COVID-19 hits world coffee consumption, but could benefit Australia

COVID-19 coffee consumption

Global coffee demand is expected to drop by one million 60-kilogram bags this year, with consumption impacted by the effects of COVID-19, according to the latest Coffee Outlook report from agribusiness specialist Rabobank.

In its Q2 2020 Coffee Outlook – Harvest Time, Rabobank estimates global coffee consumption to decline by 0.8 per cent to 164.1 million bags in 2020.

On the price front – assuming both no major production disruptions and weakened demand – the report expects dollar commodity prices for coffee to fall in the short term, impacted by the weakness of the currencies in Brazil and also Colombia, another significant coffee producer.

Charles Clack is a Rabobank Australia commodity analyst.

In Australia, the pressure on global coffee prices may herald good news for cafés and food service outlets trying to get back on their feet after the COVID-19 lockdowns, although not necessarily translating to lower prices for consumers, says Rabobank Australia commodity analyst Charles Clack.

“Indeed, less out-of-home purchasing has seen downward pressure on a number of soft commodities around the world, which could make the raw ingredient prices for Australia’s café and restaurant sector, including coffee and sugar, dip lower. This may help these businesses as they come out of COVID-19 lockdown and over the coming year or so,” he says.

“That said, this won’t necessarily translate to cheaper prices for the consumer, as there is a lot more that contributes to the cost of the flat white you enjoy from your local café than the commodity prices alone, with labour, business overheads. and other costs a significant part.”

The report says certain coffee segments remain precarious – in particular out-of-home consumption – with the bank trimming its demand expectations in a number of countries due to the extent of lockdowns and the large increases in unemployment – particularly in countries without unemployment benefits – as a result of the pandemic.

Rabobank Agri Commodity Markets Research senior analyst Carlos Mera says while estimates are still preliminary, coffee demand is expected to drop by two per cent in the United States in the 2020 calendar year, impacted by the decline in out-of-home coffee purchases and the country’s low level of unemployment benefits reducing consumer spending. Higher supermarket coffee sales were unlikely to offset the drop in out-of-home consumption witnessed in April, he says.

“In Europe, we do not expect such a large drop in demand because income levels of those unemployed are more protected in most EU countries,” Carlos says.

“We initially expect a 0.5 per cent reduction in coffee demand in 2020 in the EU-27+UK countries, with the decline concentrated in the United Kingdom, where there is a tea culture at home as well as lower unemployment benefits, and in southern Europe, where there has been a lower volume of tourists.”

Global coffee production meanwhile remains relatively without disruption, with the exception of potential delays at both farm and port level, the report says. The current harvests are going ahead “more or less normally”, although with the key risk occurring in Brazil, the world’s largest coffee producer, where harvest is coinciding with projected peak COVID-19 infection rates.

“In Brazil, the great 2020/21 Arabica harvest is beginning in virtually all regions. Preparations have been made and, as far as we can tell, there is no labour shortage for the time being, though the peak of the harvest will be in June/July,” Carlos says.

Access the report HERE.

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