July 13, 2013
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Mug’s
game. Courtesy of The Economist
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NOT everyone appreciates the pungent
smell of roasting coffee. Just ask the authorities in Brazil, who have been
faced with farmers burning bags of beans and chanting slogans borrowed from
recent nationwide protests to demand fatter state subsidies. The farmers are
upset by falling prices: their beans now fetch around $106 a 60kg bag, a
four-year low and less than half what they could get a couple of years ago. A
reversal looks unlikely soon.
A third of the world’s coffee is
grown in Brazil. Along with other countries that mainly cultivate the tastier
and pricier arabica-bean variety, it faces two problems. First, the traditional
markets for their wares are saturated. Growth in Europe, America and Japan,
which between them glug over half the world’s coffee, is flat. Second, in
places like China, Indonesia and Brazil itself, where coffee is an affordable
luxury for the middle class, the market is growing by around 5% a year. But
these drinkers are filling their pots with cheaper robusta beans—what Kona
Haque of Macquarie dubs the “emerging-market coffee”.
Strong demand for entry-level
coffee—40% of the world’s coffee crop is now robusta beans—has enabled Vietnam
to go from almost nothing a decade ago to producing 25m bags today (see chart).
Worse still for arabica producers, the recession in Europe has hit demand and
squeezed profits for roasters. These processors, including big food firms such
as Nestlé and Kraft, have responded by blending cheaper robusta with arabica.
As a result robusta prices have not fallen as fast as arabica. Even so, the
narrowing gap between them has not yet prompted beancounters to reintroduce the
costlier variety.
Nor is the supply of arabica beans
likely to fall. In response to the high prices of 2011 Brazilian farmers
invested heavily in new acreage and improved yields with better husbandry and
more fertiliser. High prices also convinced Colombian farmers to replant many
coffee plantations with more productive bushes. What’s more, the bumper harvest
of 2012, an “on” year for Brazilian coffee bushes, should be followed by an
“off” year as the bushes’ yields naturally fall after their exertions. Yet good
weather means that even this year’s “off” crop is a bumper one, with the
prospect of another “on” year to come.
Low arabica prices are accompanied
by rising costs. Coffee is a labour-intensive crop; picking is still largely
done
Consumers ought to benefit from low
prices, but discerning drinkers will still be disappointed. Demand for the
fanciest arabica beans is healthy, as the global proliferation of coffee chains
shows. Much of the finest coffee is grown in Central America in places such as
Guatemala, Nicaragua and El Salvador. That region has been hit by leaf rust, a
fungal disease, which could destroy 30% of the crop this year. Cutting back
plants to deal with it is set to hit production next year, too. For the
tastiest coffee, there is no chance of a cheap shot.