Brazil frost effect: ICO expects coffee prices to stay high for 2-3 years

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The International Coffee Organization (ICO) expects Arabica prices to be high in the next 2-3 years as a severe frost in No. 1 producer Brazil has hit about a tenth of the area of ​​the premium coffee variety.

“At least in the next 2-3 years we see a situation in which the prices for Arabica will remain at a very high level compared to the recent past. After that, it depends on growers’ reactions, ”commented Jose Sette, Executive Director, ICO, on the global outlook for coffee.

Sette spoke at the opening of the two-day IBSA (India, Brazil, South Africa) Coffee Festival organized by the State Coffee Board.

Sette warned growers not to expand the area due to the rising price. “In the past, when there was price spikes, there was a tendency to go out and grow coffee. We shouldn’t expand the planted area, but try to improve productivity on the existing areas, ”he said.

Arabica futures prices have hit a seven-year high after severe frosts hit the growing areas of Brazil. “Arabica prices will stay higher than Robusta prices and this will continue for a few more years. We’re not out of the woods yet regarding the frost season. A lot of things can happen between now and three years, ”said Sette.

Weather fluctuations & Covid

Vanussia Nogueira, of the Brazilian Coffee Specialists Association, said that about 10 percent of Arabica areas were hit by severe frost in late July. The Brazilian coffee industry has seen extreme weather patterns from drought in 2020 to severe frost in mid-2021.

Sette said the pandemic had an impact on the global coffee sector, affecting both supply and consumption. With interruptions in the supply chain, manufacturers and exporters faced delays and a shortage of containers that affected trade. Self-consumption has increased, which partially mitigates the decline in out-of-home consumption.

“We have seen a huge increase in online sales that come from a small base. However, it is absolutely insignificant. We’re seeing a change in the quality mix as people switch to cheaper mixes for economic reasons, ”Sette said, adding that consumption is increasing at a constant rate of 2-2.5 percent.

Quality or value?

ICO is conducting a second survey to assess the impact of Covid on the coffee sector. Although world consumption is increasing, it remains 1.4 percent below world production. In addition, in the coffee year 2021-22, the supply-demand ratio is expected to reverse, as world production will barely meet world demand.

PG Chengappa, agricultural economist and former Vice Chancellor of the University of Agricultural Sciences in Bengaluru, noted that the Indian coffee sector is in transition between quality and value segments of the market. While India has the potential to increase its productivity and share of the world market, institutional and political support is needed in this direction, he said.