Coffee prices jumped in March because of lockdown

People need their caffeine fix — even if they’re in the middle of a global pandemic.

Fears over disruptions to supply chains amid the pandemic have led to some degree of hoarding among countries and consumers that’s given coffee prices a much-needed boost.

That’s good news for farmers in key coffee-producing regions, who have been struggling as coffee prices kept slumping for the past few years. Since 2016, prices have dropped 30% below the average for the past decade, according to the International Coffee Organization, a body representing 49 member countries which export and import coffee. Arabica coffee prices in March were above $1.12 per pound, a far cry from the peak of over $3.00 per pound around 2011. “Many of the 25 million farmers worldwide … struggle to cover their operating costs as input prices continue to rise. Consequently, farm incomes decline and livelihoods are increasingly at risk,” the organization said in a report last week.

But prices of Arabica, the world’s most commonly produced coffee, rose last month due to concerns over its availability, said the ICO. Arabica coffee from Brazil, the world’s largest producer, jumped 10% in March as compared to February. Coffee futures traded in New York surged 8.8% in March, to an average of about $1.16 a pound. They climbed further to last settle at $1.2120 as of late Thursday during Asia hours.

The current coronavirus pandemic has led to supply disruptions — from manufacturing to transportation to retail — as lockdowns were imposed around the world. For instance, shipments from Colombia, another major coffee exporter, could be temporarily disrupted because of its lockdown, according to the ICO. It explained that Colombia’s usual harvest in April is likely to be affected by the containment measures as well as fewer migrant laborers from neighboring countries. Colombia’s countrywide lockdown is set to be in place till April 27.

On the global situation overall, the ICO said: “Currently demand is estimated to exceed production … disruptions to the supply chain both in shipping and harvesting could lead to temporary shortages in the supply, putting upward pressure on prices in the short term.” 

Fears of food protectionism have grown in recent weeks. Some countries have stopped exports of some crops, while others have been stockpiling food supplies, to ensure they have enough for their own citizens. It appears that coffee is no exception.

“There is some evidence that countries are bringing forward coffee purchases on anticipation about future supply disruption,” said Samuel Burman, assistant commodities economist at Capital Economics. However, he added that the magnitude was unclear.

According to a Reuters report, coffee importers in some of the largest consuming countries are stockpiling and bringing forward orders by up to a month. “Retail- and supermarket-level data suggest that panic buying and stockpiling has led to increased consumer demand in some countries,” the ICO said in a report last week. For instance, spending on coffee in France has jumped 34.6% as compared to the same period last year, while in Italy, it has gone up 29.5%, according to data from Chicago-based market research institute IRI.

Looking ahead, the situation may deteriorate again for farmers. One factor that could threaten supply is the locust invasion in East Africa, which has disrupted harvests there, said Burman. Demand could also come back down if people continue to stay home, and coffee shops remain closed. “Following an initial spike in demand, there will be proportionally less demand in the coming weeks and months as consumers draw down stocks kept at home,” the ICO said. Some coffee farmers have already switched over to other types of crops in order to survive, according to Capital Economics.

Source: CNBC

Leave a Reply