The “morning coffee ritual” is spreading through the world.
As the aroma of the freshly brewed beverage reaches markets such as China, and consumption skyrockets in producing nations such as Brazil, the global coffee industry is witnessing a boom that could reshape the market and lead to higher prices.
For centuries, poor farmers in Africa and Latin America have grown the commodity to satisfy the daily caffeine fix of rich consumers in the US, Japan and western Europe.
While the so-called traditional markets remain central to the industry, markets in Asia, Africa and Latin America are increasingly important.
“The coffee market is at a turning point,” says Nicolas Tamari, director-general of Sucafina, a Geneva-based coffee trading house.
“Demand in western Europe and the US is nearing a plateau, while consumption in emerging markets is rising strongly, particularly in coffee-producing countries.”
Brazil is paradigmatic of the trends. Already the largest coffee producer, it is set to become the biggest consumer too next year.
The Brazilian Coffee Industry Association (Abic) forecasts that domestic demand will top 21m bags, of 60kg each, in 2012, which is up 50 per cent in the past decade and surpasses that of the US.
“The world of coffee consumption is changing,” says Nathan Herszkowicz, Abic executive director. “Brazilians are drinking more coffee each day too.”
And other emerging markets, particularly in Asia, are “shifting from tea into coffee”, he adds. The rapid increase in demand from emerging countries – which echoes other commodities markets such as oil and copper – is one of the main reasons for the surge in speculative investment in coffee, according to analysts and traders.
The rise in demand has an impact beyond the industry. For years, coffee has been a sleepy niche commodity market, largely handled by roasters and trading houses. But lately less specialist investors have gained exposure through popular commodities indices.
This week the cost of arabica coffee, the high-quality bean appreciated by espresso connoisseurs, hit its highest level in 34 years, above $3 per pound. Arabica coffee prices have risen 125 per cent in the past year, forcing retailers to raise prices.
JM Smucker, the US company behind the popular Folgers brand and a trendsetter, has raised retail prices three times during the past year, totalling a 23 per cent rise.
Unlike the previous four big rallies of the coffee market – in 1975-77, 1985-86, 1994 and 1997 – which were triggered after frost hit Brazil’s coffee belt, the current high has a broader cause.
Supplies are running low in a larger number of countries, particularly Colombia, a top producer of premium arabica beans, while demand in producing countries such as Brazil, Indonesia, Mexico and Ethiopia is skyrocketing.
As important as the rapid increase in producing nations’ consumption is the arrival of the coffee culture to Asian countries such as China.
Coffee shop chains consider the region a top priority. Howard Schultz, Starbucks chief executive, says he is “beginning to see the morning [coffee] ritual develop” in China, confirming plans to triple the company’s number of stores there to more than 1,500 by 2015.
According to the International Coffee Organisation, global demand for the beverage has risen 2.4 per cent per year over the past decade. But the increase masks a divergent trend: while consumption in the traditional markets of western Europe, the US and Japan grew by an anaemic 1.1 per cent per year, demand in producing countries swelled by an impressive 4.3 per cent per year. Consumption in non-producing emerging countries expanded by 3.8 per cent per year.
The divergent consumption trends have narrowed the demand gap between different markets.
Back in 2000, the traditional consumers accounted for more than 60 per cent of global demand, estimated then at 105.5m bags.
But in 2010, after a decade of strong demand in emerging and producing countries, the share of the US, western Europe and Japan fell to less than 53 per cent of the 134m bags consumed globally.
If the current consumption trends persist, as most of the industry expects, by the middle of the decade the traditional consumers will represents less than half of the market for the first time.
The rise in demand from emerging countries is affecting not only quantity but also quality.
Consumers in nations such as Brazil and Indonesia have for years consumed coffee made from robusta beans and those arabica beans that are of lower quality.
But Keith Flury, soft commodities analyst at Rabobank, one of the largest lenders to agribusinesses, says demand is starting to move up the quality ladder, with consumption of premium washed arabica beans rising, albeit from a level that is still low.
If trends towards greater consumption and higher quality continue in emerging markets, traders and industry executives say the result will be correspondingly higher prices.
(Source: http://www.ft.com/cms/s/0/17efba34-7288-11e0-96bf-00144feabdc0.html#axzz1KzvzUsDg)
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