Greetings from Sumatra, Indonesia!
How are you doing? We hope that all of us are doing fine in this pandemic. Let us remain aware and cautious, and exercise physical distancing all the time.
Recently, we have read an official report from International Coffee Organization regarding to the high volatility in coffee prices during Covid-19 pandemic. We learnt several key points that we would like to share to our friends in this industry. We believe that in order to bring the coffee ecosystem to the next level, a mutual understanding among the coffee business stakeholders is necessary.
Without further ado, here are the key factors that drive the high volatility in coffee prices:
From the downstream value chain
Covid-19 infections have had direct impacts on the functioning of key export infrastructure, such as warehouses and ports, as well as indirect effects due to social distancing and other measures imposed by governments to contain the virus. These factors resulted in disruptions and delays, and subsequently lead to an increase in transaction and trade cost.
From the upstream value chain (farm level)
Access to seasonal and migrant labor is vital in many coffee production systems. The spread of the virus could reduce labor supply due to social distancing and lockdown measures and, to a lesser extent, illness. Fewer pickers in the fields could translate to harvest delays or extended harvest periods, negatively affecting quality and producer prices. A reduction of labor supply could also raise wage levels, thereby increasing labor costs, with a knock-on effect on profitability as labor already makes up more than 50 percent of total production costs in various origins.
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.
PS: You can download its full report here.
Those are the key points that we think are worth sharing to our coffee friends. What are your thoughts on this? Do you have anything to share? We would love to discuss further with you!