COVID-19 Could Potentially Trigger a Worldwide Coffee Shortage

COVID-19 has caused an onslaught of problems for commodities in the agriculture industry, and this is no exception for coffee beans. Logistical issues and labor shortages will cause delays in Arabica harvests in South America, giving hint at a future shortage of beans in the 2020/2021 season. Vietnam has finished its Robusta harvests, with leftover supplies withheld from being sold as farmers hope for a better price outlook.

South American Coffee Beans Take A Hit from the Coronavirus

In South America, Brazil and Colombia have been undefeated in coffee bean production, producing 65% of the world’s supply of high-quality Arabica variety. However, as South American countries set to commence their harvests, labor shortages have become the most pressing issue. According to Reuters, it is estimated that Brazil and Colombia need 1.25 million workers for production. But with the virus not yet under control, hiring workers is not easy, and harvests are considering being pushed back. At this rate, production for Arabica beans could be down by up to 10%.

Colombia, where coffee production is heavily manual and not as developed, is seeing a dire need for temporary workers but is unable to fulfill the need. Logistics-wise, labor required to move the harvested coffee beans between the mountainous regions to the ports is also proving to be an issue as well with the slow-down of port operations. Exports in April have decreased by 32% compared to the same period in the previous year. With the uncertainty in the market and low-demand, importers have significantly cut back on purchasing coffee beans, as the beans decline in quality during the storage period.

Lower Exports for Vietnamese Coffee, Increased Prices

Vietnam, in contrast to South American countries, produces the Robusta variety the most, which is commonly used in instant coffee. The International Coffee Organization (ICO) has reported that Vietnam’s coffee exports have dropped by 2%, to a total of 2.5 million bags in March. Vietnam has already sold most of its Robusta harvests, approximately 85%, but with low returns, causing producers to refrain from selling further until the market situation improves. 

The decrease in supply has caused prices to go up, as seen in Tridge prices, coffee bean prices in the Lam Dong region have marked USD 1.30 per kg as of May 11, increasing by 2.3% from April 27 with USD 1.27 per kg. In the Dak Lak region, coffee bean prices have recorded USD 1.32 per kg as of May 11, also an increase of 2.3% from April 27 with USD 1.29 per kg. Traders are reluctant to purchase these higher-priced coffee beans and premiums, turning to cheaper alternatives from countries such as Indonesia.

Outlook for 2020/2021 Coffee Beans

With major players-Brazil, Colombia, and Vietnam-facing scarcity in future supplies, the current surplus in the market is not likely to hold off for long. Prices are expected to climb once production for this season is negatively impacted. Price jumps for coffee beans are already evident in Vietnam, and soon to follow for South American countries. Despite the expected scarcity of global supplies, demand is not predicted to return to normal levels soon, as stockpiling has decreased the need for consumers to purchase more coffee. While there was a brief spike in demand for at-home coffee sales, particularly instant coffee, as consumers hoarded supplies, this trend has since flattened out.

Furthermore, the coronavirus is expected to severely affect the premium coffee market, as the outbreak has shaken up business in major coffee chains and plummeted their sales. Customers for South American coffee beans are major coffee companies including Starbucks, which mainly source high-quality Arabica beans. Colombia has diversified its markets into high-quality, specialty coffee beans in order to stay out of the volatile commodity market, but this is soon to change, with the downturn of the economy following the outbreak, as consumers are moving away from pricey coffee. Even with the lockdowns loosening across countries worldwide, closures of many coffee shops and hospitality industries are permanent, and the comeback for specialty coffee will prove to be difficult.