Brazil is running out of coffee. Here’s what it means for your next cup.
If 2020 wasn’t bad enough, there is now a global coffee shortage percolating in Brazil. The nation is the world’s leading coffee producer, but in 2021 Brazil could see production of coffee fall as many Brazilian farmers walk away from their crops.
Before we dive into what this might mean for your next cup of coffee, let’s first take a look at what goes into the price of coffee.
How are coffee prices determined?
It’s a common misconception that the price of coffee comes down to the quality of the bean. However, it’s important to understand that, like other commodities such as cotton and sugar, the price of coffee is determined by supply and demand. The higher the supply and the lower the demand, the cheaper the product.
“It’s purely economics,” says Phillip Di Bella, Australian coffee entrepreneur and founder of The Coffee Commune. In fact, he says many of the higher grade coffees you see today were not always viewed as a specialty.
“When we first started, no one had heard of many coffee varieties emerging from countries like Vietnam and India,” Phillip says. “They had a high supply and a low demand, and we were paying lower prices. We were the first ones to use Indian Kaapi Royale in 2004, which is a high grade Robusta coffee.”
As the years went by, coffee consumers grew accustomed to coffees like Indian Robusta, for example, and “saw how amazing this coffee was”. The supply didn’t increase – but the demand did.
“Today, the price for Kaapi Royale is nearly three times the price of what it used to be,” Phillip explains.
Why is Brazilian coffee important?
Brazil grows and exports more raw coffee beans than any other country, supplying 30% of the world’s entire coffee production.
The majority of coffee coming out of Brazil is blended, which means they are the leaders in producing coffee that people use in their blends globally.
That specialty brew that you order from your local suburban coffee shop? It is likely made up of a blend of coffee beans grown in Brazil. This is what roasters do, and they supply cafes and coffee shops – and this is an important factor in the shortage.
What’s causing the shortage in Brazil?
The COVID-19 pandemic saw cafes and restaurants around the world cease operations, which has resulted in a shortened demand for coffee globally. With the lockdowns in place, consumers were forced to move away from drinking specialty coffees in a cafe – where a lot of the blends are made up of Brazilian coffee – to instant.
“People still drank coffee but they turned to instant coffee, a market that is predominantly made up of Columbian and Vietnamese coffee,” Phillip says.
Indeed, the instant coffee market grew by $US8.8bn, or more than 5%, during 2020.
With demand for Brazilian coffee and its prices at their lowest in years, the cost of producing coffee in Brazil is at risk of becoming too expensive to continue.
What does this mean for Brazilian farmers?
Many farmers are moving away from growing coffee – or simply just not producing it at all.
“Brazilian farmers have said they don’t want to be growing coffee if they’re going to lose money, and it’s totally understandable,” says Phillip. “What they’re trying to do is shorten up the supply so that they can drive prices a bit higher.”
Phillip is a big advocate for this approach. “There is an ideal price of where raw green coffee beans should be, and to me it’s probably about 20% higher than it is now. That’s the perfect equilibrium, in my personal opinion.”
If the price of Brazilian coffee doesn’t increase and Brazilian farmers don’t get paid what they deserve (and what they need), farmers will simply cease coffee production and move into other industries.
“If Brazil was to half its production of coffee globally, there would be big problems.” Phillip says. “Prices of coffee would go crazy and people wouldn’t get deliveries – keep this in mind when you are sipping your next cup.”
For everything to stay relative and for Brazilian farmers to receive a fair wage, Phillip says the price of a bag of coffee should increase by 20%. However, he is aware of the challenges that come with raising the cost of your daily flat white.
“We all know that most people don’t want to pay more for their cup of coffee – but it’s important to understand that this means cafes won’t be able to pay more for their roasted coffee, which means roasters can’t pay more for their green bean.”
This is part of the reason why Phillip founded The Coffee Commune.
“It’s all about educating the consumer. When you’re sipping that perfect cup of coffee these are the things people need to understand. There’s a whole ecosystem that goes into the coffee market – it starts at the farm and ends with the consumer.”
What does this mean for coffee drinkers?
Ultimately, we as consumers should be prepared to pay a little bit more for our coffee.
“It’s an important ecosystem and it’s important for everybody to understand. If we pay more, the cafe owner can pay more, and the roaster can pay more. Thus, the green bean importer can pay more to the farmer who brokers the deal,” he says.
Perhaps the most important takeaway is that there is so much more that goes into your morning brew.
“It’s no different to milk, eggs or bread – these all start at the farm and go through to the consumer,” says Phillip. “The bottom line is that if the consumer is not prepared to pay more, the ecosystem will not survive. If people know more, they can do more. It really is about understanding what happens so that they can really appreciate the impact that an additional 20% can have, all the way back to the plantation.”