Arabica Coffee scarce in the world – Mercanta direct to the source

STEPHEN HURST
Mercanta the Coffee Hunters


I believe the big feature of the coming months and years in the specialty coffee industry will be the growing gulf between the commercial commodity business and the artisan specialty business. The interesting thing is that both may actually do well, or even thrive, but the specialised segment of the coffee business will draw away from the commercial/industrial business at a quickening pace.

This is a phenomenon that we already see in other food and beverage sectors. Micro-breweries thrive while giant multinational brewers buy up global brands and get bigger and bigger. Industrialised food companies pump out ever more products. Meanwhile, artisan market, garden-type of growers/producers are also doing well. While the water aisle in the supermarket takes up more space than the coffee section, this coffee industry will have much work to do.

The price difference of various coffee ‘“products’’ has never been wider – and the gap is getting bigger all the time. Commodity, Robusta typically costs less than $1 a pound, while Cup of Excellence average price is over $10, with the top price over $25 a pound.

I believe genuine 80+ Best of Harvest specialty coffee to still be considerably undervalued and only the pace of change (not the actual outright price value) is a difficult factor as roasters now struggle to adapt to much higher coffee prices – even if, in fact, these prices are still too low.

Genuine specialty coffee has been considerably undervalued for decades, and now the finest coffees will travel to those markets (such as Asia) willing to pay the best prices for the best of crop beans. Artisan specialty roasters in Europe, North America and Australia/New Zealand will have to compete for the finest raw beans with the booming Asian consumer markets.

Unfortunately, there is a supply/demand imbalance in the coffee world – supply is booming, buoyant in coffees like Robusta that are in less demand, while soaring prices for finest award-winning beans such as we see at Cup of Excellence indicate a shortage both at this level and slightly lower. Colombia’s significant loss of crop has led to worldwide Arabica shortages and blend/recipe alterations among the larger roasters.

Risk management has not featured on the radar of the specialty coffee industry. Some less experienced, small niche roasters prefer to rely on pure happenstance and luck for the fulfillment of their contracts – failing to understand that cash buyers in the internal markets at origin will buy the very same coffees at the farm gate for more than the earlier negotiated prices on a FOB Cash against documents basis. Some ethical buying programs will also suffer a significant non-fulfillment problem, since this is already happening. Minimum support prices are a noble and worthy effort in a depressed commodity market, but have far less relevance in a booming market.

We at Mercanta have always felt that a direct trade relationship-based model will survive all climates and recent events have proven this to be correct. The price matters. The relationship matters more.