Coffee lovers are anxiously watching the price of their favourite beans after the world’s largest crop was hit by freezing temperatures.
- The world’s largest coffee producer Brazil loses up to 10 per cent of its crop to frost.
- Australians may not actually pay more for their coffee despite a world price rise
- This loss may make room for other countries like Australia to expand their production
Severe frost has damaged a large part of Brazil’s coffee fields with up to 10 per cent of the crop lost.
Australia imports about 15 per cent of its coffee from Brazil, and global prices for Arabica beans have already risen 25 per cent.
But the Head of Agri Commodities Market Research at Rabobank, Carlos Mera, believes Australian consumers are unlikely to pay the price at their local cafe with importers looking to other suppliers to fill any shortfall.
Mr Mera said the frost in Brazil, which produces 40 to 50 per cent of all the coffee in the world, was the worst in a long time.
Mr Mera said Brazil wouldn’t be back to its full growing capacity for years, creating a world shortage.
While this year’s harvest has escaped the worst, the biggest impact will be felt in the 2022-23 harvest.
“They’ve lost so many leaves, many farmers will decide to prune them back,” he said.
“If they skeletonise the trees, which is a technique used in Brazil, those trees will not produce next year.”
Coffee trees take up to seven years to produce a full commercial-sized crop, so if farmers need to replant trees, it’s a long recovery.
‘Happy to pay for the quality’
Mr Mera said despite the world price rising 25 per cent already, it may not be passed on to Australian consumers at the till.
He said if you break down the price of a cafe-made coffee, only 3 to 6 per cent is for the beans, the rest is for the milk, the store’s rent and the cost of labour, among other things.
“The increase in coffee prices that we’ve seen over the last year in the raw commodity may not translate much into coffee shops,” he said.
Currently, Australia imports about 15 per cent of its coffee from Brazil, but importers will be looking to other countries to fill the shortage, and that’s where the price rise could be felt.
“In a coffee market that’s as developed as Australia’s, I tend to believe most might go for other arabica beans around the world.
“They tend to be a little bit more expensive than Brazil, but the Australian consumer will be happy to pay for the quality.”
While Brazil is known for having some of the cheapest coffee in the world, Australian-grown coffee normally attracts a premium price.
Consumers buying locally grown beans won’t feel an added price pinch.
“The coffee-growing industry in Australia is like a super speciality,” Mr Mera said.
In Queensland’s Far North, Skybury Coffee produces around 40 tonnes of green coffee a year.
General Manager Candy McLaughlin said Brazil’s loss wouldn’t impact them.
“We create our own market. We export 50 per cent of what we grow,” she said.
“We have a loyal following within Europe.
“They’re prepared to pay a price that we think is fair and reasonable and well above what the Brazilian prices.”
Making up the shortfall
With Brazil’s industry years away from a full recovery, Mr Mera said we could expect other countries to try and increase their production.
“This will be in countries where fertiliser usage is not very intensive. Farmers there may start using more fertilisation,” he said.
This includes Colombia, Peru, Honduras and countries in Asia like Indonesia and India.
In the longer term, a smaller coffee-growing country like Australia may try to increase its plantings, but there are challenges, according to Ms McLaughlin.
“I know those in New South Wales struggle with land opportunities because there’s a real push and pull between residential and farming,” she said.
“Whereas in North Queensland, there’s lots of opportunities to convert cane properties into coffee.”
Problem plagued industry
Coffee prices have been increasing over the past year, even with worldwide lockdowns impacting the hospitality industry and decreasing demand.
Mr Mera said factors like the price of shipping, roadblocks in Colombia and companies stockpiling beans were to blame.
But he hopes as the world slowly opens up again, it will return confidence to global supply chains.
“With the vaccination programs, you would expect fewer disruptions across the supply chain,” he said.
“That’s from farm level, transport, fewer disruptions in the ports and fewer disruptions in movements across national borders.”