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ANALYSIS: Gourmet coffee-lovers may have to pay more in the future to enjoy their beverage

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"There’s many a slip twixt cup and lip" runs the old proverb.

 

No-where is this more true than in the arabica coffee market. You may find your daily skinny flat white costing a little more in the coming months, as retail prices start to reflect possible low exports from the premium arabica coffee producers of central America.

 

One of the world’s most prized coffees is Costa Rica’s arabica. Costa Rica is the only country in the world where it is against the law to produce any coffee other than arabica. In 1989 a law was passed banning the planting of low-quality beans such as robusta, in a deliberate effort to encourage local farmers to focus on producing excellent arabica - which it does.

 

Labour shortfalls

 

Costa Rica is not a major arabica producer in volume terms: but in quality it has few rivals.

 

The USDA reported last December that this central American state produced almost 1.3m 60 kilo bags in the 2018-19 season, its lowest output in 40 years and 15% down on the previous season. It typically exports almost all that coffee, some 1m bags. That’s a drop in the ocean in global terms - total world output in 2018-19 was around 170m 60 kilo bags.

 

But Costa Rica’s coffee is so prized that the world’s biggest coffee chain, Starbucks, has its first (and only) coffee farm there, which it uses as a global research and development centre.

 

Costa Rica’s production decline in 2018-19 was due to bad weather and the spread of coffee rust, a fungus that causes premature defoliation and weakens the trees, and which has steadily spread throughout central America.

 

A further looming problem for the forthcoming harvest, which is usually concentrated in the November-February period, is the potential shortage of labour.

 

Around two-thirds of Costa Rica’s coffee-pickers annually trek from neighbouring Panama and Nicaragua. Icafe, Costa Rica’s national coffee institute, estimates that 74,000 migrant labourers will be needed at harvest peak time near the end of this year.

 

The country’s health minister has said that (in order to combat the spread of Covid-19) as of 1 August the only foreigners that will be allowed in will be those from countries that have "controlled the spread of the coronavirus" - an unhelpfully vague definition.

 

Prices need to recover lost ground

 

The recent low futures prices reflect the change in coffee consumption deriving from the Covid-19 lockdowns - more coffee is being drunk at home and less out-of-home.

 

Costa Rica’s arabica farming has been shrinking over recent years. Most is produced by smallholders and their numbers have dropped from more than 52,000 in 2007 to around 41,000 today.

 

Arabica coffee futures for the nearby month of July in New York settled at $1.115.10 per pound on 30 June, partly on worries about frost in Brazil, of which there is currently no sign, but which always are a concern at this time of year.

 

That price is still 24% lower than around the end of last year. Low prices for arabica are discouraging farmers everywhere, not least in central America. Their incentive for producing gourmet beans has collapsed, yet the world will demand steadily more - around 2-3% increase a year - of their coffee once it returns to out-of-home consumption.

 

The sooner Covid-19 precautions are lifted, the less likelihood there is of a mammoth price explosion some time in the not-too-distant future.

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