Coffee inventories in South America are declining so severely that reserves are predicted to be extremely low, but can we expect a coffee shortage? Global coffee prices are increasing and will continue to do so amid market uncertainty driven by supply shortages in Brazil, the world’s largest coffee producer.
Coffee prices have been volatile in recent months, but the situation is predicted to get even worse in the weeks ahead as Brazilian coffee exports hold on to their supplies to drive up prices. Meanwhile, the rest of the producing world may not have the inventory to meet the growing demand. The projected coffee shortage is a result of both environmental and economic factors.
Weather issues and lower supply, especially from the main Arabica coffee producers, including Brazil, Colombia and Honduras, are driving the coffee shortage from an environmental perspective. A wave of persistent weather conditions is affecting coffee market dynamics in Brazil, which is facing severe dry spells. In contrast, heavy rain is affecting coffee crops in Colombia.
The rapid onset of climate change is also behind the challenges being felt within the coffee industry. The climate crisis shows no sign of abating, with adverse weather threatening to endanger growing conditions further. Adverse weather may also hurt yields in Guatemala, Honduras and Nicaragua, among other world coffee producers.
However, the coffee shortage isn’t just stemming from South American producers. Vietnam, the second largest coffee producer after Brazil, with Robusta coffee accounting for 97 percent of Vietnam’s total output, is also witnessing a decline in stockpiles.
Robusta beans, a species of coffee that originates in central and western sub-Saharan Africa, has been making a comeback. The variety, normally cheaper than Arabica coffee, is in strong demand as people look for alternatives to mitigate the impact of rising inflation. Robusta is used by instant coffee makers including Nestle South America or as a blend in espressos.
Economically, recession fears, war and the energy crisis in Europe are bringing uncertainties in terms of global demand.
All these market dynamics lead to price spikes in coffee around the world. Coffee giants like Starbucks, Lavazza and Costa will absorb the price hikes and pass them on to the customer. Meanwhile, these brands often have sustainability initiatives working with farmers on best agricultural practices in coffee-growing regions.
All this is occurring amid a continuous demand increase anywhere between 1.5 and two percent year over year. This has led to an 11 percent increase in the coffee stock price on the futures market. The global coffee beans market reached $28.9 billion in 2021 and is expected to reach a market value of $42.26 billion by 2027 exhibiting a compound annual growth rate (CAGR) of 6.3 percent.
However, with the continued threat of environmental factors looming heavily over the entire coffee-growing industry, finding ways to fight back against adverse weather seems beyond the reach of industry leaders.