Global coffee production is sliding but the lower output has as much to do with discouraged farmers as anything else.
Central America’s biggest coffee producer, Honduras, exported 55.5% fewer beans in July compared with July 2019 according to the country’s national coffee institute, IHCAFE. So far this year, October to July, the country has exported 5.24m 60-kilo bags, around 17% lower than the same period a year ago.
The plunge in July’s exports from Honduras was "mostly due to the decrease in coffee production as a result of the disincentive of prices on the world market" said IHCAFE, as well as "some minor problems in transportation" due to Covid-19. Honduras has had about 44,000 confirmed Covid-19 cases so far, with about 1,400 deaths attributed to the virus.
Honduran coffee usually accounts for around 75% of certified coffee stocks on ICE. Those stocks have now dropped to 1.588m bags, the lowest level since mid-2017.
Prices need to rise
The International Coffee Organization (ICO) this week reported that global coffee exports (arabica and robusta combined) in the first nine months (October-June) of the 2019-20 season were 5.1% lower than the same period of the previous year. It added that it now expects global output in 2019-20 to be some 168.01m bags - 2.9% lower than 2018-19. Central American countries, together with Mexico, typically produce around 20% of the world’s arabica coffee, with Honduras accounting for around a third of that.
The USDA said in June this year it expects total coffee production from that region in the 2020-21 season to be 18m bags, with Honduras’s output to be 6.1m bags. That now seems optimistic - coffee trees in Honduras (like those in other Central American producers) struggle against coffee rust, a damaging fungus - and low prices.
Economic recovery - for some
Signs of the much-anticipated economic recovery are starting to emerge. Retail sales across the eurozone in June returned to their pre-Covid-19 crisis level, and shoppers in the zone appear to be heading back to eh high street. It’s too early to tell if this is just a temporary phenomenon.
But given that Europe is the world’s biggest coffee market, consuming about a third, and high-quality arabica coffee (such as Honduran) is primarily consumed out of home, this returning high street footfall suggests that arabica demand should start to pick up.
One worry is that the economic recovery may come too late for some Central American coffee producers.
In March last year a consortium of 13 organisations collectively called the World Coffee Producers Forum warned that low prices were forcing coffee farmers - mainly smallholders - to abandon coffee in favour of crops with better returns. It said "coffee producers have lost more than 80% of their purchase capacity in the last few decades."
Back then the front-month ICE arabica contract price was sub-$1 per pound. It settled on 4 August at $1.2105 per pound - the highest settlement price since mid-April.
The world is not going to run out of coffee - but some highly-prized arabicas such as those from Honduras may become a little more troublesome to find. Farmers there just don’t make enough at these prices.