Coffee prices have been constantly falling over the past few months, a phenomenon that has had drastic effects on the producers of the plant.
As coffee farmers in Latin America struggle to make a profit due to these depressed prices, many have found themselves changing crops to more profitable commodities. Others who don’t have that fortune are giving up their farms altogether, compromising the supply of the much-consumed product.
Coffee prices have reached lows not seen in over a decade as an international crisis has emerged among despairing farmers in Central and South America. Without a lack of consistent profitability, many have given up farming altogether.
“The volatility is destroying livelihoods,” said John Steel, CEO of Cafedirect, one of the UK’s top coffee roasters offering Peruvian Fair Trade coffee as it’s main product. The executive added that many farmers were migrating into other countries while younger generations that would have stayed and worked on the farms are now opting out of the industry. ‘If you’re a parent and making a living from coffee, seeing the way [low prices] are impacting the market, it’s not what you want for [your children.]”
The impact of low coffee prices has led many farmers in Colombia to switch to producing coca, which is an ingredient that’s processed into cocaine, fueling the black-market economies of large-scale drug cartels. Arabica bean prices on ICE Futures US have been selling for around 93 cents per pound, levels not seen for almost 14 years. In comparison, the cost to produce coffee for many of these farms is between $1.20 to $1.50 a pound.
Data from the Brazilian government has shown national production in 2018 sitting at 62 million bags, pushing prices downward. “Brazil shipments not only continued at a record pace but accelerated [during the] first quarter of 2019,” added Marex Spectron, a major UK-based commodity broker. The company added that according to their data, export registrations for coffee surpassed February’s record by 500,000 bags.
One good piece of news for farmers willing to wait it out is that Brazilian crop is expected to fall soon, settling somewhere between 50 million to 55 million bags, which would be a 15 percent decline from last years record harvest. In the coffee industry, production tends to follow a biennial pattern, with one strong year followed by a weaker, lower output year to give coffee trees some time to recover. Despite this, production trends over the past decade have shown a continuous increase in production over the long-term, a pattern that hasn’t shown to much sign of changing.
“This terrible market dynamic of low prices driving out the marginal producer is once again with us in coffee and this will impact production across all of Central America in 2019/20 and beyond,” added James Hearn, an analyst at Marex Spectron.
Despite declining prices, end consumers rarely see the cost reductions in coffee price passed on to their favorite cup of coffee. Instead, these increased margins are usually quietly captured by corporations in-between the coffee supply chain. As such, most consumers are disconnected from the rise and fall of raw coffee prices as well as the plight of the farmers – and eventually the market as a whole – who work to produce the crop.