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First chocolate, now coffee – supplies of the necessities of modern life are under pressure due to climate change. Extreme temperatures and drought in Southeast Asia, home to the world's second and third largest coffee bean producers, have reduced yields. The reduced supply of beans has implications not only on our daily lives but also on company profits.
A heatwave in Vietnam, the world's second-largest bean producer, could see production fall by as much as a fifth in the year through September compared to USDA forecasts. Exports from Indonesia, the third-largest producer, are also expected to decline for similar reasons, marking a decline for the second year in a row.
As a result, global coffee bean futures are near record levels. London futures prices for robusta coffee, the global standard, rose more than 50 percent last year to about $3,500 a tonne.
Don't expect a quick return to normal. After a record crop drop in Asia last year, some farmers have shifted from growing coffee to crops such as rubber, which are easier to produce in warm, humid weather.
The timing is particularly bad for coffee-related companies. Consumption in Southeast Asian countries has risen significantly, with demand doubling in Indonesia alone over the past decade.
In China, consumption has risen by more than 130 percent, as evidenced by the explosive growth of coffee chains there. The country now leads the world in terms of number of coffee chain stores, ahead of the United States. Luckin Coffee, the Chinese equivalent of Starbucks, has more than 16,000 stores that generated $3.5 billion in sales last year.
Brazil, the largest producer of Arabica beans, is in high demand, with exports to China rising by 160 percent in the first two months of this year. Exports to Japan have also nearly doubled. A tight market and few alternatives mean that a shortage of producers in Southeast Asia will quickly squeeze the margins of beverage and coffee-related companies.
This retail sector has already performed poorly in Asia. In Japan, for example, shares of Ajinomoto Food Group, the parent company of Ajinomoto AGF, which makes instant coffee products, and Ito En, a Japanese beverage company that operates specialty cafes in Japan, have lagged significantly behind the broader Nikkei 225 over the past. . year.
This is bad news for coffee lovers across the region. These companies have no choice but to pass the costs on to consumers.
june.yoon@ft.com
