The global coffee sector will continue to be volatile due to the severe demand and supply shown because of the Covid-19 pandemic, and the effects will materialise in different places at different times, the International Coffee Organization (ICO) and the International Food Policy Research Institute (IFPRI) said in a joint paper.
“Policymakers should recognize this in order to prepare for effective responses. The timing of major supply-side measures depends on the start of the harvesting cycle, which begins in October in over half of coffee-producing countries,” the paper said, pointing out that specific interventions could be field-tested among those countries in which harvest is currently ongoing (or imminent).
Successful programs could then be extended to other countries that start their harvest later in the year, it added.
Similarly, if major demand-side effects are likely to come into effect with a lag that will depend on the extent of social distancing measures and the severity of the global recession (and recovery scenarios), there is still a time window in which to devise and implement specific actions, the paper said.
Potential policy responses include:
- Establishing emergency responses to mitigate the impact of the pandemic and support countries with lower institutional capacity. This includes implementing safety guidelines that protect farmers and workers along the value chain during the upcoming harvest period and providing short-term social safety nets to protect the incomes of vulnerable groups.
- Facilitating recovery while fostering long-term sustainability. This includes supporting vital links along the value chain and increasing the resilience against external shocks (e.g., market, climate, pandemics). In addition, international financial institutions (IFIs), including multilateral development banks, could support the coffee sector in the replanting and rehabilitation of coffee plantations during the upcoming period of slowing global demand growth.
- Supporting the demand for coffee. A (temporary) reduction of taxes on coffee could help reduce prices to the consumer. This would partially offset households’ decreased income due to the looming recession and support the at-home and out-of-home demand for coffee in key consuming countries, helping to stabilize the market.
In February, before the novel coronavirus had spread significantly beyond the initial epicenter in China, market participants reported reductions in the availability of container space as China reduced exports.
So far, the impact of the pandemic on shipping activities does not seem to have been dramatic, the paper said, pointing out global coffee exports in March totalled 11.06 million bags, which is 3.7 percent lower than the total bags shipped in March 2019.
However, several top exporting countries have reported significant drops in shipments, including Colombia (20 percent), India (10 percent), and Honduras (7 percent), but others have seen more modest declines, such as Guatemala (4 percent), and Vietnam (2 percent). These reductions need not all be on account of covid-19 and disruptions in international logistics, but also caused by other factors such as lower availability of coffee for export from previous harvest and current stocks.
There are demand concerns too. The coffee market saw a surge in demand in the first weeks of the covid-19 crisis. However, this increase was mainly driven by higher supermarket sales resulting from panic buying and stockpiling and by substituting out-of-home with at-home consumption in the face of social distancing measures.
In the upcoming months, the paper said, with worldwide negative growth forecasts for 2020, a looming global recession could impact overall coffee consumption. Rising unemployment and lower household incomes will probably make consumers more price sensitive.
“This could lead to reduced sales in the high-end market segment (including specialty coffee and some certified sustainable coffees) as consumer demand shifts to cheaper market segments. However, demand for food items like coffee tends to be relatively inelastic, and the demand-side effects are likely to materialise with a time lag depending on the level of household savings and social safety nets,” it said.