Global Courant
A cup of espresso in Cascais, Portugal on October 11, 2021.
Nikolas Kokovlis | Nurphoto | Getty Images
Extreme weather events due to an approaching El Nino are fueling concerns that robusta beans in major coffee producers such as Vietnam and Indonesia could be hit, driving prices skyrocketing.
“The now widely expected transition to El Nino conditions in Q323 has fueled fears of reduced production in Vietnam and Indonesia, both major coffee robusta producers,” Fitch Solutions’ research unit BMI said in a May 24 report.
Robusta beans are known for their bitter properties and higher acidity, containing more caffeine than their premium and more expensive arabica counterpart.
Brazil’s robusta crop has also been negatively impacted by drought, the report said.
That means the cost of instant coffee and espressos, which are often made with robusta beans, could come under pressure amid supply concerns and stronger-than-usual demand for robusta as consumers turn to cheaper alternatives to arabica.
El Nino is a weather phenomenon that typically brings hotter and drier than usual in the central and eastern tropical Pacific. Climate scientists predict this year’s El Nino could decline in the second half of 2023.
Southeast Asia recently saw record-breaking heat in mid-May.
Asia generally likes Robusta more than Arabica, and as such the demand for Robusta is growing much faster
Shawn Hacket
President of Hackett Financial Advisors
“Across Southeast Asia, El Niño conditions are associated with below-average rainfall and higher temperatures, both of which depress coffee production,” the BMI report said.
Vietnam, Indonesia and Brazil are the largest producers of robusta, according to the Food and Agriculture Organization.
“We draw attention to heavy rains in Indonesia through Q123, which have negatively impacted the quality of coffee beans, with the USDA predicts a drop of about one-fifth in coffee robusta production,” the analysts said.
Carlos Mera, head of agricultural commodities markets at Rabobank, predicts a 10% drop in production to 11.2 million bags of robusta in the next harvest.
A man with Robusta coffee beans at a coffee tasting in the town of Buon Ma Thuot in Daklak province, Vietnam. Bitter and earthy. only suitable for instant brews.
Nhac Nguyen | Afp | Getty Images
In 2016, El Nino-related water shortages in both Vietnam and Indonesia led to a global production drop of nearly 10%, according to research unit statistics.
Typically, in an El Nino year, it is “not unusual” for Vietnam and Indonesia to see “a 20% drop in production” in robusta beans, Shawn Hackett, president of commodity brokerage firm Hackett Financial Advisors, told CNBC.
“That would mean a pretty serious contraction of robusta,” he said.
Rising demand for robusta
Robusta beans account for 40% of global coffee production and arabica beans make up the remaining 60% of global coffee production. Arabica beans are usually considered to be of higher quality and have higher prices than robusta coffee.
However, global economic pressures are pushing demand towards robusta, the underdog of coffee beans.
Robusta prices are being supported as coffee product manufacturers and consumers replace robusta beans with more expensive arabica beans to cut costs in times of inflation, the BMI report said.
Robusta coffee prices recently rose to a 15-year high of $2,783 per ton in late May. She last traded at $2,608 per ton for July futures, according to data from the Intercontinental Exchange.
In addition, the premium that arabica beans have over robusta beans has fallen to the lowest since 2019 because of the strongly increasing demand for the relatively cheaper coffee bean.
“Asia generally has a preference for robusta over arabica, so the demand for robusta is growing much faster than the demand for arabica,” Hackett said.
He mentioned the lower price of robusta beans in Asia and the population’s palette for robusta bean-based drinks.
Kopi, also known as Nanyang coffee, is a dark coffee drink popular in Southeast Asia, traditionally brewed with robusta beans.
A farmer harvests coffee cherries at a coffee plantation in Central Java, Indonesia, on May 25, 2023.
Dimas Ardian | Bloomberg | Getty Images
But Asia is not the only region that is increasingly loving robusta.
“While the reduction in crop arabica imports is due in part to lower availability, the shift to robusta shows that cheaper coffee is strongly favored by the European market,” said Natalia Gandolphi, an analyst with HedgePoint Global Markets’ Intelligence.
Gandolphi expects a shortage of 4.16 million bags of robusta for the period October 2023 to September 2024.
