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ICO Warns of Increased Coffee Price Volatility as Coronavirus Unfolds

coffee prices volatility

ICE coffee futures prices — a.k.a. the “C” market prices — for arabica year-to-date. Chart courtesy of Macrotrends.

Describing the novel coronavirus as presenting an “unprecedented joint supply and demand shock” to the global coffee sector, the International Coffee Organization has released the second report in its ongoing “Coffee Break” series on COVID-19 and coffee.

Titled “Volatile Coffee Prices: COVID-19 and Market Fundamentals,” the report is a joint effort from the London-based ICO and the Washington D.C.-based nonprofit the International Food Policy Research Institute (IFPRI).

It follows the first Coffee Break report, which exlored how a global recession might affect coffee demand. Both reports suggest the higher-end arabica market might feel some of the first negative effects of the COVID-19 pandemic, as farmers potentially lose the capacity to produce those quality coffees, while consumers potentially tighten their purse strings.

Poring over the ICO’s own data regarding global arabica and robusta prices on the commodities markets, the report concludes that the coronavirus pandemic has resulted in or exacerbated price volatility in the coffee market as opposed to most other staple foods, prices for which have remained relatively stable.

The report notes that such volatility is likely to continue given the fact that actors throughout the coffee chain will feel various supply and demand impacts at different times, while the most vulnerable people in the supply chain — who typically include smallholder farmers and laborers — will further be impacted by poverty and food insecurity.

“The overall effects will ultimately depend on the interaction between multiple supply and demand factors, how market actors anticipate and respond to these, and the capacity of individual countries to detect and contain the virus while moving into the harvest season when labor demand peaks,” the authors of the report wrote.

While noting “downstream value chain” impacts that have already been felt in parts of the global coffee sector — such as potential delays in coffee shipments as export warehouses and ports adjust to restrictions designed to slow the spread of the coronavirus — the report easily finds more “upstream,” or farm-level, implications.

Recent anecdotal evidence suggests many coffee producers and buyers are currently feeling these effects, particularly in places like Brazil or Colombia, where the responses to COVID-19 have coincided with annual harvest and shipping seasons.

Upstream, the implications identified by the ICO authors include, but are not limited to: access to seasonal and migrant labor to harvest coffee; and social-distancing-related restrictions resulting in loss of productivity, loss of access to credit, or loss of access to technical assistance through things like field visits or trainings.

In response, the authors set forth three main policy points for policy-makers to consider: 1) Establishing “emergency responses to mitigate the impact of the pandemic and support countries with lower institutional capacity”; 2) facilitating recovery while “fostering long-term sustainability” by improving resilience to things like price volatility or climate change; and 3) Supporting increased demand for coffee, particularly among the higher end of the arabica market, through a temporary reduction in taxes on coffee.

More on each of these policy points, plus data on price volatility and projections related to currency devaluations, can be found in the full ICO “Coffee Break” report.