Price and Value | Global Forces in Specialty Coffee

By David Piza Cossio, Relationship Coffee Manager, Sustainable Harvest Coffee Importers

In early September of this year, international coffee prices for Arabica coffee plunged to a 4-year low, breaking the $1.16/lb threshold experienced back in the early stages of the Great Recession. The large Brazilian crop is estimated to surpass 50 million 60kg bags during crop year 2012/2013 and has coincided with a production recovery in Colombia, expected to top 10 million bags, adding pressure to the fundamentals. According to the International Coffee Organization (ICO) total production in crop year 2012/13 is estimated at 144.4 million bags, up 7.6 percent compared to the 2011/12 harvest. The impact of coffee leaf rust (roya) in Central America will only represent a total loss of less than 3 million bags and will not have a significant impact on the world production-consumption balance. This reduction most likely will have a more damaging effect among specialty roasters, leading to origin substitution in many of the higher quality commercial blends.

Certified stocks on the London futures market, which trades C. robusta coffee, have fallen to 1.3 million bags in recent months, indicating higher demand for this type of coffee in traditional markets. On the other hand, in the New York Board of Trade, certified stocks remained steady at a level of around 3.1 million bags. Both facts strongly suggest that demand for C. arabica has been weak while C. robusta has experienced a vigorous growth, mostly explained by increased consumption in both emerging and traditional markets.

For calendar year 2012, world coffee consumption increased by 2.1 percent, reaching approximately 142 million bags compared to 139.1 million bags in 2011. Traditional consuming markets grew by only 1 percent while most of the rise can be attributed to strong demand in exporting countries and emerging markets. Brazil continues to consolidate its position as the largest market among producing nations and the second largest market in the world after the Unites States, consuming more than 20 million bags in 2012. Combined, emerging markets consumed over 27 million bags last year and represented the most dynamic marketplaces for coffee globally. Among those nations, Korea, Poland, Russia, and Australia are the highlights due to the fact that coffee has become a key element in their cultural and socioeconomic transformations. Though it is important to note that per capita consumption remains relatively low in both producing and emerging economies compared to traditional consuming destinations, a situation that provides plenty of room for potential growth in the second part of the decade and still makes investment in mature markets worthwhile.

So what are the forces behind this global scenario for coffee? Economic development in emerging nations has given the opportunity to a bourgeoning middle class with more disposable income, to acquire a healthy thirst for better products. Coffee is a novelty for many young urban students and professionals; it is an aspirational product associated with higher status, prestige and a modern global lifestyle. Cafes, espresso bars and coffeehouses are very appealing to the young crowds in Eastern Europe, the Middle East and all across Asia, providing a unique semi-private, semi-public space for social interaction. As the habit of drinking coffee is reinforced by a deep social, emotional, and experiential connection, the opportunities for expanding the boundaries of specialty coffee as we know it are on the rise. Out-of-home consumption has now reached second-tier cities in Latin America and Asia, unlocking markets yet to be seized by local and international players focused on delivering a higher quality product along with an appealing experience.

In Europe, Japan, and North America, coffee is no longer all about the beverage itself; it is also about the experience. The social role of coffee has been taken to another level, where it is no longer a single act. Instead, it has become the construction of a journey; an endeavor that starts with a hard-working grower willing to produce coffee responsibly and travels all the way down the chain of custody of a very precious good. It is the result of an ongoing commitment and a healthy obsession with greater attention to detail along the global supply chain of specialty coffee. That’s what makes specialty coffee unique and sets it apart from a traditional commodity.

There is no doubt that coffee in the U.S. is at its best, and the degree of complexity and effort behind every single cup is just extraordinary. There are stellar roasters distributed nationwide from Portland to Nashville and from Miami to Chicago. These companies are changing the coffee landscape in the U.S. by pushing the boundaries of high-end coffee towards Main Street. This group of pioneers are coping with what seems to be a common trend among younger patrons: drink fewer cups of coffee a day, but get a better quality product that is worth it and represents more. It’s not only about pricing, but also about perceived value. Nowadays, quality is as much associated with ethical business practices as it is with taste. Specialty coffee is a representation of a better world brewed in a cup. As the average consumer becomes more aware of cultural, environmental, and socioeconomic issues in the developing world, the pressure to define sustainable parameters and clear sourcing strategies will only continue to increase. We as an industry have given ourselves the task of figuring out this challenge, and we must set clear expectations about what every stakeholder should be accountable for—including the customer. Companies, consumers, and suppliers today want to partner and work with others who make them feel proud, that get them excited; individuals that have ideas and values that make all of us want to go beyond our own work.

As part of this effort, the specialty industry needs to do a better job at communicating the good that is being done, the real impact at origin, by showcasing the hard work behind each espresso shot. Certifications are not enough; more transparent and traceable relationships should be fostered. Our technical argot has to evolve into much easier marketing and communication materials, and specialty coffee must become more accessible, and more consumer-friendly, in order to keep captivating fans worldwide.

There also seems to be a pressing need to elevate and transform the coffee experience from fast-food-type service to something better. As coffee and food continue to merge in intimate symbiosis, there is more and more pressure for retailers to get everything right. The quality of every dish and beverage being served, of the atmosphere, of the spaces, are fundamental factors to providing patrons with a more pleasant and comprehensive social experience. Elevating the quality of the products, but, more importantly, of the service is the pathway to the future. The way baristas and servers generate a meaningful and honest connection with the guest is crucial in this quest. Coffee shops are special places where the public-private barrier blurs, creating a unique sphere for social interaction between coffee people and customers, and amongst themselves. Yes, we want to invest in product development, and we certainly want to invest even more in the elaboration of positive experiences.

How can we get across a genuine and coherent story that will generate true empathy between both parties? What’s the transforming link? This can be made possible through education, for industry professionals themselves, and particularly for consumers. It may be an expensive and long-term task, and should therefore be done by the industry as a whole. More patrons and more outlets for coffee represent more opportunities for producers, more channels to commercialize their product, more value to be shared with their communities, and ultimately more business for both roasters and retailers.

David Piza Cossio was raised in Medellin, Colombia. David brings expertise in value chain analysis, sustainability and marketing strategies for international trade in the coffee sector. David currently works at Sustainable Harvest Coffee Importers as relationship coffee manager, and runs the Let’s Talk Coffee conference. He has also worked at the Coffee Quality Institute (CQI) and the Specialty Coffee Association of America (SCAA). David is a trained cupper and barista judge. He speaks Spanish, English, Italian, French, and Portuguese.