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The COVID-19 crisis spills over into the global coffee sector

The COVID-19 crisis has affected every corner of the coffee sector. Due to lockdowns, out-of-home consumption in Europe and other consuming markets has quickly declined. At-home consumption and e-commerce have kept the market alive. On the supply side, shortages due to production and trade disruptions are worrying. The current trends will define the post-COVID-19 coffee sector, but how so?

Consuming markets are on lockdown, but coffee consumption is still going strong

The main coffee importing and consuming markets in Europe, North America and Asia are in the middle of the COVID-19 crisis. Governments have put measures like social distancing and lockdowns in place. These have had a huge effect on cafés, micro-roasters, restaurants and other out-of-home outlets. It is these outlets that have driven coffee consumption in recent years – notably in the speciality segment.

The current lockdown scenario has accelerated the trend towards online shopping for at-home consumption, forcing retailers, roasters and consumers alike to adapt to this new reality. Reliant on out-of-home consumption and less price-competitive, the high-end market, composed of small roasters, may suffer the most. However, this market may also show a high level of innovation, marketing power and consumer loyalty to fight the crisis.

At this point, a global economic recession in 2020 is almost certain. As the economic downturn unfolds, we may see a general decrease in coffee consumption worldwide. Or will we? A recent publication by the International Coffee Organization (ICO) looked at the impact of COVID-19 on the global coffee sector. The ICO forecasts a decline in consumption, but highlights that coffee demand is not severely affected by changes in consumer income. During the world economic crisis in 2009, coffee consumption remained fairly resilient. It did, however, shift from out-of-home to more at-home categories and cheaper products.

Possible disruptions as COVID-19 affects coffee-producing countries

As the crisis moves on to coffee-producing countries, the International Coffee Organization (ICO) foresees disruptions. These could be delays in shipment, lack of container space, as well as labour shortages due to lockdowns and social distancing measures.

The market has already reacted to this possible scenario. Coffee importers in the main consuming markets are accelerating orders and stockpiling. They are doing this to avoid shortages from disrupted supply chains in producing countries. However, the effect inter-country lockdowns will have on coffee production and trade is uncertain. It may vary from country to country. In general, supply chain disruptions can lead to lower attention to crop maintenance and post-harvest protocols, resulting in a higher focus on volume.

The effects of the crisis on international coffee prices have been mixed and hard to predict. Price developments will mainly depend on the dynamics of consuming markets and producing countries like Brazil. It is thus important to keep a close eye on the effects of COVID-19 on Brazil’s production and exports. This will drive price developments and determine the fate of other producing countries.

Long-term impact from field to cup

It is too soon to tell what the coffee sector will look like after the COVID-19 pandemic is over, but we have some hints.

Most industry events, such as trade fairs and public cuppings, are cancelled or postponed. The coffee sector has thus turned to online tools and platforms. While this trend was already visible on the coffee market, going online is now a matter of survival. Webinars such as those offered by the Specialty Coffee Association (SCA) have become more common, as well as virtual commercial events such as the Alliance for Coffee Excellence’s online auctions.

There is also an increase in online trading. With travel and meeting suppliers not possible, importers and roasters are replacing face-to-face with online contact. Doing business online may become more normal to both buyers and suppliers. This could mean an increase in the usage of technologies such as blockchain and other supply chain management tools. On the consumer-end, e-commerce may outlive lockdowns and social distancing measures and become common practice for coffee purchases.

The crisis may also lead to further changes in the coffee sector. In response to COVID-19, organisations such as the Specialty Coffee Association and the Alliance for Coffee Excellence have already changed their cupping protocols to avoid cross-contamination among graders.

Information is a powerful tool to fight the crisis

There are many information resources available at the moment. Below are some of the main websites you can consult to stay informed.

This news article was written for CBI by ProFound – Advisers In Development.

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