TURBULENCE IN THE WORLD’S COFFEE MARKET
Lars Aaen Thøgersen
Chief Innovation and Circular Transformation Officer,
Löfbergs and Peter Larsen Kaffe
The frost in some of Brazil’s leading coffee regions has driven up coffee prices. With approx. 40% of the world’s total coffee production, Brazil plays a crucial role in the world’s coffee market, and the current frost situation has not been seen like this since the 1990s. A loss of 10-15% of Brazil’s total production is expected. It’s an extreme situation, which probably also will have noticeable consequences for both coffee farmers and the world’s coffee consumers.
Today, TV2 News and the evening news on TV2 provide information about the situation, and I have had the opportunity to bring some perspective on the cause, scope, and consequence.
World prices for raw coffee are always volatile with daily and annual fluctuations, but over 30 years, prices remain unchanged
The current situation is a sum of several elements that create something close to “the perfect storm.” First drought, then severe frost in Brazil (climate change). The ensuing supply uncertainty affects financial markets and generates increased demand (market speculation). On top of this, we have the consequences of the pandemic with supply problems and generally increased price levels for raw materials, freight, and packaging.
Price developments come from a shallow level since there has been enough raw coffee available on the market to meet demand
The prospect of reduced supply offers increased prices, which, conversely, can be of particular benefit to farmers who are coping with the crisis. The world market price is average, so regions outside the current problem can now benefit from higher transfer prices. It allows for investment in the farm, technology, etc. that equips coffee farmers for the future. It provides investment in the farm, technology, etc. that prepares coffee farmers for the future. That’s how the market fluctuate all the time up and down.
We must invest in minimizing risks
Coffee is a vulnerable commodity. As a coffee company, we must work with the consequences of climate change. We do it by, for example, working with our production and transition to a circular use of all resources. This applies to farmers as well as to ourselves and consumers. In addition, we must maintain a focus on certifications, which ensures a solid base for the investment in further initiatives. Packaging, farmers’ access to education, knowledge, investment, and technology are other important initiatives that we work with within Peter Larsen Kaffe and Löfbergs Group.
We should appreciate the coffee we have
Too much coffee is thrown away. Today, less than 1% of the nutritional content of the coffee is utilized, and a lot of coffee ends up in the sink. There is a huge waste. It’s like using the tenderloin and throw the rest of the cow away. That’s why we work wholeheartedly to create circular solutions and new sources of income for the coffee farmer, ourselves, our customers, and the consumer. We do this in partnerships connected via the Circular Coffee Community.
Consumers will feel the effect, and the price per cup may rise some pennies, but it’s still too early to say
Especially if the current situation becomes long-lasting and climate change worsens, the price increases of coffee will be noticeable, and it will be more difficult to get special coffee variants. The impact on the individual consumer depends on coffee habits and behavior. For example, the coffee price for a 40 kr. caffe latte is less decisive than it is for a deal-hunter in the supermarket, where the actual coffee price represents a significantly higher share in the total calculus. Like the popular capsule coffee solutions, items such as packaging, marketing, freight, etc., outweigh the raw material price of the 5-7gr of coffee that the portions include.