News — Unprecedented increase in the price of green grain

Released last November, the International Coffee Organization report indicated that the price of green bean Arabica had just climbed 77.9%, after four consecutive years of significantly low prices. What can explain such a significant jump Pandemic, climatic phenomena and a faulty supply chain are at the center of the discussions..

Even if the purchase of specialty coffee is done independently of the stock market price, the fact remains that the phenomena explaining this increase have affected the entire coffee industry. While the price of green grain per pound was US$1.09 in November 2020, it has just reached US$1.95 a year later. In December, it hovered around US$2.40. This is a drastic change in the market, caused by two main situations.

1. Disruptions in maritime transport are explained by an increase in demand for consumer goods following the pandemic and an insufficient number of cargo ships to meet the need.

We note that the shortage of containers in which green beans are exported could play an important role in the price increase. Around the world, ports are saturated. Export companies want to avoid amplifying the problem. As a deterrent, they will charge more. Shipping costs can be up to three times higher than before the pandemic.

Socio-political issues are also part of the reason why exports from producing countries suffered some setbacks. For example, earlier this year in Colombia, major roadblocks and port closures were put in place in protest against government tax reforms. Right in the middle of the harvest season, it was therefore difficult, if not impossible, to export coffee. This has exacerbated the problems caused by Covid-19

2. Being the most important producing country of Arabica, Brazil has lost a substantial part of its harvest due to drought and frost, which translates into a considerable drop in the world supply of coffee.

In July 2021, temperatures in Brazil dropped below 0C in certain notorious regions where coffee trees are grown, including Minas Gerais and Sao Paulo. It is the worst frost since 1994, according to farmers and analysts. This meteorological phenomenon, which is called Black Frost, is not, however, a gel strictly speaking. It is a condition seen in plantations when the humidity is too low for frost to form, but the temperature drops so low that plant tissues die. For young plants, it is fatal. The most damaged mature trees will need significant pruning and will only produce again after two years. It is thought that this period of frost could reduce production for the year 2022-2023 by 50%. %.

In addition, a few months earlier, Brazil was facing its worst drought in 91 years. Government agencies then sounded the alarm, sparking fears of energy rationing. The lack of rain, in addition to increasing the risk of fires in the Amazon, affected the production of hydroelectric energy and, obviously, agriculture.

It is still difficult to assess the damage of these two climatic events. It is assumed, however, that in some areas where several trees have not survived, it could take up to seven years for plantations to return to their previous yield.

With the difficult export of green beans, but also several other commodities, to North America and Europe, and the damage caused to plantations in Brazil, we can expect an increase in the price of bags of coffee. . This increase will allow roasters here and abroad to absorb the additional costs and help them continue to buy quality coffee from farmers.

Research and writing by Chloé Pouliot

Photo: Cantook - La Karola Project

Sources:
Analysis: Retail Coffee Prices to Climb As Frost And Freight Costs Bite, Reuters.

Coffee Market Report - Coffee Price Rise Continues in November reaching a 10-year high, International Coffee Organization.

Faces Worst Dry Spell in 91 Years, Reuters.

Frosts Stain Brazil Coffee Belt, Growers See Nearly a Third of Fields Hit, Reuters.

A higher price for his cup of coffee, La Presse.