BeanScene Magazine


Dollar doom

From the January 2016 issue.

Campos Coffee President Will Young shares his prediction of how the decline of the Aussie dollar will affect coffee buyers.

In 1998 I was working 12 hours a day behind a coffee machine.

Fast forward 17 years and life is a whole lot different.

I would never have thought in 2015 I would be hanging on a knife’s edge on the first Tuesday of every month to see if the Reserve Bank of Australia (RBA) would cut interest rates by a further 25 points.

I also wouldn’t have ever imagined I would care so much about the latest report from China on its manufacturing sector. And why on earth would I ever be concerned about the price of iron ore?

Before I buy any coffee now, I have to buy the global coffee currency, the mighty dollar of the United States of America (US$). Once I buy the US$ then I can purchase fine specialty coffees from the best producers in the world. 

Our currency, the wildly oscillating Australian dollar (A$) changes constantly in relation to the US$.

Over the past 10 years the A$ has been worth anywhere between US$0.60 and US$1.10. For us coffee buyers, this means a coffee that costs us A$10.00 per pound one year can cost us A$18.00 the next year.

Australia is a resource-rich country that depends heavily on exports of commodities, and as such, its currency (commodity currency) is tied to the price of these resources. Iron ore, for instance, is a major commodity for us.

Over the past three years, Australia’s currency has devalued by 34 per cent from its peak in 2012 of US$1.10 to land today (December 2015) at US$0.73.

This is in stark contrast to the fall we experienced in 2008 when our dollar also fell by 34 per cent from US$0.98 to US$0.65 over a jarring three-month period. Those three months of sudden freefall was quite the experience.

Our latest fall started in 2012 when the dollar dropped from US$1.10 to US$0.90 and we have been witness to a true slow motion decline since.

Strategies for the new dollar environment have had time to develop over three years. Those that work in the coffee buying business need to plan in the long term. 

Typically, every morning Australian coffee companies wake up to another incremental decline. I believe we will see the results of these planning sessions in the coming months.

The changes will be big picture and I am sure they will be very interesting for us as a coffee nation.

Yes, prices will go up in coffee beans and beverages, but I’d like to look at what else might arise from the slow decline of our dollar. I have landed on four potential effects we might see in our industry:

1. More Australian companies will look to open in the US market.

Join the party. It’s been three years of watching the US$ gain while friends come back from the US complaining about its filter coffee.

It is an amazing market and Australia has a great reputation in specialty coffee circles in the US.

New York has success stories already with a few Australian espresso bars doing very well. They are paving the way and the risk is not looking so shabby.

Best of all, the entire country uses the US$. If you cannot beat the dollar, then heck, why not join it.

2. More businesses will purchase from new producing countries.

The search for as-good quality specialty coffee looks to new up-and-coming specialty producing countries.

Peru is entering the picture much more now, and so is Vietnam, China, and Thailand.

With our dollar lower, companies will be searching for more economical alternatives for their blends. One of the most interesting investigations is happening in Myanmar, which is just starting to poke its head into the coffee game. 

This is an exciting outlook. Australian companies can have a magnificent impact on these new producers and increase their reputations on the world stage. 

3. Buy a farm… sell in $US.

Farmland in Nicaragua is rumoured to sell at US$7000 per hectare. That will get the strategy sessions going.

Three years of slow A$ decline paying for all coffee in US$ makes people start to think… Open a café for A$500,000 or buy a substantial farm overseas? 

 

To read this article in full pick up the December 2015 edition of BeanScene Magazine subscribe here.

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