More than 80% of world coffee may be grown in just five countries by the 2030s thanks to the impact of farm profitability trends, according to a briefing which urges price reforms and highlights growing concentration among roasters said.
The International Coffee Organisation, launching a series of reports aimed to “set the agenda” in debate on industry development, said that already the proportion of coffee produced by the top five growers had risen to more than 70%, from 57% in 1990.
“If this trend continues, the global market share of the top five producers could surpass 80% over the next 15 years,” the ICO said, a concentration that “reduces consumer choice” and would enhance the sector’s “vulnerability against severe market shocks.
“For example, extreme weather events… such as droughts or frosts in any of the top producers can have severe effects on both the coffee industry and consumers.”
‘Increasing economic pressure’
The declining diversity in supplies reflects the knock-on effects of large differences in production costs between top growing countries - such as Brazil and Vietnam, characterised by high per-hectare spending but also elevated yields – and countries with less intensive systems more exposed to higher labour bills.
In times, such as now, with extended periods of low coffee prices, “efficient and low-cost growers remain profitable and are able to invest in the modernisation of their farms”, the ICO said.
However, “there is increasing economic pressure on high-cost producers with limited resources to expand or in some cases even maintain current production levels.
“Hence, current coffee price levels foster concentration of production and exports in a small number of highly competitive origins,” the intergovernmental said, naming Brazil, Vietnam, Colombia, Indonesia and Ethiopia as the top five coffee growers.
‘Need for market info’
The briefing - which underlines the pressures on the world’s 25m coffee farmers of prices which have been below the 10-year average for most of the past four years, and are now 30% beneath it – also proposed the formation of an “independent international institution or initiative” to support their profitability prospects.
The institution might determine “reference prices that enable a living income and a living wage”, the ICO said, underlining too the need for increased market information to support such efforts.
“There is a need to further upgrade existing market information systems to provide real time data on price levels, price volatility as well as demand and supply data and forecasts.
“This strategy should inform sourcing practices of the coffee industry and empower producers,” with the aim of ensuring farmers more financial benefit from a sector of which revenues are pegged at $200bn a year.
Producers vs roasters
Indeed, there is some speculation that benefits of boom in the coffee sector overall have been focused on roasters and retailers, whose revenues “have increased significantly over the past two decades”.
The report quoted one investigation which showed that while sales of roasted ground coffee in packets, pods or capsules soared by more than 90% to E2.44bn between 1994 and 2017, the value of imported coffee rose by only 16% to E461m.
“As a result, the producer share in retail prices dropped from 24% to 16%.”
“Some studies suggest that the market liberalisation and higher concentration in the downstream supply chain segment led to increased market power of traders and roasters, which in turn led farmers to be squeezed,” the ICO added.
However, other research has flagged increasing costs to roasters of the likes of processing, marketing and distribution costs.
“Hence, the falling producer share does not necessarily imply an increasingly unfair distribution of value.
“Concentration on the buyer side is increasing, but a link with price levels remains unclear.”