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We discussed this recently in our article “High cost of coffee: the perfect storm" of climate and geopolitical events is wreaking havoc on the coffee market. But in the last ten days the situation has deteriorated further, leading to a global coffee market crisis.
Adding to this turmoil is the collapse of two major Brazilian traders, Atlantica and Bras Café, who are unable to honor supply contracts crucial to the European market. Atlantica, a long-time supplier for Lavazza, for instance, will not deliver previously purchased coffee at favorable conditions. This all comes at a time when Europe is already experiencing reduced coffee availability.
The question is: Was this predictable? Let’s investigate further.
The causes are well-known: climate crisis, soaring transport costs, and disruptions in the Suez Canal. Additional factors include uncertainty around the EU’s deforestation regulations (see our article EUDR: Extension Confirmed) and the potential impact of tariffs under the incoming Trump administration in the U.S.
An element exacerbating this crisis is the supply dynamics among top coffee exporters.
In Brazil, despite harvest operations continuing amidst the worst drought since 1981, the domestic market remains stagnant. Producers are holding off on selling, awaiting the harvest’s completion and banking on continuous price increases.
In Vietnam, the world’s second-largest exporter, local prices for Grade 2, 5% FDW coffee have surged to 135,000 VND/kg. Shipments for December-January are limited and offered under prohibitive terms.
These strategies, leveraging the principle of scarcity, aim to maximize gains from rising demand and a volatile global market while safeguarding profit margins against climate disasters.
Despite record-high ICE futures, price differentials remain significant, reflecting structural tensions in the market.
Europe, a major coffee consumer, faces a dual challenge of soaring prices and limited availability. Roasters and distributors are particularly affected, forced to renegotiate contracts or restrict supply to their clients.
What’s the solution? Resolving this crisis requires global interventions addressing both speculative practices and climate and logistical challenges.
The recent G7 in Pescara proposed a significant initiative: a $10 billion Global Coffee Sustainability Fund managed by Cassa Depositi e Prestiti. This fund aims to stabilize markets and protect production chains, ensuring coffee doesn’t become a luxury item.
Without decisive action, the risk is further price hikes. Coffee at the bar could surpass already strained psychological thresholds. Acting now is crucial to prevent this crisis from permanently reshaping the global coffee market.