Worst drought in decades hits Brazil coffee belt as buyers brace for price rise

Jia Lynn Yang for the Washington Post  -  Guardian Weekly  -  Tuesday 25 February 2014

A Brazilian coffee producer adjusts his irrigation system. In recent weeks heat has replaced frost as the

biggest risk to crops in the coffee belt.

Photograph: Paulo Whitaker/Reuters

Dry spell could lead to a world shortage of beans and increased prices for growing numbers of consumers

Don't panic. But there could be a global coffee shortage. Usually, during this time of year, the delicate arabica coffee plants in the mountains of Brazil, where most of the world's coffee comes from, are maturing. White, fragrant flowers have appeared, followed by cherrylike fruit, each containing two seeds: arabica coffee beans, the most popular in the world.

But last month the worst drought in decades hit Brazil's coffee belt region, destroying crop yields and causing the price of coffee to shoot up more than 50% so far this year. The drought is historic, forcing more than 140 cities in Brazil to ration water. Newspapers reported that some districts are receiving water only every three days.

For now, retail prices for coffee are stable. Roasters typically have enough supplies to cover themselves for a few months. But if the price of the arabica beans continues to rise, consumers could start seeing the cost of their morning coffee creep up later this year, according to Jack Scoville, a futures market analyst specialising in grains and coffee, among other commodities. Last Wednesday the price per pound (0.45kg) of coffee for delivery due in March reached the highest point in about 14 months, at $1.72.

Even before the drought, concerns arose that there would be a global coffee deficit. At the beginning of the year a closely watched report by a commodities trading firm noted that the global coffee market could face a shortage for the first time in three years. The report predicted coffee supplies will be about 5m bags lower than consumption for the 2014-15 season. This was an about-face from what experts were saying at the end of last year, when there appeared to be a coffee glut. There was so much coffee last year that arabica coffee futures fell by nearly 25%.

In the long run, though, experts say that the price of coffee will rise for one simple reason: more people in developing markets such as Brazil, India and China are acquiring a taste for it.

"Regardless of what happens in Brazil now … we will see higher prices and more competition for higher-quality coffee," said Kim Elena Ionescu, a coffee buyer and sustainability manager for Counter Culture, the influential North Carolina-based coffee roasting company. Ionescu said that it used to be that the developing world made coffee and the developed world drank it. But now countries such as Brazil, which traditionally only produced coffee, are starting to consume it, too. "More people are drinking coffee," said Ionescu. "And more people are drinking better coffee." Coffee production is hard to mechanise, and so it is likely that demand will continue to outstrip supply.

There are also concerns that climate change could limit supplies, with some pointing to Brazil's drought as evidence of more extreme weather becoming the norm. "What we are really seeing as a company as we look 10, 20, 30 years down the road – if conditions continue as they are – is a potentially significant risk to our supply chain, which is the arabica coffee bean," Jim Hanna, Starbucks' head of sustainability, said in an interview with the Guardian in 2011.

The situation could worsen for those who like sugar with their coffee. The drought in Brazil, the world's biggest producer of sugar, is disrupting plans for harvesting sugar cane. Futures prices for sugar are at nearly the highest level in two months.