Coffee's dizzying rally, which saw prices surge more than 90% in the past year, has already hurt demand in most major markets. Now, consumption is even starting to waver in the places where it was making a last stand.
With feeble demand growth in the US and Europe’s high-income countries, the industry has become increasingly reliant on consumers in emerging economies. But there are early signs that once-booming consumption is starting to falter in those areas.
In Vietnam, industry groups are reporting that high prices are making some buyers hesitant to place large orders. In Indonesia, some roasters are shifting to use lower grade beans. And shipments from top producer Brazil into China have slowed.
“Those are countries with lower disposable income, so we have to wonder how the elevated retail prices will impact demand,” said Keith Flury, the head of coffee research and analysis at trader Sucres et Denrees SA. “It could be that we see some loss.”
The shift comes after prices for the arabica variety, used for premium blends, jumped 94% in the past 12 months, reaching a fresh record high this week. Robusta futures have also surged. Adverse weather in Brazil and Vietnam, the No 2 coffee supplier, dented crops and sparked concerns over global deficits.
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One interesting development in the market over recent years is that more coffee is being consumed in the countries that produce the commodity. Nearly one in three coffee bags are used in producing countries, a share that’s been growing consistently, data from the International Coffee Organization show. And that’s precisely where there are now big demand concerns.
Consumers will likely become “more restrained,” said Pavel Cardoso, president of Brazil’s coffee industry association Abic. The world’s top grower is also the second-largest demand market.
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Cardoso believes families won’t give up the popular habit of brewing coffee at home, but said that people may reduce the amount they prepare daily in an attempt to cut waste. That means a shift away from what had been so far a decade of slow and steady growth of coffee sales in the country.
For consumers in Vietnam and Indonesia, the surge in prices comes at a time when love for the beverage was blossoming. Coffee shops thrived recently as increases in disposable income across Southeast Asia gave the market a boost, even spurring the region to import more coffee in the past year.
Now, domestic roasters in Indonesia are shifting to use lower grade beans to control costs, said Moelyono Soesilo, head of downstream coffee industry at the Association of Indonesian Coffee Exporters and Industries. Even ingredients like roasted corn, rice and ground nuts are added by roasters to replace coffee beans in products targeted to low-end small coffee shops.
“With current higher technology machines, they can still maintain good quality products and reduce losses of beans,” Soesilo said.
High coffee prices are also making some buyers in Vietnam hesitant to place large orders, said Trinh Duc Minh, chairman of the Buon Ma Thuot Coffee Association in the central highland province of Dak Lak, the country’s largest coffee-growing area.
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And then, there’s China. A major buyer of many agriculture commodities, the nation is still a coffee newbie. Tea remains the most popular beverage. And yet coffee-drinking in Chinese urban areas became notable, with the US Department of Agriculture recently estimating consumption more than doubled in the past decade.
But in 2024, shipments from Brazil to China slowed, according to Cecafé, an exporters group in the South American nation. That came after a boom in 2023.
Chinese buyers “were very present at a time when coffee was competitive in terms of cost for the consumer,” Cecafé President Márcio Ferreira told reporters this month, while adding that he’s still keeping some optimism for future purchases.
Reports of reduced activity at Chinese coffee shops support the argument of slower consumption growth at the moment, said Michael Von Luehrte, a consultant and coffee-market veteran.
China’s “culture of coffee consumption is just at the beginning,” Von Luehrte said. “But, with the weakness in the economy we’ve seen over the past months, I do wonder if consumers will really spend more on coffee now and if the growth momentum continues.”
