The COVID crisis has affected all corners and sectors of the global economy, and coffee is no exception. It is likely to have a serious impact on the global coffee sector including demand, supply, and trade. It is too early to make a concise analysis, but even preliminary studies show the matter to be of deep concern.
Out of home consumption in Europe and other consuming markets has almost dried up due to lock downs and other social distancing measures. This is does not mean people have stopped drinking coffee. At- home consumption and e-commerce have stayed alive. On the production side, labour shortage and trade disruptions are causes for concern.
People under lock down are stockpiling essentials including coffee. Most have tended to buy things online for at home consumption, forcing retailers and consumers alike to adapt to this new state of affairs. Both Buyers and sellers are not sure if the consumption will be high enough to compensate for the closure of the coffee shops and restaurants especially once people start drinking the stockpiles in their pantries. This might be for only the short term.
On the long term reduced household income may result in lower demand for coffee in terms of volume. Moreover, price sensitive consumers may replace high-value coffee with cheaper blends or brands. Having said that, the income elasticity for coffee demand is expected to be low, especially in high income countries and conventional markets with high per-capita consumption rates.
COVID Disruption on the Economy of Coffee Producing Countries
The spread of COVID-19 has posed a substantial challenge to the global coffee sector, which has seen prolonged periods of low produced prices. Despite the steady overall growth experienced by the sector, coffee prices have shown a continued downward trend for the past couple of years.
Adding to this stay at home and social distancing orders mean that millions of coffee shops are forced to shut their doors. Hence, the sale of brewed, roast and green coffee has been affected.
It is a trickledown effect. Businesses are buying less roasted coffee, which has led to reduced orders for suppliers slowing down production and purchasing fewer beans for roasting. This means importers who would usually supply these roasters would have unsold stock to deal with. This will put their coffee exporters under undue financial stress, as importers are reducing orders and delaying payments.
Small time exporters could see this as a crushing blow. Without proper cash flow, funding even one container could be too expensive, even if they are exporting to an importer or roaster. With a heavy financial crunch on the exporters, the producers they work with will be affected.
Coffee producers comprise of 25million farmers worldwide, most of them being small land holders. Already struggling to cover their operational costs with increased cost of production loss of market would be a huge blow. As a result, farm incomes decline, and sustenance are increasingly at risk. Lack of investments in modernization and climate resistant farming techniques poses a serious risk to the sector and subsequently to the future of coffee supply.
This is something that the rest of the supply chain cannot just ignore, as if producers cannot keep producing coffee, the domino effect will be felt through out the entire supply chain.
On the supply side the International Coffee Organization has put out a forecast of disruptions. These could be shipment delays, insufficient container space as well low labour availability due to the lockdowns and social distancing measures.
Coffee importing countries are stockpiling foreseeing disruption in supply chain from producer countries. These supply chain disruptions due to inter-country lockdown may lead to lower attention to crop maintenance and post-harvest protocols leading to higher focus on volume.
The only possible solution to keep the coffee supply chain up and running during CORONA is to keep buying coffee. With no clear timeline of when the crisis would end, this means encouraging people to stay at home safely while enjoying their specialty coffee.
The post- COVID-19 world is hard to predict but it will lead to enormous changes in global economy. Doing business online would be the new normal. There could be increase in usage of innovative technologies like blockchain and other supply chain management tools. Usage of E-commerce for coffee purchased would be more common.