Brazil frost effect: ICO expects coffee prices to stay high for 2-3 years

The International Coffee Organisation (ICO) expects Arabica prices to rule high over the next 2-3 years as a severe frost in No 1 producer Brazil has hit about a tenth of the area of the premium variety coffee.

“At least in the next 2-3 years, we are looking at a situation where in the Arabica prices will stay at very high levels compared with the recent past. After that it depends on the reactions of growers,” said Jose Sette, Executive Director, ICO, commenting on the coffee global outlook.

Sette was speaking at the inauguration of the two-day IBSA (India, Brazil, South Africa) Coffee Festival organised by the State-run Coffee Board.

Sette warned growers not to expand the area on the rising trend in prices. “In the past, when price spikes occurred, there was a tendency to go out and plant coffee. We should not be expanding the planted area but try and improve productivity on the existing lands,” he said.

Prices of Arabica futures have touched a seven-year high after severe instances of frost hit the growing regions of Brazil. “Arabica prices will stay higher than Robusta prices and this will persist for a couple of years. We still are not out of woods yet in terms of frost season. A lot of things can happen between now and three years time,” Sette said.

Weather vagaries & Covid

Vanussia Nogueira of the Brazilian Speciality Coffee Association said that about 10 per cent of the Arabica areas have been hit by severe frost in late July. Brazilian coffee industry has seen extreme weather patterns from drought in 2020 to severe frost in mid-2021.

Sette said the pandemic has had an impact on the global coffee sector affecting both supplies and consumption. Producers and exporters faced disruption in supply chain with delays and shortage of containers hurting the trade. At-home consumption has increased, mitigating partially the reduction in out-of-home consumption.

“We have seen tremendous increase in online sales, coming from a small base. However, it is not significant in absolute terms. We see a change in quality mix as people shift to cheaper blends because of economic reasons,” Sette said adding that consumption is increasing at steady rate of 2-2.5 per cent.

Quality or value?

ICO is conducting a second survey to assess the impact of Covid on the coffee sector. Although world consumption is increasing, it remains 1.4 per cent below world production. Moreover, in coffee year 2021-22, the supply-demand ratio is expected to reverse as world production will barely meet world demand.

PG Chengappa, Agri Economist and former Vice-Chancellor, University of Agricultural Sciences-Bengaluru, observed that Indian coffee sector is in transition wedged between quality and value segments of the market. While India has the potential to enhance its productivity and increase its share in the world market, the institutional and policy support is needed in this direction, he said.

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