such an initiative. They consider coffee to be a completely vital supply. In fact, in terms of volumes, the export of coffee even exceeds the export of such primordially Swiss products as cheese and chocolate.